UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
  FORM
10-Q
  (Mark
One)
 x           QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE
 SECURITIES
EXCHANGE ACT OF 1934.
 
 For the quarterly period ended
March 31,
2009
  or
   ̈           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  ̈
 
 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  ̈ No  ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
      Accelerated Filer o
              
              Accelerated
      Filer þNon-Accelerated
      Filer   o
              (Do
      not check if a smaller reporting company)
              Smaller
      reporting company    ̈
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes  ̈ No þ
 
 As of the
close of business on April 30, 2009, there were 18,957,341 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:
                                                                3Consolidated
      Statements of Operations (Unaudited)for
      the Three Months Ended March 31, 2009 and 2008
                                                                3Consolidated
      Balance Sheetsas
      of March 31, 2009 (Unaudited) and December 31, 2008
                                                                4Consolidated
      Statements of Cash Flows (Unaudited)for
      the Three Months Ended March 31, 2009 and 2008
                                                                5Consolidated
      Statement of Changes in Stockholders’ Equity (Unaudited)for
      the Three Months Ended March 31, 2009
                                                                6Notes
      to Consolidated Financial Statements (Unaudited)
                                                                7Item
      2.
                                                                Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations
                                                                23Item
      3.
                                                                Quantitative
      and Qualitative Disclosures about Market Risk
                                                                35Item
      4.
                                                                Controls
      and Procedures
                                                                36PART II – OTHER
      INFORMATION
 Item
      1.
                Legal
      Proceedings
                37Item
      6.
                Exhibits
                38Signatures
                38
  
  PART
I - FINANCIAL INFORMATION
  ITEM
1.  CONSOLIDATED
FINANCIAL STATEMENTS
 
 STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  CONSOLIDATED
STATEMENTS OF OPERATIONS
  Three Months Ended(In thousands, except share and per share data)
                      
                      March 31,2009
                      
                      
                      2008(Unaudited)Net
      sales
                      
                      $
                      172,222
                      
                      
                      $
                      208,084Cost
      of sales
                      
                      
                      131,329
                      
                      
                      
                      156,860Gross
      profit
                      
                      
                      40,893
                      
                      
                      
                      51,224Selling,
      general and administrative expenses
                      
                      
                      36,019
                      
                      
                      
                      43,859Restructuring
      and integration expenses
                      
                      
                      1,163
                      
                      
                      
                      2,836Operating
      income
                      
                      
                      3,711
                      
                      
                      
                      4,529Other
      income, net
                      
                      
                      105
                      
                      
                      
                      20,362Interest
      expense
                      
                      
                      2,477
                      
                      
                      
                      4,134Earnings
      from continuing operations before taxes
                      
                      
                      1,339
                      
                      
                      
                      20,757Provision
      for income tax
                      
                      
                      552
                      
                      
                      
                      7,410Earnings
      from continuing operations
                      
                      
                      787
                      
                      
                      
                      13,347Loss
      from discontinued operations, net of income taxes
                      
                      
                      (260
                      )
                      
                      
                      (326
                      )Net
      earnings
                      
                      $
                      527
                      
                      
                      $
                      13,021Per share data:Net
      earnings per common share – Basic:Earnings
      from continuing operations
                      
                      $
                      0.04
                      
                      
                      $
                      0.73Discontinued
      operation
                      
                      
                      (0.01
                      )
                      
                      
                      (0.02
                      )Net
      earnings per common share – Basic
                      
                      $
                      0.03
                      
                      
                      $
                      0.71Net
      earnings per common share – Diluted:Earnings
      from continuing operations
                      
                      $
                      0.04
                      
                      
                      $
                      0.68Discontinued
      operation
                      
                      
                      (0.01
                      )
                      
                      
                      (0.02
                      )Net
      earnings per common share – Diluted
                      
                      $
                      0.03
                      
                      
                      $
                      0.66Average
      number of common shares
                      
                      
                      18,596,218
                      
                      
                      
                      18,307,686Average
      number of common shares and dilutive
                        common
      shares18,596,218
                      
                      
                      
                      21,141,964
 
 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,
                                2009
                              
                              
                              December 31,
                                2008(Unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                              
                              $
                              10,985
                              
                              
                              $
                              6,608Accounts
      receivable, less allowance for discounts and doubtfulaccounts
      of $11,288 and $10,021 for 2009 and 2008, respectively
                              
                              
                              181,672
                              
                              
                              
                              174,401Inventories
                              
                              
                              212,251
                              
                              
                              
                              232,435Deferred
      income taxes
                              
                              
                              22,078
                              
                              
                              
                              20,038Assets
      held for sale
                              
                              
                              1,603
                              
                              
                              
                              1,654Prepaid
      expenses and other current assets
                              
                              
                              9,069
                              
                              
                              
                              12,459Total
      current assets
                              
                              
                              437,658
                              
                              
                              
                              447,595Property,
      plant and equipment, net
                              
                              
                              65,390
                              
                              
                              
                              66,901Goodwill,
      net
                              
                              
                              1,250
                              
                              
                              
                              1,100Other
      intangibles, net
                              
                              
                              14,486
                              
                              
                              
                              15,185Other
      assets
                              
                              
                              39,444
                              
                              
                              
                              44,246Total
      assets
                              
                              $
                              558,228
                              
                              
                              $
                              575,027LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Notes
      payable
                              
                              $
                              139,139
                              
                              
                              $
                              148,931Current
      portion of long-term debt
                              
                              
                              44,950
                              
                              
                              
                              44,953Accounts
      payable
                              
                              
                              54,783
                              
                              
                              
                              68,312Sundry
      payables and accrued expenses
                              
                              
                              26,161
                              
                              
                              
                              25,745Accrued
      customer returns
                              
                              
                              24,411
                              
                              
                              
                              19,664Accrued
      rebates
                              
                              
                              19,362
                              
                              
                              
                              18,623Payroll
      and commissions
                              
                              
                              20,012
                              
                              
                              
                              16,768Total
      current liabilities
                              
                              
                              328,818
                              
                              
                              
                              342,996Long-term
      debt
                              
                              
                              242
                              
                              
                              
                              273Post-retirement
      medical benefits and other accrued liabilities
                              
                              
                              43,240
                              
                              
                              
                              44,455Accrued
      asbestos liabilities
                              
                              
                              23,673
                              
                              
                              
                              23,758Total
      liabilities
                              
                              
                              395,973
                              
                              
                              
                              411,482Commitments
      and contingenciesStockholders’
      equity:Common
      stock – par value $2.00 per share:Authorized
      – 30,000,000 shares; issued 20,486,036 shares
                              
                              
                              40,972
                              
                              
                              
                              40,972Capital
      in excess of par value
                              
                              
                              57,276
                              
                              
                              
                              58,841Retained
      earnings
                              
                              
                              77,127
                              
                              
                              
                              76,600Accumulated
      other comprehensive income
                              
                              
                              5,516
                              
                              
                              
                              7,799Treasury
      stock – at cost 1,734,430 and 1,923,491 shares in2009
      and 2008, respectively
                              
                              
                              (18,636
                              )
                              
                              
                              (20,667
                              )Total
      stockholders’ equity
                              
                              
                              162,255
                              
                              
                              
                              163,545Total
      liabilities and stockholders’ equity
                              
                              $
                              558,228
                              
                              
                              $
                              575,027
 
 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 31,2009
                                  
                                  
                                  2008(Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      earnings
                                  
                                  $
                                  527
                                  
                                  
                                  $
                                  13,021Adjustments
      to reconcile net earnings to net cash used in operating
      activities:Depreciation
      and amortization
                                  
                                  
                                  3,652
                                  
                                  
                                  
                                  3,412Increase
      in allowance for doubtful accounts
                                  
                                  
                                  1,061
                                  
                                  
                                  
                                  510Increase
      in inventory reserves
                                  
                                  
                                  2,000
                                  
                                  
                                  
                                  1,247Gain
      on sale of building
                                  
                                  
                                  (262
                                  )
                                  
                                  
                                  (21,082
                                  )Loss
      on disposal of property, plant and equipment
                                  
                                  —
                                  
                                  
                                  
                                  44Loss
      on defeasance of mortgage loan
                                  
                                  —
                                  
                                  
                                  
                                  1,444Equity
      (income) loss from joint ventures
                                  
                                  
                                  58
                                  
                                  
                                  
                                  (210
                                  )Employee
      stock ownership plan allocation
                                  
                                  
                                  85
                                  
                                  
                                  
                                  398Stock-based
      compensation
                                  
                                  
                                  125
                                  
                                  
                                  
                                  211Decrease
      (increase) in deferred income taxes
                                  
                                  
                                  (8
                                  )
                                  
                                  
                                  4,390Loss
      from discontinued operation, net of income tax
                                  
                                  
                                  260
                                  
                                  
                                  
                                  326Change
      in assets and liabilities:Increase
      in accounts receivable
                                  
                                  
                                  (8,332
                                  )
                                  
                                  
                                  (53,016
                                  )Decrease
      in inventories
                                  
                                  
                                  23,226
                                  
                                  
                                  
                                  562Increase
      in prepaid expenses and other current assets
                                  
                                  
                                  (304
                                  )
                                  
                                  
                                  (1,776
                                  )Increase
      (decrease) in accounts payable
                                  
                                  
                                  (13,221
                                  )
                                  
                                  
                                  7,050Increase
      (decrease) in sundry payables and accrued expenses
                                  
                                  
                                  9,145
                                  
                                  
                                  
                                  (2,834
                                  )Net
      changes in other assets and liabilities
                                  
                                  
                                  535
                                  
                                  
                                  
                                  (1,074
                                  )Net
      cash provided by (used in) operating activities
                                  
                                  
                                  18,547
                                  
                                  
                                  
                                  (47,377
                                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from the sale of property, plant and equipment
                                  
