Standard Motor Products - 10-Q quarterly report FY2019 Q1

In accordance with our policy of performing an annual actuarial evaluation in the third quarter of each year, and whenever events or changes in circumstances indicate that additional provisions may be necessary, an actuarial study was performed as of August 31, 2018.  The results of the August 31, 2018 study included an estimate of our undiscounted liability for settlement payments and awards of asbestos-related damages, excluding legal costs and any potential recovery from insurance carriers, ranging from $37.1 million to $56.9 million for the period through 2061.  Based upon the results of the August 31, 2018 actuarial study, in September 2018 we increased our asbestos liability to $37.1 million, the low end of the range, and recorded an incremental pre-tax provision of $3.5 million in earnings (loss) from discontinued operations.

In November 2018, we were involved in an asbestos liability case in California, in which a jury returned a verdict in favor of the plaintiff for the gross amount of $8.6 million in compensatory damages.  Of this amount, we were held responsible for approximately $7.4 million.  In February 2019, the court amended the verdict on the judgement, thereby increasing our responsibility to approximately $7.6 million.  We plan to pursue all rights of appeal.  While the verdict is being appealed, interest will accrue at a rate of ten percent (10%) per annum.

As a result of the California asbestos liability case, in the fourth quarter of 2018, our actuarial firm revised the results of the August 31, 2018 study.  The results of the revised actuarial study increased the low end of the estimated range of our undiscounted liability for settlement payments and awards of asbestos-related damages, excluding legal costs and any potential recovery from insurance carriers, from $37.1 million to $46.7 million, and increased the high end of the range from $56.9 million to $83.9 million for the period through 2061.  Based upon the results of the revised actuarial study, in December 2018, and in accordance with our practice, we increased our asbestos liability to $46.7 million, the low end of the range, and recorded an additional incremental pre-tax provision of $10.1 million in earnings (loss) from discontinued operations.  Future legal costs, which are expensed as incurred and reported in earnings (loss) from discontinued operations, are estimated, according to the revised study, to range from $45 million to $83.1 million.

We plan to perform an annual actuarial evaluation during the third quarter of each year for the foreseeable future and whenever events or changes in circumstances indicate that additional provisions may be necessary. 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 events and changes in circumstances surrounding these potential liabilities in determining whether to perform additional actuarial evaluations and 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.

We are currently involved in various other legal claims and legal proceedings (some of which may involve substantial amounts), including claims related to commercial disputes, product liability, employment, and environmental.  Although these legal claims and legal proceedings are subject to inherent uncertainties, based on our understanding and evaluation of the relevant facts and circumstances, we believe that the ultimate outcome of these matters will not, either individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations.  We may at any time determine that settling any of these matters is in our best interests, which settlement may include substantial payments.  Although we cannot currently predict the specific amount of any liability that may ultimately arise with respect to any of these matters, we will record provisions when the liability is considered probable and reasonably estimable.  Significant judgment is required in both the determination of probability and the determination as to whether an exposure can be reasonably estimated.  As additional information becomes available, we reassess our potential liability related to these matters. Such revisions of the potential liabilities could have a material adverse effect on our business, financial condition or results of operations.

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, 2019 and 2018, we have accrued $22.7 million and $20.6 million, respectively, for estimated product warranty claims included in accrued customer returns. The accrued product warranty costs are based primarily on historical experience of actual warranty claims.

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

In April 2019, we acquired certain assets and liabilities of the Pollak business of Stoneridge, Inc. for approximately $40 million, subject to post-closing adjustments.  The acquisition was funded through borrowings under our revolving credit facility with JPMorgan Chase Bank, N.A.  Stoneridge’s Pollak business has manufacturing and distribution facilities in Canton, Massachusetts, El Paso, Texas, and Juarez, Mexico, and distributes a range of engine management products including sensors, switches, and connectors.  The acquisition, to be reported as part of our Engine Management Segment, will enhance our growth opportunities in the OE/OES, heavy duty and commercial vehicle markets and add to our existing expertise in aftermarket distribution, product management and service.  We will be relocating all production to our existing facilities, and are not acquiring any of the Pollak facilities or employees.  We anticipate that the business will be fully integrated within 12 months.  Revenues generated from the acquired business were approximately $45 million for the year ended December 31, 2018.

