Standard Motor Products, Inc. Announces Fourth Quarter and Full Year 2004 Results
NEW YORK, March 31 -- Standard Motor Products, Inc. , an automotive replacement parts manufacturer and distributor, reported today its consolidated financial results for the three months and for the year ended December 31, 2004.
Consolidated net sales for the fourth quarter of 2004 were $181 million, compared to consolidated net sales of $162.5 million during the comparable quarter in 2003. Losses from continuing operations, before cumulative effect of accounting change, for the fourth quarter of 2004 were $17.2 million or 89 cents per diluted share, compared to $5.5 million or 29 cents per diluted share in the fourth quarter of 2003.
Consolidated net sales for 2004 were $824.3 million, compared to consolidated net sales of $678.8 million in 2003. Losses from continued operations, before cumulative effect of accounting change, for 2004 were $8.9 million or 46 cents per diluted share, compared to earnings from continuing operations of $224,000 or 1 cent per diluted share in 2003.
Fourth quarter 2004 consolidated net sales were up approximately $18.5 million or 11.4%. The net sales increase was primarily from the Engine Management division up $14 million or 11.1% and the Canadian distribution business up $3.3 million. The Canadian increase was related to the acquisition of the Dana Engine Management (DEM) distribution business in February 2004.
Commenting on the results, Mr. Lawrence Sills, Standard Motor Products' Chairman and Chief Executive Officer, said, "While we are obviously dissatisfied with the fourth quarter loss, we are very pleased with how the DEM integration is proceeding, and especially with the strong revenue growth in Engine Management. Net Engine Management sales were ahead 11.1% in the fourth quarter, and 6.5% for the second half of 2004, the six months in which we had both lines.
"However, in the fourth quarter, we incurred a number of significant one- time costs from the final DEM integration. The Engine Management gross margins were negatively impacted in the quarter by (1) the underabsorption of factory overhead expenses, approximately $3 million, due to closing manufacturing facilities for physical inventories and to reduce the "bridge inventories" which had been built to cover the plant closings: (2) unfavorable physical inventory adjustments, approximately $3 million, primarily related to the scrapping of inventories in facilities being closed; (3) an inventory writedown, approximately $5 million, related to the inventory turnover for products sourced on the outside at substantial premiums to our manufactured costs. These "spot buys" were made to assist in shipping during the transition.
"These unfavorable charges resulted in an Engine Management gross margin of 13.9% in the fourth quarter and 24% for the full year. However, these are mostly one-time events and are essentially behind us. Now, as our efficiency continues to progress towards historic levels, and we implement identified material cost savings and price increases, we are confident we will achieve our original target for Engine Management profit improvement during the second half of 2005."
"Mr. Sills added, "The overall integration has proceeded on schedule. The critical goals we established for a successful integration were to (a) maintain the DEM customer base, (b) reduce excess capacity by closing seven of the nine acquired facilities in a 12 to 18 month timeframe, (c) complete the transition for $30-35 million during this period in restructuring and integration costs, and (d) achieve $50-55 million in estimated annual savings upon completion. I am pleased to report we have met the first three goals, and as previously discussed, are confident that we will be approaching our target of $50-55 million annual savings from the DEM acquisition in the second half of 2005.
"In addition, we continue to gain leverage on consolidated selling, general and administrative (SG&A) expenses primarily from the closure of the DEM facilities. Total SG&A expenses improved 1.5 percentage points in the fourth quarter at 22.9% as compared to 24.4% in the comparable period in 2003."
"Turning to our other divisions, Four Seasons experienced its second cool summer in a row. In certain parts of the country, it was the coldest summer in over 100 years. Gross sales fell by $21 million, but our people did an excellent job reducing costs to maintain a $2.7 million operating profit for the year, before the goodwill impairment charge. Heading into 2005, we are anticipating improvements as a result of additional OES (Original Equipment Service) Temperature Control business and further cost cutting initiatives. Turning around Four Seasons remains an important goal for the Company, and we are confident we can do this.
"Our European business showed substantial improvement over the prior year, though it still has a way to go to achieve solid profitability. We have plans in place for further improvements in 2005."
Finally, two accounting related charges were recorded in the fourth quarter related to goodwill impairment charges of $6.4 million and the cumulative effect of an accounting change of $1.6 million. The latter reflects the expensing of new customer acquisitions costs as incurred, as opposed to the previous method of amortizing such expenses over 12 months.