                                  —
                                  
                                  
                                  
                                  9Net
      cash received from the sale of building
                                  
                                  —
                                  
                                  
                                  
                                  37,341Divestiture
      of joint ventures
                                  
                                  
                                  4,000
                                  
                                  
                                  —Capital
      expenditures
                                  
                                  
                                  (1,320
                                  )
                                  
                                  
                                  (2,850
                                  )Acquisitions
      of businesses and assets
                                  
                                  
                                  (5,996
                                  )
                                  
                                  —Net
      cash provided by (used in) investing activities
                                  
                                  
                                  (3,316
                                  )
                                  
                                  
                                  34,500CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      borrowings (repayments) under line-of-credit agreements
                                  
                                  
                                  (9,792
                                  )
                                  
                                  
                                  22,410Defeasance
      of mortgage loan
                                  
                                  —
                                  
                                  
                                  
                                  (7,755
                                  )Net
      repayment of long-term debt
                                  
                                  
                                  (34
                                  )
                                  
                                  
                                  (104
                                  )Increase
      (decrease) in overdraft balances
                                  
                                  
                                  (308
                                  )
                                  
                                  
                                  2,076Dividends
      paid
                                  
                                  —
                                  
                                  
                                  
                                  (1,648
                                  )Net
      cash provided by (used in) financing activities
                                  
                                  
                                  (10,134
                                  )
                                  
                                  
                                  14,979Effect
      of exchange rate changes on cash
                                  
                                  
                                  (720
                                  )
                                  
                                  
                                  (770
                                  )Net
      increase in cash and cash equivalents
                                  
                                  
                                  4,377
                                  
                                  
                                  
                                  1,332CASH
      AND CASH EQUIVALENTS at beginning of the period
                                  
                                  
                                  6,608
                                  
                                  
                                  
                                  13,261CASH
      AND CASH EQUIVALENTS at end of the period
                                  
                                  $
                                  10,985
                                  
                                  
                                  $
                                  14,593Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
                                  
                                  $
                                  2,987
                                  
                                  
                                  $
                                  5,486Income
      taxes
                                  
                                  $
                                  889
                                  
                                  
                                  $
                                  954
  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, 2009
 (Unaudited)
  (In thousands)
                    
                    Common
                      Stock
                    
                    
                    Capital in
                      Excess of
                      Par Value
                    
                    
                    Retained
                      Earnings
                    
                    
                    Accumulated
                      Other
                      Comprehensive
                      Income
                    
                    
                    Treasury
                      Stock
                    
                    
                    TotalBalance
      at December 31, 2008
                    
                    $
                    40,972
                    
                    
                    $
                    58,841
                    
                    
                    $
                    76,600
                    
                    
                    $
                    7,799
                    
                    
                    $
                    (20,667
                    )
                    
                    $
                    163,545Comprehensive
      income (loss):Net
      earnings
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    527
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    527Foreign
      currency translation adjustment
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1,180
                    )
                    
                    
                    
                    
                    
                    
                    (1,180
                    )Pension
      and retiree medical adjustment
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1,103
                    )
                    
                    
                    
                    
                    
                    
                    (1,103
                    )Total
      comprehensive income (loss)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1,756
                    )Stock-based
      compensation
                    
                    
                    
                    
                    
                    
                    119
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    6
                    
                    
                    
                    125Employee
      Stock Ownership Plan
                    
                    
                    
                    
                    
                    
                    (1,684
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,025
                    
                    
                    
                    341Balance
      at March 31, 2009
                    
                    $
                    40,972
                    
                    
                    $
                    57,276
                    
                    
                    $
                    77,127
                    
                    
                    $
                    5,516
                    
                    
                    $
                    (18,636
                    )
                    
                    $
                    162,255
  See
      accompanying notes to consolidated financial
  statements.
  6
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Note
1. Basis of Presentation
  Standard
Motor Products, Inc. (referred to hereinafter in these notes to consolidated
financial statements as the “Company,” “we,” “us,” or “our”) is engaged in the
manufacture and distribution of replacement parts for motor vehicles in the
automotive aftermarket industry.
  The
accompanying unaudited financial information should be read in conjunction with
the audited consolidated financial statements and the notes thereto included in
our Annual Report on Form 10-K for the year ended December 31, 2008. The
unaudited consolidated financial statements include our accounts and all
domestic and international companies in which we have more than a 50% equity
ownership. Our investments in unconsolidated affiliates are accounted for on the
equity method. All significant inter-company items have been
eliminated.
 
 The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. The results of operations for the interim periods are not necessarily
indicative of the results of operations for the entire year.
  Reclassification
 
 Certain
prior period amounts in the accompanying consolidated financial statements and
related notes have been reclassified to conform to the 2009
presentation.
 
 Note
2.Summary
of Significant Accounting Policies
 
 The
preparation of consolidated annual and quarterly financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
our consolidated financial statements, and the reported amounts of revenue and
expenses during the reporting periods. We have made a number of estimates and
assumptions in the preparation of these consolidated financial statements. We
can give no assurance that actual results will not differ from those estimates.
Some of the more significant estimates include allowances for doubtful accounts,
realizability of inventory, goodwill and other intangible assets, depreciation
and amortization of long-lived assets, product liability, pensions and other
post-retirement 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 inNote 1 of the
notes to our consolidated financial statements in our Annual Report on Form 10-K
for the year ended December 31, 2008.
  7
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
 Recently Issued Accounting
Pronouncements
 
 Fair
Value Measurements
 
 In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurement. This statement applies
under other accounting pronouncements that require or permit fair value
measurements and does not require any new fair value measurements. SFAS 157 was
effective for the fiscal year beginning after November 15, 2007, which for us is
the year ending December 31, 2008. As of January 1, 2008, we adopted SFAS 157.
The adoption of SFAS 157 did not impact our consolidated financial statements in
any material respect.
 
 In
December 2007, the FASB issued FSP FAS 157-b to defer SFAS 157’s effective date
for all non-financial assets and liabilities, except those items recognized or
disclosed at fair value on an annual or more frequently recurring basis, until
years beginning after November 15, 2008. Derivatives measured at fair value
under FAS 133 were not deferred under FSP FAS 157-b. As of January 1, 2009, we
adopted SFAS 157 for non-financial assets and liabilities. The adoption of SFAS
157 as it related to certain non-financial assets and liabilities did not impact
our consolidated financial statements in any material
respect.
 
 In April
2009, the FASB issued FSP FAS 157-4 that affirmed the exit price objective of
fair value measurements even if there has been a significant decrease in the
volume and level of activity for the asset or liability. When quoted market
prices may not be determinative of fair value, a reporting entity shall consider
the reasonableness of a range of fair value estimates. The FSP is effective for
interim and annual reporting periods ending after June 15, 2009, which for us
would be June 30, 2009. We do not anticipate that the adoption of FAS 157 as it
relates to inactive markets will have a material impact on our consolidated
financial statements.
 
 Business
Combinations
 
 In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
141R”). SFAS 141R establishes principles and requirements for how the acquirer
of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree. SFAS 141R also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141R is
effective for the fiscal year beginning after December 15, 2008, which for us is
the fiscal year beginning January 1, 2009. As of January 1, 2009, we adopted
SFAS 141R. Our adoption of SFAS 141R will have an impact on the manner in which
we account for future acquisitions.
 
 In April
2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies.”
The FSP eliminates the distinction between contractual and non-contractual
contingencies, including the initial recognition and measurement criteria, in
SFAS 141R. Additionally, the FSP requires an acquirer to develop a systematic
and rational basis for subsequently measuring and accounting for acquired
contingencies depending on their nature. The FSP is effective for contingent
assets and liabilities acquired in business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, which for us is an acquisition
occurring after January 1, 2009.
  8
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
 Non-Controlling
Interests in Consolidated Financial Statements
 
 In
December 2007, the FASB issued SFAS No. 160, “Non-Controlling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 establishes accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a subsidiary. It
clarifies that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008, which for us is the fiscal year beginning January 1, 2009. The adoption of
SFAS 160 has not had a material impact on our consolidated financial position,
results of operations and cash flows.
 
 Disclosures
about Derivative Instruments and Hedging Activities
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS 161”). This Statement requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improves the transparency of financial reporting. The effective date was
clarified as prospectively for annual and interim periods beginning on or after
November 15, 2008 in FSP FAS 133-1 and FIN 45-4, “Disclosures about Credit
Derivatives No. 133 and FASB Interpretation No. 45; and Clarification of the
Effective Date of FASB Statement No. 161.” The adoption of SFAS 161 will have an
impact on the manner in which we would disclose any derivative or hedging
activities, if present.
 
 Convertible
Debt Instruments
 
 In May
2008, the FASB issued FASB Staff Position APB 14-1, “Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion” (“FSP APB 14-1”)
which requires issuers of convertible debt that may be settled wholly or partly
in cash to account for the debt and equity components separately. This FSP is
effective for fiscal years beginning after December 15, 2008, which for us is
the fiscal year beginning January 1, 2009 and must be applied retrospectively to
all periods presented. We have reviewed the provisions of FSP APB 14-1 and have
determined that the adoption of FSP APB 14-1 will not require a change in the
manner in which we report our 6.75% convertible subordinated
debentures.
  9
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
 Note
3. Restructuring and Integration Costs
  Selected
information relating to the aggregate restructuring and integration activities
is as follows (in thousands):
 
 Workforce
                          Reduction
                        
                        
                        Other Exit
                          Costs
                        
                        
                        TotalExit
      activity liability at December 31, 2008
                        
                        $
                        12,751
                        
                        
                        $
                        2,956
                        
                        
                        $
                        15,707Amounts
      provided for during 2009
                        
                        
                        762
                        
                        
                        
                        401
                        
                        
                        
                        1,163Cash payments during 2009
                        
                        
                        (1,672
                        )
                        
                        
                        (485
                        )
                        
                        
                        (2,157
                        )Exit activity liability atMarch31,
      2009
                        
                        $
                        11,841
                        
                        
                        $
                        2,872
                        
                        
                        $
                        14,713
 
 Restructuring
Costs
 
 During
2008, as part of an initiative to improve the effectiveness and efficiency of
operations, we implemented certain organizational changes and offered eligible
employees a voluntary separation package. Of the original restructuring charge
of $8 million, we have $7.1 million remaining as of March 31, 2009. The
restructuring accrual relates to severance and other retiree benefit
enhancements to be paid through 2015.
 