In connection with the acquired business, we have not yet completed our preliminary assessment of the fair value of the assets acquired and liabilities assumed, including the valuation of intangible assets and goodwill due to the proximity of the acquisition to the issuance of these consolidated financial statements.  Accordingly, and as permitted by FASB ASC, Business Combinations, we are unable to provide further disclosures, including the allocation of the purchase price for this acquisition in this Form 10Q.

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Forward-looking statements in this Report are indicated by words such as “anticipates,” “expects,” “believes,” “intends,” “plans,” “estimates,” “projects,” “strategies” 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, changes in business relationships with our major customers and in the timing, size and continuation of our customers’ programs; changes in our receivables factoring arrangements, such as changes in terms, termination of contracts and/or the impact of rising interest rates; the ability of our customers to achieve their projected sales; competitive product and pricing pressures; increases in production or material costs, including procurement costs resulting from higher tariffs, that cannot be recouped in product pricing; the performance of the aftermarket, heavy duty, industrial equipment and original equipment markets; changes in the product mix and distribution channel mix; economic and market conditions; successful integration of acquired businesses; our ability to achieve benefits from our cost savings 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.

Our Company was founded on the values of ethics, integrity, common decency and respect for others.  These values are embodied in our Code of Ethics, which has been adopted by the Board of Directors of the Company to serve as a statement of principles to guide our decision-making and reinforce our commitment to these values in all aspects of our business.  We believe that our commitment to our Company, our employees and the communities within which we operate has led to high employee satisfaction and low employee turnover, and our commitment to our customers, suppliers and business parties has resulted in high customer satisfaction, as evidenced by the customer awards that we routinely win, and decades-long customer relationships.  We also seek ways to positively contribute to our local communities by operating our facilities with conservation in mind, holding charitable drives, and being a good neighbor.

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 warm summer, as we experienced in 2018, may increase the demand for our temperature control products, while a mild summer, as we experienced in 2017, may lessen 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.

We face inventory management issues as a result of overstock returns.  We permit our customers to return new, undamaged 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.  In addition, the seasonality of our Temperature Control Segment requires that we increase our inventory during the winter season in preparation of the summer selling season and customers purchasing such inventory have the right to make returns.  We accrue for overstock returns as a percentage of sales after giving consideration to recent returns history.

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 purchased from us and participation in our cost reduction initiatives.  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.

In 2018, changes in U.S. trade policy, particularly as it relates to China, as with much of our industry, have resulted in the assessment of increased tariffs on goods that we import into the United States.  Although our operating results in the first quarter of 2019 have been slightly impacted by the timing of Chinese sourced products, we have taken, and continue to take, several actions to mitigate the impact of the increased tariffs, including but not limited to, price increases to our customers.  We do not anticipate that the increased tariffs will have a significant impact on our future operating results.  Although we are confident that we will be able to pass along the impact of the increased tariffs to our customers, there can be no assurances that we will be able to pass on the entire increased costs imposed by the tariffs.

Sales.  Consolidated net sales for the three months ended March 31, 2019 were $283.8 million, an increase of $22 million, or 8.4%, compared to $261.8 million in the same period of 2018, with the majority of our net sales to customers located in the United States.  Consolidated net sales increased in both our Engine Management and Temperature Control Segments.

The following table summarizes consolidated net sales by segment and by major product group within each segment for the three months ended March 31, 2019 and 2018 (in thousands):

Engine Management’s net sales increased $13.7 million, or 6.9%, to $213.2 million for the three months ended March 31, 2019.  Net sales in ignition, emission control, fuel and safety related system products for the three months ended March 31, 2019 were $176.1 million, an increase of $15 million, or 9.3%, compared to $161.1 million in the same period of 2018.  Net sales in the wire and cable product group for the three months ended March 31, 2019 were $37.1 million, a decrease of $1.3 million, or 3.3%, compared to $38.4 million in the three months ended March 31, 2018.  Engine Management’s increase in net sales for the first quarter of 2019 compared to the same period in 2018 reflects the impact of pipeline orders from certain customers in the first quarter of 2019, incremental pricing for tariff costs passed on to customers, and a general improvement in the ignition, emission control, fuel and safety related system products market.  Engine Management’s year-over-year increase in net sales was offset, in part, by the general decline in our wire and cable business due to its product lifecycle.  Overall, our customers reported Engine Management POS in the low single digits, which tends to be an indicator of long-term trends.