Mr. Sills concluded, "Jack Kelsey has elected to retire from our Board of Directors after nearly 40 years of service but will remain as a member of the Board until the May 2005 annual meeting of shareholders. We will truly miss his wisdom and sagacious advice and wish him a healthy and well-deserved retirement."
The Board has agreed to nominate Roger Widmann as a director to fill Mr. Kelsey's seat at the May 2005 annual meeting of shareholders. Mr. Widmann has agreed to serve as a director if elected. Mr. Widmann previously served as the Chairman of the Board of Lydall, Inc. and was a principal of the investment banking firm of Tanner & Co., Inc. Prior to that time, Mr. Widmann was a Senior Managing Director of Chemical Securities Inc., a subsidiary of Chemical Banking Corporation (now JPMorgan Chase Corporation)."
STANDARD MOTOR PRODUCTS, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2004 2003 2004 2003
NET SALES $180,966 $162,454 $824,283 $678,783
COST OF SALES 151,743 124,329 629,290 504,011
GROSS PROFIT 29,223 38,125 194,993 174,772
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 41,414 39,632 178,852 153,303
GOODWILL IMPAIRMENT 6,429 - 6,429 -
INTEGRATION COSTS 2,857 2,952 11,449 5,654
OPERATING INCOME (LOSS) (21,477) (4,459) (1,737) 15,815
OTHER INCOME (EXPENSE),
NET 1,095 (199) 2,861 (477)
INTEREST EXPENSE 3,321 3,631 13,710 13,907
EARNINGS (LOSS) FROM
CONTINUING OPERATIONS
BEFORE TAXES (23,703) (8,289) (12,586) 1,431
INCOME TAX EXPENSE
(BENEFIT) (6,458) (2,778) (3,679) 1,207
EARNINGS (LOSS) FROM
CONTINUING OPERATIONS (17,245) (5,511) (8,907) 224
LOSS FROM DISCONTINUED
OPERATION, NET OF TAX (617) (370) (3,909) (1,742)
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (1,564) - (1,564) -
NET LOSS $(19,426) $(5,881) $(14,380) $(1,518)
NET EARNINGS (LOSS) PER
COMMON SHARE:
BASIC EARNINGS (LOSS)
FROM CONTINUING
OPERATIONS $(0.89) $(0.29) $(0.46) $0.01
DISCONTINUED OPERATION (0.03) (0.02) (0.20) (0.11)
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (0.08) - (0.08)
NET LOSS PER COMMON
SHARE - BASIC $(1.00) $(0.31) $(0.74) $(0.10)
DILUTED EARNINGS (LOSS)
FROM CONTINUING
OPERATIONS $(0.89) $(0.29) $(0.46) $0.01
DISCONTINUED OPERATION (0.03) (0.02) (0.20) (0.11)
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (0.08) - (0.08) -
NET LOSS PER COMMON
SHARE - DILUTED $(1.00) $(0.31) $(0.74) $(0.10)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 19,388,015 19,201,608 19,331,358 15,744,930
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND
DILUTIVE SHARES 19,388,015 19,201,608 19,331,358 15,793,008
STANDARD MOTOR PRODUCTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
December 31 December 31,
2004 2003
Cash and cash equivalents $14,934 $19,647
Accounts receivable, gross 160,706 179,232
Allowance for doubtful accounts 9,354 5,009
Accounts receivable, net 151,352 174,223
Inventories 258,641 253,754
Other current assets 22,289 20,547
Total current assets 447,216 468,171
Property, plant and equipment, net 97,425 107,042
Goodwill and other intangibles 69,911 77,350
Other assets 42,017 41,962
Total assets $656,569 $694,525
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $109,416 $99,699
Current portion of long term debt 534 3,354
Accounts payable trade 46,487 58,029
Accrued customer returns 23,127 24,115
Restructuring accrual 6,999 16,000
Other current liabilities 65,893 75,641
Total current liabilities 252,456 276,838
Long-term debt 114,236 114,757
Accrued asbestos liabilities 26,060 24,426
Postretirement & other liabilities 44,111 36,848
Restructuring accrual 12,394 15,615
Total liabilities 449,257 468,484
Total stockholders' equity 207,312 226,041
Total liabilities and stockholders'
equity $656,569 $694,525