 In
connection with our acquisition of substantially all of the assets and the
assumption of substantially all of the operating liabilities of Dana
Corporation’s Engine Management Group (“DEM”) in June 2003, we established
restructuring accruals relating to the consolidation of DEM into our existing
operations. Of the original provision, we have a restructuring accrual of $0.7
million remaining as of March 31, 2009. The restructuring accrual relates to
workforce reductions, employee termination benefits and lease and contract
termination costs.
  Integration
Expenses
 
 Integration
expenses relate primarily to the integration of operations to our facilities in
Mexico, the closure and consolidation of our distribution operations in Reno,
Nevada, and the closure of our production operations in Edwardsville, Kansas and
Wilson, North Carolina.
 
 In
February 2009, we announced plans to close our production facility in Wilson,
North Carolina. The closure is targeted to be completed by the third quarter of
2009, and we intend to sell the facility once vacated.
  During
the first quarter of 2009, we incurred integration expenses of $1.2 million
consisting of the cost of workforce reductions of $0.8 million related primarily
to production facility closures at Edwardsville, Kansas, and Wilson, North
Carolina and to the distribution center closure in Reno, Nevada, and other exit
costs of $0.4 million.
  In
connection with the shutdown of the manufacturing operations at Long Island City
that was completed in March 2008, we incurred severance costs and costs
associated with equipment removal, capital expenditures, and environmental
clean-up. In addition, we entered into an agreement with the International
Union, United Automobile, Aerospace and Agricultural Implement Workers of
America and its Local 365 (“UAW”). As part of the agreement, we incurred a
withdrawal liability from a multi-employer plan. The pension plan withdrawal
liability is related to trust asset under-performance in a plan that covers our
former UAW employees at the Long Island City facility and is payable in 80
quarterly payments of $0.3 million commencing in December 2008. As of March 31,
2009, the reserve balance related to the shutdown of our manufacturing
operations at Long Island City consisted of the pension withdrawal liability of
$3.3 million and other exit costs of $2.2 million for environmental clean-up
costs.
  10
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
 Assets
Held for Sale
 
 As of
March 31, 2009, in accordance with the requirements of FASB Statement No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” we have
reported $1.6 million as assets held for sale on our consolidated balance sheet
related to the net book value of two closed facilities in our European Segment
and our closed Reno, Nevada facility within our Engine Management Segment.
Following plant closures resulting from integration activities, these facilities
have been vacant and therefore a decision to solicit bids has been made. We
anticipate that a negotiated sale to a third-party will occur within the next
twelve months and will record any resulting gain in other income as
appropriate.
 
 Note
4. Sale of Receivables
 
 In April
2008, we began to sell undivided interests in certain of our receivables to
financial institutions. We entered these agreements at our discretion when we
determined that the cost of factoring was less than the cost of servicing our
receivables with existing debt. Pursuant to these agreements, we sold $29.8
million of receivables during the three months ended March 31, 2009. 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 in
accordance with SFAS No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities.” A charge in the amount of
$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, 2009.
 
 Note
5. Inventories
 
 Inventories,
which are stated at the lower of cost (determined by means of the first in,
first out method) or market, consist of (in thousands):
 
 March 31,
                    2009
                  
                  
                  December 31,
                    2008(In thousands)Finished
      goods, net
                  
                  $
                  139,626
                  
                  
                  $
                  152,804Work
      in process, net
                  
                  
                  4,342
                  
                  
                  
                  5,031Raw
      materials, net
                  
                  
                  68,283
                  
                  
                  
                  74,600Total
      inventories, net
                  
                  $
                  212,251
                  
                  
                  $
                  232,435
  11
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
 Note
6. Credit Facilities and Long-Term Debt
 
 Total
debt outstanding is summarized as follows:
 
 March 31,
                        2009
                      
                      
                      December 31,
                        2008(In thousands)Revolving
      credit facilities (1)
                      
                      $
                      139,139
                      
                      
                      $
                      148,9316.75%
      convertible subordinated debentures (2) (3)
                      
                      
                      44,865
                      
                      
                      
                      44,865Other
                      
                      
                      327
                      
                      
                      
                      361Total
      debt
                      
                      $
                      184,331
                      
                      
                      $
                      194,157Current
      maturities of long-term liabilities
                      
                      $
                      184,089
                      
                      
                      $
                      193,884Long-term
      debt
                      
                      
                      242
                      
                      
                      
                      273Total
      debt
                      
                      $
                      184,331
                      
                      
                      $
                      194,157
  (1)
              Consists
      of the revolving credit facility, the Canadian term loan and the European
      revolving credit facilities.
  (2)
              In
      April 2009, we repurchased an additional $0.5 million principal amount of
      the 6.75% convertible subordinated debentures. The 6.75% convertible
      subordinated debentures will mature on July 15,
  2009.
  (3)
              On
      March 20, 2009, we announced the commencement of an exchange offer for up
      to a maximum of $20 million aggregate principal amount of our outstanding
      6.75% convertible subordinated debentures. In connection with the exchange
      offer, holders of $12.3 million aggregate principal amount of these
      debentures elected to exchange such debentures for a like principal amount
      of newly issued 15% convertible subordinated debentures due 2011.
      Following the settlement of the exchange offer, approximately $32.1
      million aggregate principal amount of 6.75% convertible subordinated
      debentures remains outstanding.
 
 Deferred
Financing Costs
 
 We had
deferred financing costs of $3.3 million and $3.6 million as of March 31, 2009
and December 31, 2008, respectively. These costs relate to our revolving credit
facility and the 6.75% convertible subordinated debentures. Deferred financing
costs as of March 31, 2009 are being amortized, assuming no further prepayments
of principal, in the amount of $0.8 million in 2009, $1.1 million in 2010, $1.1
million in 2011, and $0.3 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 provides for a line of credit of up to $275 million (inclusive
of the Canadian term loan described below) and expires in 2012. 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.
  12
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
 In
December 2008, we amended our restated credit agreement (1) to establish a limit
of $50 million on the amount of 6.75% convertible subordinated debentures that
we can repurchase in the open market prior to the closing of any additional debt
financing transaction, (2) to establish a minimum borrowing availability reserve
of $15 million, except in certain circumstances (provided that the minimum
borrowing availability reserve shall be reduced to zero on the effective date of
the redemption or repayment of our convertible subordinated debentures), and (3)
to establish a $25 million minimum borrowing availability requirement effective
on the date of redemption or repayment of our convertible subordinated
debentures, which amount may be reduced by up to $10 million in certain
circumstances. In addition, as of the date of the amendment the margin added to
the index rate increased to 1.50% and the margin added to the LIBOR rate
increased to 2.75%; and as of March 31, 2009 the margin added to the index rate
further increased to between 1.75% - 2.25% and the margin added to the LIBOR
rate further increased to between 3% - 3.5%, in each case depending upon the
level of excess availability as defined in the restated credit
agreement.
  Borrowings
under the restated credit agreement are collateralized by substantially all of
our assets, including accounts receivable, inventory and fixed assets, and those
of certain of our subsidiaries. After taking into account outstanding borrowings
under the restated credit agreement, there was an additional $67.8 million
available for us to borrow pursuant to the formula at March 31, 2009, of which
$29.9 million is reserved for repayment, repurchase or redemption, as the case
may be, of the aggregate outstanding amount of our 6.75% convertible
subordinated debentures. At March 31, 2009 and December 31, 2008, the interest
rate on our restated credit agreement was 3.9% and 4.6%, respectively.
Outstanding borrowings under the restated credit agreement (inclusive of the
Canadian term loan described below), which are classified as current
liabilities, were $134.3 million and $143.2 million at March 31, 2009 and
December 31, 2008, respectively.
 
 At any
time that our average borrowing availability over the previous thirty days is
less than $30 million or if our borrowing availability is less than $20 million
for more than two days in a consecutive 30-day period 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, 2009, we were not subject to
these covenants. Availability under our restated credit agreement is based on a
formula of eligible accounts receivable, eligible inventory and eligible fixed
assets. Pursuant to our December 2008 amendment to the restated credit
agreement, beginning January 15, 2009 and on a monthly basis thereafter, our
borrowing availability will be reduced by $5 million for the repayment,
repurchase or redemption of the aggregate outstanding amount of our 6.75%
convertible subordinated debentures. Our restated credit agreement also permits
dividends and distributions by us provided specific conditions are
met.
 
 In May
2009, we amended our restated credit agreement to provide that, beginning
October 15, 2010 and on a monthly basis thereafter, our borrowing availability
will be reduced by approximately $2 million for the repayment, repurchase or
redemption of the aggregate outstanding amount of our newly issued 15%
convertible subordinated debentures due 2011.
  13
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
 Canadian
Term Loan
 
 In March
2007, 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 $12 million, of which $7 million is currently
outstanding and which amount is part of the $275 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 2012. 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
December 2008, we amended our credit agreement with GE Canada Finance Holding
Company, for itself and as agent for the lenders. The amendment provides for,
among other things (1) the allowance of cash proceeds from the divestiture of
the Blue Streak Electronics joint venture to be applied in accordance with the
requirements of our U.S. restated credit agreement, and (2) an increase in the
interest rates applicable to our outstanding borrowings under the Canadian
credit agreement to be in line with the increases set forth in our restated
credit agreement (described above).
 