Temperature Control’s net sales increased $8.7 million, or 14.4%, to $68.9 million for the three months ended March 31, 2019.  Net sales in the compressors product group for the three months ended March 31, 2019 were $39.8 million, an increase of $9.9 million, or 33.1%, compared to $29.9 million in the same period of 2018.  Net sales in the other climate control parts product group for the three months ended March 31, 2019 were $29.1 million, a decrease of $1.2 million, or 4%, compared to $30.3 million in the three months ended March 31, 2018.  Temperature Control’s increase in net sales for the first quarter of 2019 compared to the same period in 2018 is primarily due to strong pre-season orders as customers rebuild their inventory levels after a very strong 2018 selling season, and to a lesser extent due to incremental pricing for tariff costs passed on to customers.  The decline in net sales in the other climate control parts product group results from the impact of the introduction of air conditioner repair kits, which are sold as a complete repair kit inclusive of the compressor and other climate control parts.  These air conditioner repair kits have been very popular and are classified as sales under the compressor product group, resulting in a shift in reported sales from the other climate control parts product group into the compressor product group.  Demand for our Temperature Control products may vary significantly with summer weather conditions and customer inventory levels.

Gross Margins.  Gross margins, as a percentage of consolidated net sales, decreased slightly to 27.5% in the first quarter of 2019, compared to 27.7% in the first quarter of 2018.  The following table summarizes gross margins by segment for the three months ended March 31, 2019 and 2018, respectively (in thousands):

Compared to the first three months of 2018, gross margins at Engine Management decreased 0.3 percentage points from 28.3% to 28%, while gross margins at Temperature Control increased 0.8 percentage points from 22.7% to 23.5%.  The slight gross margin percentage decrease in Engine Management compared to the prior year reflects the negative impact of product mix, and tariff costs passed on to customers without any markup offset, in part, by higher year-over-year absorption due to higher production volumes.  The gross margin percentage increase in Temperature Control compared to the prior year was attributable primarily to favorable production variances carried forward from 2018 as compared to the prior year’s unfavorable deferred production variances carried forward from 2017 offset, in part, by tariffs passed on to customers without any markup.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses (“SG&A”) increased to $60 million, or 21.1% of consolidated net sales, in the first quarter of 2019, as compared to $57.7 million, or 22% of consolidated net sales in the first quarter of 2018.  The $2.3 million increase in SG&A expenses as compared to the first quarter of 2018 is principally due to higher distribution expenses and higher costs incurred in our accounts receivable factoring program, all of which are associated with higher sales volumes, along with slightly higher other general and administrative costs.

Restructuring and Integration Expenses. We had no restructuring and integration expenses in the first three months of 2019 compared to restructuring and integration expenses of $2.8 million for the first three months of 2018.  The $2.8 million year-over-year decrease in restructuring and integration expenses reflects the impact of the completion of all our restructuring and integration programs as of December 31, 2018.  We anticipate new restructuring and integration expenses over the next 12 months related to our recent acquisition of the Pollak business of Stoneridge, Inc.

Other Income, Net. Other expense, net was $6,000 in the first quarter of 2019, compared to other income, net of $0.3 million in the first quarter of 2018.  During the first quarter of 2018, we recognized a deferred gain of $0.2 million related to the sale-leaseback of our Long Island City, New York facility.  The recognition of the deferred gain related to the sale-leaseback of our Long Island City, New York facility ended in the first quarter of 2018 upon termination of the initial 10-year lease term for the facility.

Operating Income.  Operating income increased to $18 million in the first quarter of 2019, compared to $12.3 million in the first quarter of 2018.  The increase of $5.7 million is the result of the impact of higher consolidated net sales and lower restructuring and integration expenses offset, in part, by slightly lower gross margins as a percentage of consolidated net sales and higher SG&A expenses.

Other Non-Operating Income (Expense), Net.  Other non-operating income, net was $0.6 million in the first quarter of 2019, compared to other non-operating expense, net of $31,000 in the first quarter of 2018.  The year-over-year increase in other non-operating income (expense), net results primarily from the increase in year-over-year equity income from our joint ventures offset, in part, by the unfavorable impact of changes in foreign currency exchange rates.  

Interest Expense.  Interest expense increased to $1.1 million in the first quarter of 2019 compared to $0.6 million in the same period of 2018.  The year-over-year increase in interest expense reflects the impact of both higher average outstanding borrowings in 2019 when compared to 2018, and higher year-over-year average interest rates on our revolving credit facility.

Income Tax Provision.  The income tax provision in the first quarter of 2019 was $4.4 million at an effective tax rate of 25.2% compared to $3 million at an effective tax rate of 26.2% for the same period in 2018.  The lower effective tax rate in the first quarter of 2019 compared to the first quarter of 2018 results primarily from the reduced state and local effective tax rate, and a change in the U.S. and foreign mix of pre-tax income.

Loss from Discontinued Operations.  During the first quarter of 2019 and 2018, the loss from discontinued operations, net of tax was $0.9 million and $0.6 million, respectively.  The loss from discontinued operations, net of tax reflects legal related expenses associated with our asbestos liability, and interest accrued in the first quarter of 2019 related to the November 2018 verdict in an asbestos case in California which we are currently appealing.  As discussed more fully in Note 16, “Commitments and Contingencies” in the notes to our consolidated financial statements (unaudited), we are responsible for certain future liabilities relating to alleged exposure to asbestos containing products.

The plant rationalization program that commenced in February 2016, the wire and cable relocation program announced in October 2016, and the Orlando plant rationalization program that commenced in January 2017, were all substantially completed as of December 31, 2018.  We anticipate new restructuring and integration expenses over the next 12 months related to our recent acquisition of the Pollak business of Stoneridge, Inc.

For a detailed discussion on the restructuring and integration costs, see Note 5, “Restructuring and Integration Expenses,” of the notes to our consolidated financial statements (unaudited).

Operating Activities. During the first three months of 2019, cash used in operating activities was $26.7 million compared to cash used in operating activities of $6.2 million in the same period of 2018.  The increase in cash used in operating activities resulted primarily from the larger year-over-year increase in accounts receivable, the larger year-over-year increase in inventories, and the smaller increase in accounts payable, partially offset by an increase in net earnings.

Net earnings during the first quarter of 2019 were $12.2 million compared to $8 million in the first quarter of 2018.  During the first three months of 2019, (1) the increase in accounts receivable was $22.3 million compared to the year-over-year increase in accounts receivable of $20.4 million in 2018; (2) the increase in inventories was $14.7 million compared to the year-over-year increase in inventories of $3.4 million in 2018; and (3) the increase in accounts payable was $1.2 million compared to the year-over-year increase in accounts payable of $10.7 million in 2018.  The inventory increase during the first quarter of 2019 reflects the impact of the inventory build-up of air conditioning products at our Temperature Control segment in anticipation of a strong 2019 summer season.  We continue to actively manage our working capital to maximize our operating cash flow.

Investing Activities.  Cash provided by investing activities was $1.7 million in the first three months of 2019, compared to cash used in investing activities of $13.4 million in the same period of 2018.  Investing activities during the first three months of 2019 consisted of (1) net cash proceeds of $4.8 million received in January 2019 from the December 2018 sale of our property in Grapevine, Texas; and (2) capital expenditures of $3.1 million.  Investing activities during the first three months of 2018 consisted of (1) the payment of the third and final contribution of $5.8 million for our November 2017 acquisition of a 50% interest in a joint venture with Foshan Guangdong Automotive Air Conditioning Co., Ltd., a China-based manufacturer of air conditioning compressors for the automotive aftermarket and the Chinese OE market; (2) the payment of the first installment of $0.7 million for our 15% increase in equity ownership in an joint venture with Gwo Yng Enterprise Co., Ltd., a China-based manufacturer of air conditioner accumulators, filter driers, hose assemblies and switches for the automotive aftermarket and OEM/OES markets; and (3) capital expenditures of $6.9 million.

Financing Activities.  Cash provided by financing activities was $25.2 million in the first three months of 2019 as compared to $28 million in the same period of 2018.  During the first three months of 2019, (1) we increased borrowings under our revolving credit facility by $35 million as compared to the increase in borrowings under our revolving credit facility of $33 million in 2018; (2) we made cash payments in the first three months of 2019 for the repurchase of shares of our common stock of $5.8 million as compared to $3.2 million in 2018; and (3) we paid dividends of $5.2 million in the first three months of 2019 as compared to $4.7 million in the comparable period last year.  In February 2019, our Board of Directors voted to increase our quarterly dividend from $0.21 per share in 2018 to $0.23 per share in 2019.