 Revolving
Credit Facilities—Europe
 
 Our
European subsidiary has revolving credit facilities which, at March 31, 2009,
provide for aggregate lines of credit up to $6.2 million. The amount of
short-term bank borrowings outstanding under these facilities was $5.2 million
on March 31, 2009 and $5.8 million on December 31, 2008. The weighted average
interest rate on these borrowings on each of March 31, 2009 and December 31,
2008 was 6.2%.
  Subordinated
Debentures
 
 In July
1999, we completed a public offering of convertible subordinated debentures
amounting to $90 million. The 6.75% convertible subordinated debentures carry an
interest rate of 6.75%, payable semi-annually, and will mature on July 15, 2009.
The $90 million principal amount of the 6.75% convertible subordinated
debentures was convertible into 2,796,120 shares of our common stock at the
option of the holder. We may, at our option, redeem some or all of the 6.75%
convertible subordinated debentures at any time on or after July 15, 2004, for a
redemption price equal to the issuance price plus accrued interest. 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 6.75% convertible subordinated
debentures at a purchase price equal to 101% of their aggregate principal
amount, plus accrued interest. The 6.75% convertible subordinated debentures are
subordinated in right of payment to all of our existing and future senior
indebtedness.
 
 We may,
from time to time, repurchase the debentures in the open market, or through
privately negotiated transactions, on terms that we believe to be favorable with
any gains or losses as a result of the difference between the net carrying
amount and the reacquisitionprice recognized in the
period of repurchase. In 2008, we repurchased $45.1 million principal amount of
the debentures resulting in a gain on the repurchase of $3.8 million. In April
2009, we repurchased an additional $0.5 million principal amount of the 6.75%
convertible subordinated debentures. As of March 31, 2009, the remaining
outstanding $44.9 million principal amount of the 6.75% convertible subordinated
debentures is convertible into 1,393,866 shares of our common stock at the
option of the holder. Pursuant to our amendment to our restated credit agreement
in December 2008, we are limited to $50 million in the aggregate in convertible
subordinated debentures that can be repurchased in the open market, of which
$4.4 million is still currently available for repurchase.
  14
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
 On March
20, 2009, we announced the commencement of an exchange offer for up to a maximum
of $20 million aggregate principal amount of our outstanding 6.75% convertible
subordinated debentures due 2009. Pursuant to the exchange offer, we offered to
exchange $1,000 in principal amount of 15% convertible subordinated debentures
due 2011 for each $1,000 in principal amount of the 6.75% convertible
subordinated debentures. In connection with the exchange offer, holders of $12.3
million aggregate principal amount of these debentures elected to exchange such
debentures for a like principal amount of newly issued 15% convertible
subordinated debentures due 2011. Following the settlement of the exchange
offer, approximately $32.1 million aggregate principal amount of 6.75%
convertible subordinated debentures remains outstanding and is scheduled to
mature on July 15, 2009.
 
 Note
7. Stock-Based Compensation Plans
 
 We
account for our five stock-based compensation plans in accordance with the
provisions of FASB Statement No. 123R, “Share-Based Payment” (“FAS 123R”), which
requires that a company measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award. That cost is recognized in the statement of operations over the
period during which an employee is required to provide service in exchange for
the award.
  Stock Option
Grants
  At March 31, 2009, under all of our
option plans there were options to purchase an aggregate of 454,702 shares of
common stock, with no shares of common stock available for future grants. There
were no stock options granted in the three months ended March 31, 2009. In
addition, there was no stock option-based compensation expense in the three
months ended March 31, 2009 andwe have no unrecognized compensation
cost related to stock options andnon-vested stock options as of March
31, 2009.The following is a summary of the changes in outstanding stock
options for the three months ended March 31, 2009:
  Shares
                          
                          
                          Weighted
                            Average
                            Exercise
                            Price
                          
                          
                          Weighted Average
                            Remaining
                            Contractual
                            Term (Years)Outstanding
      at December 31, 2008
                          
                          
                          515,823
                          
                          
                          $
                          13.40
                          
                          
                          
                          4.1Expired
                          
                          
                          (57,071
                          )
                          
                          $
                          13.74
                          
                          
                          
                          —Exercised
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Forfeited, other
                          
                          
                          (4,050
                          )
                          
                          $
                          13.20
                          
                          
                          
                          4.8Outstanding at March 31,
    2009
                          
                          
                          454,702
                          
                          
                          $
                          13.36
                          
                          
                          
                          4.4Options exercisable at March 31,
      2009
                          
                          
                          454,702
                          
                          
                          $
                          13.36
                          
                          
                          
                          4.4
  There was no aggregate intrinsic value
of all outstanding stock options as of March 31, 2009. All outstanding stock
options as of March 31, 2009 are fully vested and exercisable. There were no
options exercised in 2009.
  15
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
 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. This component of compensation is designed to encourage the long-term
retention of key executives and to tie executive compensation directly to
Company performance and the long-term enhancement of shareholder value.
Performance-based shares are subject to a three year measuring period and the
achievement of performance targets and, depending upon the achievement of such
performance targets, they may become vested on the third anniversary of the date
of grant. Each period we evaluate the probability of achieving the applicable
targets and we adjust our accrual accordingly. Restricted shares become fully
vested upon the third and first anniversary of the date of grant for employees
and directors, respectively.
 
 In
determining the grant date fair value, the stock price on the date of grant, as
quoted on the New York Stock Exchange, was reduced by the present value of
dividends expected to be paid on the shares issued and outstanding during the
requisite service period, discounted at a risk-free interest rate. The risk-free
interest rate is based on the U.S. Treasury rates at the date of grant with
maturity dates approximately equal to the restriction or vesting period at the
grant date. The fair value of the shares at the date of grant is amortized to
expense ratably over the restriction period. An evaluation of our historical
forfeiture experience during the three months ended March 31, 2009 indicated
that our current estimated forfeiture rates should be adjusted upward from 2% to
5% for employees and remain at 0% for executives and directors. The impact of
the change in our estimated forfeitures recorded to compensation expense and
accumulated comprehensive income is not material.
  Our
restricted and performance-based share activity was as follows for the three
months ended March 31, 2009:
 
 Shares
                                
                                
                                Weighted Average
                                  Grant Date Fair
                                  Value Per ShareBalance
      at December 31, 2008
                                
                                
                                280,775
                                
                                
                                $
                                6.88Granted
                                
                                
                                325
                                
                                
                                $
                                6.45Vested
                                
                                
                                (600
                                )
                                
                                $
                                6.78Forfeited
                                
                                
                                (8,150
                                )
                                
                                $
                                6.87Balance at March 31, 2009
                                
                                
                                272,350
                                
                                
                                $
                                6.88
 
 We
recorded compensation expense related to restricted shares and performance-based
shares of $124,600 ($73,200 net of tax) and $121,340 ($78,020 net of tax) for
the three months ended March 31, 2009 and 2008, respectively. The unamortized
compensation expense related to our restricted and performance-based shares was
$0.7 million at March 31, 2009, and is expected to be recognized as they vest
over a weighted average period of 1.4 and 0.1 years for employees and directors,
respectively.
  16
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
 Note
8. Employee Benefits
  In 2000,
we created an employee benefits trust to which we contributed 750,000 shares of
treasury stock. We are authorized to instruct the trustees to distribute such
shares toward the satisfaction of our future obligations under employee benefit
plans. The shares held in trust are not considered outstanding for purposes of
calculating earnings per share until they are committed to be released. The
trustees will vote the shares in accordance with its fiduciary duties. During
2009, we contributed to the trust an additional 200,000 shares from our treasury
and released 188,461 shares from the trust leaving 12,068 shares remaining in
the trust as of March 31, 2009.
  In August
1994, we established an unfunded Supplemental Executive Retirement Plan (SERP)
for key employees. Under the plan, these employees may elect to defer a portion
of their compensation and, in addition, we may at our discretion make
contributions to the plan on behalf of the employees. In March 2008,
contributions of $113,500 were made related to calendar year 2007. No
contribution has been made in 2009 related to calendar year 2008. We anticipate
making the calendar year 2008 contribution in the third quarter of
2009.
  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.
  Our UK
pension plan is comprised of a defined benefit plan and a defined contribution
plan. The defined benefit plan is closed to new entrants and existing active
members ceased accruing any further benefits.
 
 We
participate in a multi-employer plan which provides defined benefits to
unionized workers at one of our manufacturing facilities. Contributions to the
plans are determined in accordance with the provisions of a negotiated labor
contract.
  In
December 2007, we entered into an agreement with the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America and its
Local 365 regarding the shut down of our manufacturing operations at Long Island
City, New York, which operations were transferred to other facilities. As part
of the agreement, effective January 5, 2008, we agreed to withdraw from the
multi-employer pension plan covering our UAW employees at the Long Island City
facility. In December 2007, we recorded a charge of $3.3 million related to the
present value of the undiscounted $5.6 million withdrawal liability discounted
over 80 quarterly payments using a credit-adjusted, risk-free rate. In
accordance with the terms of the agreement, we commenced with quarterly payments
of $0.3 million in December 2008.
 
 We
provide certain medical and dental care benefits to eligible retired employees.
Eligibility of employees who can participate in this program is limited to
employees hired before 1996. In May 2008, we announced that, in lieu of the then
current retiree medical and dental plans previously funded on a pay-as-you-go
basis, a Health Reimbursement Account (“HRA”) will be established beginning
January 1, 2009 for each qualified U.S. retiree. The plan amendment effectively
reduced benefits attributed to employee services already rendered and instead
credited a fixed amount into an HRA to cover both medical and dental costs for
all current and future eligible retirees. The remeasurement of the
postretirement welfare benefit plan as a result of these benefit modifications
generated a $24.5 million reduction in the accumulated postretirement benefit
obligation on June 1, 2008 which will be amortized on a straight-line basis and
recognized as a reduction in benefit costs over the remaining service to full
eligibility (3.8 years).
  17
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
  The
components of net periodic benefit cost for our North American and European
defined benefit plans and post retirement benefit plans for the three months
ended March 31, 2009 and 2008 were as follows (in thousands):
 
 Three Months Ended
                              March 31,Pension Benefits
                            
                            2009
                            
                            
                            2008Service
      cost
                            
                            $
                            22
                            
                            
                            $
                            107Interest
      cost
                            
                            
                            72
                            
                            
                            
                            134Amortization
      of prior service cost
                            
                            
                            28
                            
                            
                            
                            28Actuarial net (gain) los
                            
                            
                            (33
                            )
                            
                            
                            5Net periodic benefit cost
                            
                            $
                            89
                            
                            
                            $
                            274Post
      retirement BenefitsService
      cost
                            
                            $
                            74
                            
                            
                            $
                            212Interest
      cost
                            
                            
                            273
                            
                            
                            
                            584Amortization
      of prior service cost
                            
                            
                            (2,317
                            )
                            
                            
                            (713
                            )Amortization
      of transition obligation
                            
                            
                            1
                            
                            
                            
                            1Actuarial net (gain) loss
                            
                            
                            383
                            
                            
                            
                            292Net periodic benefit cost
                            
                            $
                            (1,586
                            )
                            
                            $
                            376
 
 Note
9. Earnings Per Share
 
 The
following are reconciliations of the earnings available to common stockholders
and the shares used in calculating basic and dilutive net earnings per common
share (in thousands, except per share data):
 
 Three Months Ended
                      March 31,Basic Net Earnings per Common Shares:
                    
                    2009
                    
                    
                    2008Earnings
      from continuing operations
                    
                    $
                    787
                    
                    
                    $
                    13,347Loss
      from discontinued operation
                    
                    
                    (260
                    )
                    
                    
                    (326
                    )Net
      earnings available to common stockholders
                    
                    $
                    527
                    
                    
                    $
                    13,021Weighted
      average common shares outstanding
                    
                    
                    18,596
                    
                    
                    
                    18,308Net
      earnings from continuing operation per common share
                    
                    $
                    0.04
                    
                    
                    $
                    0.73Loss
      from discontinued operation per common share
                    
                    
                    (0.01
                    )
                    
                    
                    (0.02
                    )Basic
      net earnings per common share
                    
                    $
                    0.03
                    
                    
                    $
                    0.71
  18
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
 Three Months Ended
                        March 31,Diluted
      Net Earnings per Common Share:Earnings
      from continuing operations
                      
                      $
                      787
                      
                      
                      $
                      13,347Interest
      income on debenture conversions (increase is net of income tax expense of
      $0.6 million)
                      
                      
                      —
                      
                      
                      
                      911Earnings
      from continuing operations plus assumed conversions
                      
                      
                      787
                      
                      
                      
                      14,258Loss
      from discontinued operation
                      
                      
                      (260
                      )
                      
                      
                      (326
                      )Net
      earnings available to common stockholders plus assumed
      conversions
                      
                      $
                      527
                      
                      
                      $
                      13,932Weighted
      average common shares outstanding
                      
                      
                      18,596
                      
                      
                      
                      18,308Plus
      incremental shares from assumed conversions:Dilutive
      effect of restricted stock
                      
                      
                      —
                      
                      
                      
                      38Dilutive
      effect of stock options
                      
                      
                      —
                      
                      
                      
                      —Dilutive
      effect of convertible debentures
                      
                      
                      —
                      
                      
                      
                      2,796Weighted
      average common shares outstanding – Diluted
                      
                      
                      18,596
                      
                      
                      
                      21,142Net
      earnings from continuing operations per common share
                      
                      $
                      0.04
                      
                      
                      $
                      0.68Loss
      from discontinued operation per common share
                      
                      
                      (0.01
                      )
                      
                      
                      (0.02
                      )Diluted
      net earnings per common share
                      
                      $
                      0.03
                      
                      
                      $
                      0.66
 
 The
shares listed below were not included in the computation of diluted earnings per
share because to do so would have been anti-dilutive for the periods presented
or because they were excluded under the treasury method (in
thousands):
 
 Three Months Ended
                      March 31,2009
                    
                    
                    2008Stock
      options
                    
                    
                    455
                    
                    
                    
                    608Restricted
      shares
                    
                    
                    189
                    
                    
                    
                    986.75%
      convertible subordinated debentures
                    
                    
                    1,394
                    
                    
                    
                    —
 
 Note
10. Comprehensive Income (Loss)
 
 Comprehensive
income (loss), net of income tax expense is as follows (in
thousands):
 
 Three Months Ended
                            March 31,2009
                          
                          
                          2008Net
      earnings as reported
                          
                          $
                          527
                          
                          
                          $
                          13,021Foreign
      currency translation adjustment
                          
                          
                          (1,180
                          )
                          
                          
                          (560
                          )Postretirement
      benefit plans:Reclassification
      adjustment for recognition of prior period amounts
                          
                          
                          (1,313
                          )
                          
                          
                          (18
                          )Unrecognized
      amounts
                          
                          
                          210
                          
                          
                          
                          —Total
      comprehensive income
      (loss)
                          
                          $
                          (1,756
                          )
                          
                          $
                          12,443
  19
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
 Note
11. Industry Segments
  The
following tables show our net sales and operating income by our operating
segments (in thousands):
 
 Three Months Ended March 31,2009
                    
                    2008Net Sales
                    
                    
                    Operating
                      Income (Loss)
                    
                    
                    Net Sales
                    
                    
                    Operating
                      Income (Loss)Engine
      Management
                    
                    $
                    122,887
                    
                    
                    $
                    7,636
                    
                    
                    $
                    143,362
                    
                    
                    $
                    9,199Temperature
      Control
                    
                    
                    40,260
                    
                    
                    
                    (1,329
                    )
                    
                    
                    49,573
                    
                    
                    
                    (804
                    )Europe
                    
                    
                    7,539
                    
                    
                    
                    160
                    
                    
                    
                    11,244
                    
                    
                    
                    496All
      Other
                    
                    
                    1,536
                    
                    
                    
                    (2,756
                    )
                    
                    
                    3,905
                    
                    
                    
                    (4,362
                    )Consolidated
                    
                    $
                    172,222
                    
                    
                    $
                    3,711
                    
                    
                    $
                    208,084
                    
                    
                    $
                    4,529
 
 Note
12. 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, 2009, approximately 3,655 cases were outstanding for which we were
responsible for any related liabilities. We expect the outstanding cases to
increase gradually due to legislation in certain states mandating minimum
medical criteria before a case can be heard. Since inception in September 2001
through March 31, 2009, the amounts paid for settled claims are approximately
$8.1 million. In September 2007, we entered into an agreement with an insurance
carrier to provide us with limited insurance coverage for the defense and
indemnity costs associated with certain asbestos-related claims. We have
submitted various asbestos-related claims to the insurance carrier for coverage
under this agreement, and the insurance carrier has accepted coverage for
approximately $1.3 million of claims. We have submitted additional
asbestos-related claims to the insurance carrier for coverage.
  In
evaluating our potential asbestos-related liability, we have considered various
factors including, among other things, an actuarial study performed by a leading
actuarial firm with expertise in assessing asbestos-related liabilities, our
settlement amounts and whether there are any co-defendants, the jurisdiction in
which lawsuits are filed, and the status and results of settlement discussions.
As is our accounting policy, we engage actuarial consultants with experience in
assessing asbestos-related liabilities to estimate our potential claim
liability. The methodology used to project asbestos-related liabilities and
costs in the study considered: (1) historical data available from publicly
available studies; (2) an analysis of our recent claims history to estimate
likely filing rates into the future; (3) an analysis of our currently pending
claims; and (4) an analysis of our settlements to date in order to develop
average settlement values.
  The most
recent actuarial study was performed as of August 31, 2008. The updated study
has estimated an undiscounted liability for settlement payments, excluding legal
costs and any potential recovery from insurance carriers, ranging from $25.3
million to $69.2 million for the period through 2059. The change from the prior
year study was a $1.5 million increase for the low end of the range and a $14
million increase for the high end of the range. Based on the information
contained in the actuarial study and all other available information considered
by us, we concluded that no amount within the range of settlement payments was
more likely than any other and, therefore, recorded the low end of the range as
the liability associated with future settlement payments through 2059 in our
consolidated financial statements. Accordingly, an incremental $2.1 million
provision in our discontinued operation was added to the asbestos accrual in
September 2008 increasing the reserve to approximately $25.3 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 $19.1 million to $32.1 million during
the same period.
  20
  STANDARD
MOTOR PRODUCTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
 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, 2009 and 2008, we have
accrued $10.5 million and $11.1 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.
  21
  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 Ended
                        March 31,2009
                      
                      
                      2008Balance,
      beginning of period
                      
                      $
                      10,162
                      
                      
                      $
                      11,317Liabilities
      accrued for current year sales
                      
                      
                      10,276
                      
                      
                      
                      10,542Settlements
      of warranty claims
                      
                      
                      (9,915
                      )
                      
                      
                      (10,718
                      )Balance,
      end of period
                      
                      $
                      10,523
                      
                      
                      $
                      11,141
 
 Note
13. Subsequent Event
 
 Pursuant
to our exercise of a put option, we expect to receive in May 2009 approximately
$3.9 million, representing the redemption value of 15,600 shares of Class A
cumulative redeemable preferred stock Series 2, of a third party issuer, which
shares we beneficially owned. In connection with the redemption, we expect to
record a pretax gain of approximately $2.3 million in other income in our
consolidated statement of operations during the second quarter of
2009.
  22
  ITEM 2.
              MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
 
 This
Report contains forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements in this Report are indicated by words such as
“anticipates,” “expects,” “believes,” “intends,” “plans,” “estimates,”
“projects” and similar expressions. These statements represent our expectations
based on current information and assumptions and are inherently subject to risks
and uncertainties. Our actual results could differ materially from those which
are anticipated or projected as a result of certain risks and uncertainties,
including, but not limited to, our substantial leverage; economic and market
conditions (including access to credit and financial markets); the performance
of the aftermarket 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 Risk Factors, Quantitative and Qualitative Disclosures About Market Risk
and those detailed herein and from time to time in the filings of the Company
with the SEC. Forward-looking statements are made only as of the date hereof,
and the Company undertakes no obligation to update or revise the forward-looking
statements, whether as a result of new information, future events or otherwise.
In addition, historical information should not be considered as an indicator of
future performance. The following discussion should be read in conjunction with
the unaudited consolidated financial statements, including the notes thereto,
included elsewhere in this Report.
 
 Business
Overview
 
 We are a
leading independent manufacturer, distributor and marketer of replacement parts
for motor vehicles in the automotive aftermarket industry, with an increasing
focus on the original equipment and original equipment service markets. We are
organized into two major operating segments, each of which focuses on a specific
line of replacement parts. Our Engine Management Segment manufactures ignition
and emission parts, ignition wires, battery cables and fuel system parts. Our
Temperature Control Segment manufactures and remanufactures air conditioning
compressors, air conditioning and heating parts, engine cooling system parts,
power window accessories, and windshield washer system parts. We also sell our
products in Europe through our European Segment.
 
 We place
significant emphasis on improving our financial performance by achieving
operating efficiencies and improving asset utilization, while maintaining
product quality and high customer order fill rates. We intend to continue to
improve our operating efficiency 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.
  23
 
 Inventory
Management.We face inventory management issues as a result of warranty
and overstock returns. Many of our products carry a warranty ranging from a
90-day limited warranty to a lifetime limited warranty, which generally covers
defects in materials or workmanship and failure to meet industry published
specifications. In addition to warranty returns, we also permit our customers to
return products to us within customer-specific limits (which are generally
limited to a specified percentage of their annual purchases from us) in the
event that they have overstocked their inventories. We accrue for overstock
returns as a percentage of sales, after giving consideration to recent returns
history.
  In order
to better control warranty and overstock return levels, we tightened the rules
for authorized warranty returns, placed further restrictions on the amounts
customers can return and instituted a program so that our management can better
estimate potential future product returns. In addition, with respect to our air
conditioning compressors, which are our most significant customer product
warranty returns, we established procedures whereby a warranty will be voided if
a customer does not provide acceptable proof that complete air conditioning
system repair was performed.
 
 Discounts,
Allowances and Incentives.In connection with our sales activities, we
offer a variety of usual customer discounts, allowances and incentives. First,
we offer cash discounts for paying invoices in accordance with the specified
discount terms of the invoice. Second, we offer pricing discounts based on
volume and different product lines purchased from us. These discounts are
principally in the form of “off-invoice” discounts and are immediately deducted
from sales at the time of sale. For those customers that choose to receive a
payment on a quarterly basis instead of “off-invoice,” we accrue for such
payments as the related sales are made and reduce sales accordingly. Finally,
rebates and discounts are provided to customers as advertising and sales force
allowances, and allowances for warranty and overstock returns are also provided.
Management analyzes historical returns, current economic trends, and changes in
customer demand when evaluating the adequacy of the sales returns and other
allowances. Significant management judgments and estimates must be made and used
in connection with establishing the sales returns and other allowances in any
accounting period. We account for these discounts and allowances as a reduction
to revenues, and record them when sales are recorded.
  Interim Results of
Operations:
 
 Comparison
of Three Months Ended March 31, 2009 to Three Months Ended March 31,
2008
 
 Sales. Consolidated net sales for
the three months ended March 31, 2009 were $172.2 million, a decrease of $35.9
million, or 17.2%, compared to $208.1 million in the same period of 2008. The
decrease in consolidated net sales resulted primarily from decreases in net
sales of $20.5 million, or 14.3%, in our Engine Management Segment, $9.3
million, or 18.8%, in our Temperature Control Segment and $3.7 million, or 33%,
in our European Segment. The Engine Management decrease in net sales compared to
the first three months of 2008 is the result of lower sales volumes in our
traditional markets as a single large customer changed brands to a competitor
and as customers reduced their inventory levels in response to the economic
environment. The Temperature Control decrease in net sales is the result of
lower retail sales due partially to a merger of customers that required the
integration of product lines. The reduction in sales in our European Segment is
the result of a decrease in OES sale volumes and an unfavorable change in
foreign currency exchange rates compared to the first three months of
2008.
 
 Gross
margins. Gross margins, as a percentage of consolidated net sales,
decreased to 23.7% in the first quarter of 2009, compared to 24.6% in the first
quarter of 2008. The decrease resulted primarily from decreases in Engine
Management margins of 0.6 percentage points and European margins of 3.8
percentage points while margins in our Temperature Control Segment remained
constant. The decrease in the Engine Management margin was primarily due to
lower sales volumes and product mix offset by a reduction in our fixed overhead
costs as a result of our cost reduction programs. The European Segment’s
decrease resulted primarily from a change in product mix and the adverse impact
of changes in foreign currency exchange rates.
  24
 
 Selling, general
and administrative expenses.Selling, general and administrative expenses
(SG&A) decreased by $7.8 million to $36 million or 20.9% of consolidated net
sales, in the first quarter of 2009, as compared to $43.9 million, or 21.1% of
consolidated net sales in the first quarter of 2008. The decrease in SG&A
expenses is due primarily to lower selling, marketing and distribution expenses,
and the benefit recognized from the post-retirement benefit plan amendment
announced in May 2008.
 
 Restructuring and
integration expenses.Restructuring and integration expenses decreased to
$1.2 million in the first quarter of 2009, compared to $2.8 million in the first
quarter of 2008. 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. The 2008 expenses
related primarily to charges incurred for severance and related costs in
connection with the shutdown of our Long Island City, New York manufacturing
operations.
 
 Operating
income. Operating income was $3.7 million in the first quarter of 2009,
compared to $4.5 million in the first quarter of 2008. The decrease of $0.8
million was due primarily to lower gross margins as a percentage of sales driven
by lower sales volumes and a change in product mix offset by lower SG&A
expenses reflecting the impact of our post-retirement benefit amendment and cost
reduction programs implemented in the second half of 2008.
 
 Other income,
net.Other income, net decreased to $0.1 million in the first quarter of
2009 compared to $20.4 million in the same period in 2008. Other income, net in
the first quarter of 2008 included a $21.1 million gain on the sale of our Long
Island City, New York property, offset partially by a $1.4 million charge
related to the defeasance of our mortgage on the property.
  Interest
expense. Interest expense decreased by $1.7 million in the first quarter
of 2009 compared to the same period in 2008 due to a reduction in average
borrowing costs and lower average borrowings primarily related to the repurchase
of $45.1 million principal amount of our 6.75% convertible subordinated
debentures during the final six months of 2008 and lower borrowings on our
revolving credit facility. Borrowings were lower in the three months ended March
31, 2009 due to our accounts receivable factoring programs initiated during the
second quarter of 2008 with some of our larger customers in order to accelerate
collection of accounts receivable balances and improved working capital
management.
 
 Income tax
provision. The income tax provision in the first quarter of 2009 was $0.6
million at an effective tax rate of 41.2% compared to $7.4 million and an
effective tax rate of 35.7% for the same period in 2008. The increase in the
effective tax rate is primarily attributable to a loss in a foreign jurisdiction
for which there is no tax benefit.
 
 Loss from
discontinued operation. Loss from discontinued operation, net of tax,
reflects legal expenses associated with our asbestos related liability. We
recorded $0.3 million as a loss from discontinued operation for the first
quarter of 2009 and 2008. As discussed more fully in Note 12 in the notes to our
consolidated financial statements, we are responsible for certain future
liabilities relating to alleged exposure to asbestos containing
products.
 
 Liquidity
and Capital Resources
 
 Operating
Activities. During the first three months of 2009, cash provided by
operations amounted to $18.5 million compared to cash used in operations of
$47.4 million in the same period of 2008. The year-over-year increase in cash
provided by operations is primarily the result of the impact of our customer
accounts receivable factoring program and improved inventory and working capital
management.
  Investing
Activities. Cash
used in investing activities was $3.3 million in the first three months of 2009,
compared to cash provided by investing activities of $34.5 million in the same
period of 2008. 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 December 2008
divestiture of certain of our joint venture equity ownerships. Cash provided by
investing activities in 2008 includes $37.3 million in net cash proceeds from
the sale of our Long Island City, New York property. Capital expenditures in the
first three months of 2009 were $1.3 million compared to $2.9 million in the
comparable period last year.
  25





Financing
Activities. Cash
used in financing activities was $10.1 million in the first three months of
2009, compared to cash provided by financing activities of $15 million in the
same period of 2008.  During the first three months of 2008 we reduced
our borrowings under our revolving credit facilities reflecting the impact of
the accounts receivable factoring programs and improved working capital
management.  During the first three months of 2008, net cash provided
by financing activities was reduced by the proceeds received from the sale of
our Long Island City, New York property.  Dividends of $1.7 million
were paid in the first three months of 2008.  No dividends were paid
in 2009.





In March
2007, we entered into a Second Amended and Restated Credit Agreement with
General Electric Capital Corporation, as agent, and a syndicate of lenders for a
secured revolving credit facility. This restated credit agreement replaces our
prior credit facility with General Electric Capital Corporation. The restated
credit agreement provides for a line of credit of up to $275 million (inclusive
of the Canadian term loan described below) and expires in 2012. Direct
borrowings under the restated credit agreement bear interest at the LIBOR rate
plus the applicable margin (as defined), or floating at the index rate plus the
applicable margin, at our option. The interest rate may vary depending upon our
borrowing availability. The restated credit agreement is guaranteed by certain
of our subsidiaries and secured by certain of our assets.





In
December 2008, we amended our restated credit agreement (1) to establish a limit
of $50 million on the amount of 6.75% convertible subordinated debentures that
we can repurchase in the open market prior to the closing of any additional debt
financing transaction, (2) to establish a minimum borrowing availability reserve
of $15 million, except in certain circumstances (provided that the minimum
borrowing availability reserve shall be reduced to zero on the effective date of
the redemption or repayment of our convertible subordinated debentures), and (3)
to establish a $25 million minimum borrowing availability requirement effective
on the date of redemption or repayment of our convertible subordinated
debentures, which amount may be reduced by up to $10 million in certain
circumstances.  In addition, as of the date of the amendment the
margin added to the index rate increased to 1.50% and the margin added to the
LIBOR rate increased to 2.75%; and as of March 31, 2009 the margin added to the
index rate further increased to between 1.75% - 2.25% and the margin added to
the LIBOR rate further increased to between 3% - 3.5%, in each case depending
upon the level of excess availability as defined in the restated credit
agreement.





Borrowings
under the restated credit agreement are collateralized by substantially all of
our assets, including accounts receivable, inventory and fixed assets, and those
of certain of our subsidiaries. After taking into account outstanding borrowings
under the restated credit agreement, there was an additional $67.8 million
available for us to borrow pursuant to the formula at March 31, 2009, of
which $29.9 million is reserved for repayment, repurchase or redemption, as the
case may be, of the aggregate outstanding amount of our 6.75% convertible
subordinated debentures.  At March 31, 2009 and December 31, 2008, the
interest rate on our restated credit agreement was 3.9% and 4.6%, respectively.
Outstanding borrowings under the restated credit agreement (inclusive of the
Canadian term loan described below), which are classified as current
liabilities, were $134.3 million and $143.2 million at March 31, 2009 and
December 31, 2008, respectively.





At any
time that our average borrowing availability over the previous thirty days is
less than $30 million or if our borrowing availability is less than $20 million
for more than two days in a consecutive 30-day period 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, 2009, we
were not subject to these covenants.  Availability under our restated
credit agreement is based on a formula of eligible accounts receivable, eligible
inventory and eligible fixed assets.  Pursuant to our December 2008
amendment to the restated credit agreement, beginning January 15, 2009 and on a
monthly basis thereafter, our borrowing availability will be reduced by $5
million for the repayment, repurchase or redemption of the aggregate outstanding
amount of our convertible debentures.  Our restated credit agreement
also permits dividends and distributions by us provided specific conditions are
met.


26





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





In March
2007, 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 $12 million, of which $7 million is currently
outstanding and which amount is part of the $275 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 2012. 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
December 2008, we amended our credit agreement with GE Canada Finance Holding
Company, for itself and as agent for the lenders.  The amendment
provides for, among other things (1) the allowance of cash proceeds from the
divestiture of the Blue Streak Electronics joint venture to be applied in
accordance with the requirements of our U.S. restated credit agreement, and (2)
an increase in the interest rates applicable to our outstanding borrowings under
the Canadian credit agreement to be in line with the increases set forth in our
restated credit agreement (described above).





Our
European subsidiary has revolving credit facilities which, at March 31, 2009,
provide for aggregate lines of credit up to $6.2 million. The amount of
short-term bank borrowings outstanding under these facilities was $5.2 million
on March 31, 2009 and $5.8 million on December 31, 2008. The weighted average
interest rate on these borrowings on each of March 31, 2009 and December 31,
2008 was 6.2%.





In July
1999, we completed a public offering of convertible subordinated debentures
amounting to $90 million. The 6.75% convertible subordinated debentures carry an
interest rate of 6.75%, payable semi-annually, and will mature on July 15, 2009.
The $90 million principal amount of the 6.75% convertible subordinated
debentures was convertible into 2,796,120 shares of our common stock at the
option of the holder. We may, at our option, redeem some or all of the 6.75%
convertible subordinated debentures at any time on or after July 15, 2004, for a
redemption price equal to the issuance price plus accrued interest. 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 6.75% convertible subordinated
debentures at a purchase price equal to 101% of their aggregate principal
amount, plus accrued interest.  The 6.75% convertible subordinated
debentures are subordinated in right of payment to all of our existing and
future senior indebtedness.





We may,
from time to time, repurchase the debentures in the open market, or through
privately negotiated transactions, on terms that we believe to be favorable with
any gains or losses as a result of the difference between the net carrying
amount and the reacquisitionprice recognized in the
period of repurchase.  In 2008, we repurchased $45.1 million principal
amount of the debentures resulting in a gain on the repurchase of $3.8
million.  In April 2009, we repurchased an additional $0.5 million
principal amount of the 6.75% convertible subordinated debentures.  As
of March 31, 2009, the remaining outstanding $44.9 million principal amount of
the 6.75% convertible subordinated debentures is convertible into 1,393,866
shares of our common stock at the option of the
holder.   Pursuant to our amendment to our restated credit
agreement in December 2008, we are limited to $50 million in the aggregate in
convertible subordinated debentures that can be repurchased in the open market,
of which $4.4 million is still currently available for
repurchase.


27





On March
20, 2009, we announced the commencement of an exchange offer for up to a maximum
of $20 million aggregate principal amount of our outstanding 6.75% convertible
subordinated debentures due 2009.   Pursuant to the exchange
offer, we offered to exchange $1,000 in principal amount of 15% convertible
subordinated debentures due 2011 for each $1,000 in principal amount of the
6.75% convertible subordinated debentures.   In connection with
the exchange offer, holders of $12.3 million aggregate principal amount of these
debentures elected to exchange such debentures for a like principal amount of
newly issued 15% convertible subordinated debentures due
2011.  Following the settlement of the exchange offer, approximately
$32.1 million aggregate principal amount of 6.75% convertible subordinated
debentures remains outstanding.





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
$29.8 million of receivables during the three months ended March 31,2009.  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 in accordance with SFAS No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities.”  A charge in the amount of $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,
2009.





We
anticipate that our present sources of funds, including funds from operations
and additional borrowings, will continue to be adequate to meet our financing
needs over the next twelve months. In addition, we have taken several
initiatives to improve our cash flow in anticipation of the maturity of our
6.75% convertible subordinated debentures including the sale of our Long Island
City building, substantial reductions in inventory and accounts receivable, a
salary freeze, temporarily suspending the quarterly dividend and other cost
reduction measures. We continue to evaluate alternative sources to further
improve the liquidity of our business and to fund the refinance, repurchase or
redemption, as the case may be, of the aggregate outstanding amount of our 6.75%
convertible subordinated debentures, which may include cash, securities or a
combination thereof.  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 with respect to our 6.75% convertible subordinated
debentures, 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 and the
redemption of our 6.75% convertible subordinated debentures instead of for
funding working capital, capital expenditures, acquisitions or for other
corporate purposes.  If we default on any of our indebtedness, or
breach any financial covenant in our revolving credit facility, our business
could be adversely affected.  For further information regarding the
risks of our business, please refer to the Risk Factors section of our Annual
Report on Form 10-K for the year ending December 31, 2008.


28





The
following table summarizes our contractual commitments as of December 31, 2008
and expiration dates of commitments through 2022:





(in thousands)
                                          
                                          2009
                                          
                                          
                                          2010
                                          
                                          
                                          2011
                                          
                                          
                                          2012
                                          
                                          
                                          2013
                                          
                                          
                                          2014-
                                            2022
                                          
                                          
                                          TotalPrincipal
      payments of long term debt
                                          
                                          $
                                          44,953
                                          
                                          
                                          $
                                          89
                                          
                                          
                                          $
                                          88
                                          
                                          
                                          $
                                          88
                                          
                                          
                                          $
                                          8
                                          
                                          
                                          $
                                          —
                                          
                                          
                                          $
                                          45,226Operating
      leases
                                          
                                          
                                          9,376
                                          
                                          
                                          
                                          7,919
                                          
                                          
                                          
                                          6,210
                                          
                                          
                                          
                                          5,445
                                          
                                          
                                          
                                          5,552
                                          
                                          
                                          
                                          16,624
                                          
                                          
                                          
                                          51,126Post
      retirement benefits
                                          
                                          
                                          1,099
                                          
                                          
                                          
                                          1,132
                                          
                                          
                                          
                                          1,158
                                          
                                          
                                          
                                          1,212
                                          
                                          
                                          
                                          1,258
                                          
                                          
                                          
                                          13,227
                                          
                                          
                                          
                                          19,086Severance
      payments related to restructuring and integration
                                          
                                          
                                          6,548
                                          
                                          
                                          
                                          2,118
                                          
                                          
                                          
                                          897
                                          
                                          
                                          
                                          747
                                          
                                          
                                          
                                          615
                                          
                                          
                                          
                                          2,196
                                          
                                          
                                          
                                          13,121Total
      commitments
                                          
                                          $
                                          61,976
                                          
                                          
                                          $
                                          11,258
                                          
                                          
                                          $
                                          8,353
                                          
                                          
                                          $
                                          7,492
                                          
                                          
                                          $
                                          7,433
                                          
                                          
                                          $
                                          32,047
                                          
                                          
                                          $
                                          128,559





Summary of Significant
Accounting Policies





We have
identified the policies below as critical to our business operations and the
understanding of our results of operations.  The impact and any
associated risks related to these policies on our business operations is
discussed throughout “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” where such policies affect our reported
and expected financial results. There have been no material changes to our
critical accounting policies and estimates from the information provided in Note
1 of the notes to our consolidated financial statements in our Annual Report on
Form 10-K for the year ended December 31, 2008.  You should be aware
that preparation of our consolidated quarterly financial statements in this
Report requires us to make estimates and assumptions that affect the reported
amount of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of our consolidated financial statements, and the
reported amounts of revenue and expenses during the reporting
periods.  We can give no assurances that actual results will not
differ from those estimates.





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





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.


29





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. Management must
make estimates of potential future product returns related to current period
product revenue. 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. At March 31, 2009, the allowance for
sales returns was $24.4 million.  Similarly, management must make
estimates of the uncollectability of our accounts receivables. Management
specifically analyzes accounts receivable and analyzes 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, 2009, the allowance for doubtful
accounts and for discounts was $11.3 million.





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





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





Significant
management judgment is required in determining the adequacy of our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. At March 31, 2009, we
had a valuation allowance of $26.3 million, due to uncertainties related to our
ability to utilize some of our deferred tax assets. The assessment of the
adequacy of our valuation allowance is based on our estimates of taxable income
by jurisdiction in which we operate and the period over which our deferred tax
assets will be recoverable.





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





In
accordance with the provisions of SFAS Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No.109” (“FIN
48”), 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.


30





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 management’s assessment and independent third-party
appraisals.  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, in accordance with FASB
Statement No. 141(R), “Business Combinations” (“SFAS 141R”). The residual fair
value after this allocation is the implied fair value of the reporting unit
goodwill.





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





There are
inherent assumptions and estimates used in developing future cash flows
requiring management’s 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
the control of management 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 SFAS 87, “Employers’
Accounting for Pensions” and SFAS 106, “Employers’ Accounting for
Post-Retirement Benefits Other than Pensions”.  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.


31





Share Based
Compensation.FAS 123(R) 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.  Furthermore, FAS 123(R) requires the monitoring of
actual forfeitures and the subsequent adjustment to forfeiture rates to reflect
actual forfeitures.





Environmental
Reserves.  We are subject to various U.S. federal and state and
local environmental laws and regulations and are involved in certain
environmental remediation efforts. We estimate and accrue our liabilities
resulting from such matters based upon a variety of factors including the
assessments of environmental engineers and consultants who provide estimates of
potential liabilities and remediation costs. Such estimates may or may not
include potential recoveries from insurers or other third parties and 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.





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, 2008
estimated an undiscounted liability for settlement payments, excluding legal
costs and any potential recovery from insurance carriers, ranging from $25.3
million to $69.2 million for the period through 2059. As a result, in September
2008 an incremental $2.1 million provision in our discontinued operation was
added to the asbestos accrual increasing the reserve to approximately $25.3
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 $19.1 million to $32.1 million during the
same period.  We plan to perform an annual actuarial analysis during
the third quarter of each year for the foreseeable future. Based on this
analysis and all other available information, we will continue to reassess the
recorded liability and, if deemed necessary, record an adjustment to the
reserve, which will be reflected as a loss or gain from discontinued
operation.  The aforementioned estimated settlement payments and legal
costs do not reflect any limited coverage that we may obtain pursuant to an
agreement with an insurance carrier for certain asbestos-related
claims.  See Note 12 of notes to our consolidated financial
statements.





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





Recently
Issued Accounting Pronouncements





Fair
Value Measurements





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurement. This statement applies under other accounting pronouncements
that require or permit fair value measurements and does not require any new fair
value measurements.  SFAS 157 was effective for the fiscal year
beginning after November 15, 2007, which for us is the year ending December 31,
2008.  As of January 1, 2008, we adopted SFAS 157.  The
adoption of SFAS 157 did not impact our consolidated financial statements in any
material respect.


32





In
December 2007, the FASB issued FSP FAS 157-b to defer SFAS 157’s effective date
for all non-financial assets and liabilities, except those items recognized or
disclosed at fair value on an annual or more frequently recurring basis, until
years beginning after November 15, 2008.  Derivatives measured at fair
value under FAS 133 were not deferred under FSP FAS 157-b.  As of
January 1, 2009, we adopted SFAS 157 for non-financial assets and
liabilities.  The adoption of SFAS 157 as it related to certain
non-financial assets and liabilities did not impact our consolidated financial
statements in any material respect.





In April
2009, the FASB issued FSP FAS 157-4 that affirmed the exit price objective of
fair value measurements even if there has been a significant decrease in the
volume and level of activity for the asset or liability.  When quoted
market prices may not be determinative of fair value, a reporting entity shall
consider the reasonableness of a range of fair value estimates.  The
FSP is effective for interim and annual reporting periods ending after June 15,
2009, which for us would be June 30, 2009.  We do not anticipate that
the adoption of FAS 157 as it relates to inactive markets will have a material
impact on our consolidated financial statements.





Business
Combinations





In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
141R”).  SFAS 141R establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree.  SFAS 141R also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.  SFAS 141R is effective for the fiscal year beginning
after December 15, 2008, which for us is the fiscal year beginning January 1,
2009.  As of January 1, 2009, we adopted SFAS 141(R).  Our
adoption of SFAS 141R will have an impact on the manner in which we account for
future acquisitions.





In April
2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies.”  The FSP eliminates the distinction between
contractual and non-contractual contingencies, including the initial recognition
and measurement criteria, in SFAS 141R.  Additionally, the FSP
requires an acquirer to develop a systematic and rational basis for subsequently
measuring and accounting for acquired contingencies depending on their
nature.  The FSP is effective for contingent assets and liabilities
acquired in business combinations for which the acquisition date is on or after
the beginning of the first annual reporting period beginning on or after
December 15, 2008, which for us is an acquisition occurring after January 1,
2009.





Non-Controlling
Interests in Consolidated Financial Statements





In
December 2007, the FASB issued SFAS No. 160, “Non-Controlling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS
160”).  SFAS 160 establishes accounting and reporting standards for
the non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary.  It clarifies that a non-controlling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.  SFAS 160
is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008, which for us is the fiscal year
beginning January 1, 2009.  The adoption of SFAS 160 has not had a
material impact on our consolidated financial position, results of operations
and cash flows.





Disclosures
about Derivative Instruments and Hedging Activities





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS 161”).  This Statement requires
enhanced disclosures about an entity’s derivative and hedging activities and
thereby improves the transparency of financial reporting.  The
effective date was clarified as prospectively for annual and interim periods
beginning on or after November 15, 2008 in FSP FAS 133-1 and FIN 45-4,
“Disclosures about Credit Derivatives No. 133 and FASB Interpretation No. 45;
and Clarification of the Effective Date of FASB Statement No.
161.”  The adoption of SFAS 161 will have an impact on the manner in
which we would disclose any derivative or hedging activities, if
present.


33





Convertible
Debt Instruments





In May
2008, the FASB issued FASB Staff Position APB 14-1, “Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion” (“FSP APB 14-1”)
which requires issuers of convertible debt that may be settled wholly or partly
in cash to account for the debt and equity components
separately.  This FSP is effective for fiscal years beginning after
December 15, 2008, which for us is the fiscal year beginning January 1, 2009 and
must be applied retrospectively to all periods presented.  We have
reviewed the provisions of FSP APB 14-1 and have determined that the adoption of
FSP APB 14-1 will not require a change in the manner in which we report our
6.75% convertible subordinated debentures.


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, 2009 and December 31, 2008, our monetary assets and liabilities which are
subject to this exposure are immaterial, therefore the potential immediate loss
to us that would result from a hypothetical 10% change in foreign currency
exchange rates would not be expected to have a material impact on our earnings
or cash flows. This sensitivity analysis assumes an unfavorable 10% fluctuation
in the exchange rates affecting the foreign currencies in which monetary assets
and liabilities are denominated and does not take into account the offsetting
effect of such a change on our foreign-currency denominated
revenues.





We manage
our exposure to interest rate risk through the proportion of fixed rate debt and
variable rate debt in our debt portfolio. To manage a portion of our exposure to
interest rate changes, we have in the past entered into interest rate swap
agreements.  We invest our excess cash in highly liquid short-term
investments.  Our percentage of variable rate debt to total debt was
75.7% at March 31, 2009 and 76.9% at December 31, 2008.





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


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





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


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 in the accompanying consolidated
financial statements.  When we originally acquired this brake
business, we assumed future liabilities relating to any alleged exposure to
asbestos-containing products manufactured by the seller of the acquired brake
business. In accordance with the related purchase agreement, we agreed to assume
the liabilities for all new claims filed on or after September 1, 2001. Our
ultimate exposure will depend upon the number of claims filed against us on or
after September 1, 2001 and the amounts paid for indemnity and defense
thereof.  At March 31, 2009, approximately 3,655 cases were
outstanding for which we were responsible for any related liabilities. We expect
the outstanding cases to increase gradually due to legislation in certain states
mandating minimum medical criteria before a case can be heard. Since inception
in September 2001 through March 31, 2009, the amounts paid for settled claims
are approximately $8.1 million. In September 2007, we entered into an agreement
with an insurance carrier to provide us with limited insurance coverage for the
defense and indemnity costs associated with certain asbestos-related claims. We
have submitted various asbestos-related claims to the insurance carrier for
coverage under this agreement, and the insurance carrier has accepted coverage
for approximately $1.3 million of claims. We have submitted additional
asbestos-related claims to the insurance carrier for coverage.





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





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


37





ITEM 6.
                  
                  EXHIBITS31.1
                  
                  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 7, 2009
                /s/ James J. BurkeJames
      J. BurkeVice
      President Finance,Chief
      Financial Officer(Principal
      Financial andAccounting
      Officer)


38




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.


39