In December 2018, we amended our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, and a syndicate of lenders.  The amended credit agreement provides for a senior secured revolving credit facility with a line of credit of up to $250 million (with an additional $50 million accordion feature) and extends the maturity date to December 2023.  The line of credit under the amended agreement also allows for a $10 million line of credit to Canada as part of the $250 million available for borrowing.  Direct borrowings under the amended credit agreement bear interest at LIBOR plus a margin ranging from 1.25% to 1.75% based on our borrowing availability, or floating at the alternate base rate plus a margin ranging from 0.25% to 0.75% based on our borrowing availability, at our option.  The amended credit agreement is guaranteed by certain of our subsidiaries and secured by certain of our assets.

Borrowings under the amended credit agreement are secured by substantially all of our assets, including accounts receivable, inventory and certain fixed assets, and those of certain of our subsidiaries.  Availability under the amended credit agreement is based on a formula of eligible accounts receivable, eligible drafts presented to the banks under our factoring agreements, eligible inventory, eligible equipment and eligible fixed assets.  After taking into account outstanding borrowings under the amended credit agreement, there was an additional $168.1 million available for us to borrow pursuant to the formula at March 31, 2019.  Outstanding borrowings under the amended credit agreement, which are classified as current liabilities, were $78.7 million and $43.7 million at March 31, 2019 and December 31, 2018, respectively.  Borrowings under the amended credit agreement have been classified as current liabilities based upon the accounting rules and certain provisions in the agreement.

At March 31, 2019, the weighted average interest rate on our amended credit agreement was 3.8%, which consisted of $75 million in direct borrowings at 3.6% and an alternative base rate loan of $3.7 million at 5.8%.  At December 31, 2018, the weighted average interest rate on our amended credit agreement was 3.9%, which consisted of $40 million in direct borrowings at 3.4% and an alternative base rate loan of $3.7 million at 5.8%.  During the three months ended March 31, 2019, our average daily alternative base rate loan balance was $1.4 million compared to a balance of $1.2 million for the three months ended March 31, 2018 and a balance of $1.8 million for the year ended December 31, 2018.

At any time that our borrowing availability is less than the greater of either (a) $25 million, or 10% of the commitments if fixed assets are not included in the borrowing base, or (b) $31.25 million, or 12.5% of the commitments if fixed assets are included in the borrowing base, the terms of the amended credit agreement provide for, among other provisions, a financial covenant requiring us, on a consolidated basis, to maintain a fixed  charge coverage ratio of 1:1 at the end of each fiscal quarter (rolling four quarters).  As of March 31, 2019, we were not subject to these covenants.  The amended credit agreement permits us to pay cash dividends of $20 million and make stock repurchases of $20 million in any fiscal year subject to a minimum availability of $25 million.  Provided specific conditions are met, the amended credit agreement also permits acquisitions, permissible debt financing, capital expenditures, and cash dividend payments and stock repurchases of greater than $20 million.

Our Polish subsidiary, SMP Poland sp. z.o.o., has entered into an overdraft facility with HSBC Bank Polska S.A. (“HSBC Poland”) for Zloty 30 million (approximately $7.8 million).  The facility, as amended, expires on December 2019.  Borrowings under the overdraft facility will bear interest at a rate equal to WIBOR + 0.75% and are guaranteed by Standard Motor Products, Inc., the ultimate parent company. At March 31, 2019 and December 31, 2018, borrowings under the overdraft facility were Zloty 19 million (approximately $5 million) and Zloty 19.9 million (approximately $5.3 million), respectively.

In order to reduce our accounts receivable balances and improve our cash flow, we sell undivided interests in certain of our receivables to financial institutions.  We enter these agreements at our discretion when we determine that the cost of factoring is less than the cost of servicing our receivables with existing debt.  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.

Pursuant to these agreements, we sold $171.1 million and $157.5 million of receivables during the three months ended March 31, 2019 and 2018, respectively.  A charge in the amount of $5.7 million and $5.4 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, 2019 and 2018, respectively.  If we do not enter into these arrangements or if any of the financial institutions with which we enter into these arrangements were to experience financial difficulties or otherwise terminate these arrangements, our financial condition, results of operations and cash flows could be materially and adversely affected by delays or failures to collect future trade accounts receivable.

During 2017, our Board of Directors authorized the purchase of up to $30 million of our common stock under stock repurchase programs.  Stock will be purchased from time to time, in the open market or through private transactions as market conditions warrant.  Under these programs, during the year ended December 31, 2017, we repurchased 539,760 shares of our common stock at a total cost of $24.8 million.  Additionally, during the three months ended March 31, 2018, we repurchased 61,756 shares of our common stock under the programs at a total cost of $2.9 million.  As of March 31, 2018, there was approximately $2.3 million available for future stock repurchases under the programs.  During the remainder of 2018, shares were repurchased completing the 2017 Board of Directors authorizations.

In May 2018, our Board of Directors authorized the purchase of up to an additional $20 million of our common stock under a new stock repurchase program.  Stock will be purchased from time to time, in the open market or through private transactions, as market conditions warrant.  Under this program, during the year ended December 31, 2018, we repurchased 201,484 shares of our common stock at a total cost of $9.3 million.  Additionally, during the three months ended March 31, 2019, we repurchased 129,539 shares of our common stock under the program at a total cost of $6.3 million.  As of March 31, 2019, there was approximately $4.4 million available for future stock purchases under the program.  In April 2019, we repurchased an additional 14,400 shares of our common stock under the program at a total cost of $0.7 million, thereby reducing the amount available for future stock repurchases under the Board of Directors authorization to $3.7 million.

We anticipate that our cash flow from operations, available cash and available borrowings under our revolving credit facility will be adequate to meet our future liquidity needs for at least the next twelve months.  Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity or capital requirements.  If material adverse developments were to occur in any of these areas, there can be no assurance that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our revolving credit facility in amounts sufficient to enable us to pay the principal and interest on our indebtedness, or to fund our other liquidity needs.  In addition, 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, 2018.

The following table summarizes our contractual commitments as of March 31, 2019 and expiration dates of commitments through 2028 (a) (b) (c):

We have identified several accounting policies 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, 2018, except for changes made as a result of the adoption of the FASB ASU 2016-02, Leases, described under the heading, “Recently Issued Accounting Pronouncements” in Note 2 and in Note 3, “Leases,” of the notes to our consolidated financial statements (unaudited).

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.  Although we do not believe that there is a reasonable likelihood that there will be a material change in the future estimate or in the assumptions that we use in calculating the estimate, unforeseen changes in the industry, or business could materially impact the estimate and may have a material adverse effect on our business, financial condition and results of operations.

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.  As of March 31, 2019, we do not have any derivative financial instruments.

We have exchange rate exposure, primarily, with respect to the Canadian Dollar, the Euro, the British Pound, the Polish Zloty, the Mexican Peso, the Taiwan Dollar, the Chinese Yuan Renminbi and the Hong Kong Dollar.  As of March 31, 2019 and December 31, 2018, 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 incremental 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.  Substantially all of our debt is variable rate debt as of March 31, 2019 and December 31, 2018.

In addition, from time to time, we sell undivided interests in certain of our receivables to financial institutions.  We enter these agreements at our discretion when we determine that the cost of factoring is less than the cost of servicing our receivables with existing debt.  During the three months ended March 31, 2019, we sold $171.1 million of receivables.  Depending upon the level of sales of receivables pursuant these agreements, the effect of a hypothetical, instantaneous and unfavorable change of 100 basis points in the margin rate may have an approximate $1.7 million negative impact on our earnings or cash flows during the three months ended March 31, 2019.  The charge related to the sale of receivables is included in selling, general and administrative expenses in our consolidated statements of operations.

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, 2018.

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.

During the quarter ended March 31, 2019, 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, other than the changes implemented to our processes and controls related to the adoption on January 1, 2019 of ASU 2016-02, Leases.

We review, document and test our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the 2013 Internal Control – Integrated Framework.  We may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business. These efforts may lead to various changes in our internal control over financial reporting.

The information required by this Item is incorporated herein by reference to the information set forth in Item 1, “Consolidated Financial Statements” of this Report under the captions “Asbestos” and “Other Litigation” appearing in Note 16, “Commitments and Contingencies,” of the notes to our consolidated financial statements (unaudited).

The following table provides information relating to the Company’s purchases of its common stock for the first quarter of 2019: