10-Q 1 ef20026309_10q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission file number:  001-04743

Standard Motor Products, Inc.
(Exact name of registrant as specified in its charter)

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

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

(718) 392-0200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $2.00 per share
SMP
New York Stock Exchange LLC

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      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 
Large Accelerated Filer 
Accelerated Filer
 
Non-Accelerated Filer  
Smaller reporting company  
 
Emerging growth company   
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes     No

As of the close of business on April 29, 2024, there were 21,814,673 outstanding shares of the registrant’s Common Stock, par value $2.00 per share.



STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

INDEX

PART I - FINANCIAL INFORMATION
    
Page No.
     
Item 1.
3
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
 
8
     
Item 2.
27
     
Item 3.
38
     
Item 4.
39

PART II – OTHER INFORMATION
     
Item 1.
40
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
40
     
Item 6.
41
     
Signatures

42

2

PART I - FINANCIAL INFORMATION

ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


 
Three Months Ended
March 31,
 
(In thousands, except share and per share data)
 
2024
   
2023
 
 
 
(Unaudited)
 
Net sales
 
$
331,403
   
$
328,028
 
Cost of sales
   
241,881
     
236,761
 
Gross profit
   
89,522
     
91,267
 
Selling, general and administrative expenses
   
74,733
     
69,633
 
Restructuring and integration expenses
   
192
     
912
 
Other income, net
    22       24  
Operating income
   
14,619
     
20,746
 
Other non-operating income, net
   
819
     
225
 
Interest expense
   
2,067
     
3,862
 
Earnings from continuing operations before income taxes
   
13,371
     
17,109
 
Provision for income taxes
   
3,342
     
4,372
 
Earnings from continuing operations
   
10,029
     
12,737
 
Loss from discontinued operations, net of income taxes
   
(1,039
)
   
(780
)
Net earnings
   
8,990
     
11,957
 
Net earnings attributable to noncontrolling interest
    166       39  
Net earnings attributable to SMP (a)
  $ 8,824     $ 11,918  
                 
Net earnings attributable to SMP
               
Earnings from continuing operations
  $ 9,863     $ 12,698  
Discontinued operations
    (1,039 )     (780 )
Total
  $ 8,824     $ 11,918  
                 
Per share data attributable to SMP
               
Net earnings per common share – Basic:
               
Earnings from continuing operations
 
$
0.45
   
$
0.59
 
Discontinued operations
   
(0.05
)
   
(0.04
)
Net earnings per common share – Basic
 
$
0.40
   
$
0.55
 
                 
Net earnings per common share – Diluted:
               
Earnings from continuing operations
 
$
0.44
   
$
0.57
 
Discontinued operations
   
(0.05
)
   
(0.03
)
Net earnings per common share – Diluted
 
$
0.39
   
$
0.54
 
                 
Dividend declared per share
 
$
0.29
   
$
0.29
 
                 
Average number of common shares
   
21,923,830
     
21,609,618
 
Average number of common shares and dilutive common shares
   
22,372,543
     
22,097,750
 

(a) Throughout this Form 10-Q, “SMP” refers to Standard Motor Products, Inc. and subsidiaries.

See accompanying notes to consolidated financial statements (unaudited).

3

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
 
Three Months Ended
March 31,
 
(In thousands)
 
2024
   
2023
 
 
 
(Unaudited)
 
 
           
Net earnings
 
$
8,990
   
$
11,957
 
Other comprehensive income (loss), net of tax:
               
Foreign currency translation adjustments
   
(1,224
)
   
2,820
 
Derivative instruments
    1,391       (1,377 )
Pension and postretirement plans
   
(3
)
   
(3
)
Total other comprehensive income, net of tax
   
164
     
1,440
 
Total comprehensive income
   
9,154
     
13,397
 
Comprehensive income (loss) attributable to noncontrolling interest, net of tax:
               
Net earnings        
    166       39  
Foreign currency translation adjustments
    (4 )     (29 )
Comprehensive income attributable to noncontrolling interest, net of tax
    162       10  
Comprehensive income attributable to SMP
  $ 8,992     $ 13,387  

See accompanying notes to consolidated financial statements (unaudited).

4

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (In thousands, except share and per share data)
 
March 31,
2024
   
December 31,
2023
 
 
 
(Unaudited)
       
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
27,113
   
$
32,526
 
Accounts receivable, less allowances for discounts and expected credit losses of $8,284 and $8,045 in 2024 and 2023, respectively
   
203,940
     
160,282
 
Inventories
   
520,702
     
507,075
 
Unreturned customer inventories
   
18,007
     
18,240
 
Prepaid expenses and other current assets
   
26,674
     
26,100
 
Total current assets
   
796,436
     
744,223
 
 
               
Property, plant and equipment, net of accumulated depreciation of $264,168 and $259,656 for 2024 and 2023, respectively
   
124,822
     
121,872
 
Operating lease right-of-use assets
   
102,060
     
100,065
 
Goodwill
   
134,624
     
134,729
 
Other intangibles, net
   
90,000
     
92,308
 
Deferred income taxes
   
40,241
     
40,533
 
Investments in unconsolidated affiliates
   
24,751
     
24,050
 
Other assets
   
38,627
     
35,267
 
Total assets
 
$
1,351,561
   
$
1,293,047
 
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
Current portion of term loan and other debt
  $
5,030
    $
5,029
 
Accounts payable
   
98,293
     
107,455
 
Sundry payables and accrued expenses
   
58,714
     
63,303
 
Accrued customer returns
   
47,220
     
38,238
 
Accrued core liability
   
17,438
     
18,399
 
Accrued rebates
   
45,191
     
42,278
 
Payroll and commissions
   
27,326
     
29,561
 
Total current liabilities
   
299,212
     
304,263
 
                 
Long-term debt
   
209,872
     
151,182
 
Noncurrent operating lease liabilities
   
90,667
     
88,974
 
Other accrued liabilities
   
27,704
     
25,742
 
Accrued asbestos liabilities
   
68,985
     
72,013
 
Total liabilities
   
696,440
     
642,174
 
Commitments and contingencies
           
Stockholders’ equity:
               
Common stock – par value $2.00 per share:
               
Authorized – 30,000,000 shares; issued 23,936,036 shares
   
47,872
     
47,872
 
Capital in excess of par value
   
102,704
     
101,751
 
Retained earnings
   
575,658
     
573,226
 
Accumulated other comprehensive income
   
(5,806
)
   
(5,974
)
Treasury stock – at cost (2,022,276 shares and 2,018,892 shares in 2024 and 2023, respectively)
   
(81,278
)
   
(81,811
)
Total SMP stockholders’ equity
   
639,150
     
635,064
 
Noncontrolling interest
   
15,971
     
15,809
 
Total stockholders’ equity
   
655,121
     
650,873
 
Total liabilities and stockholders’ equity
 
$
1,351,561
   
$
1,293,047
 

See accompanying notes to consolidated financial statements (unaudited).

5

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 
(In thousands)
 
Three Months Ended
March 31,
 
 
 
2024
   
2023
 
 
 
(Unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net earnings
 
$
8,990
   
$
11,957
 
Adjustments to reconcile net earnings to net cash used in operating activities:
               
Depreciation and amortization
   
7,301
     
7,082
 
Amortization of deferred financing cost
   
120
     
124
 
Increase to allowance for expected credit losses
   
191
     
388
 
Increase to inventory reserves
   
1,068
     
962
 
Equity income from joint ventures
   
(694
)
   
(154
)
Employee Stock Ownership Plan allocation
   
697
     
742
 
Stock-based compensation
   
1,270
     
1,532
 
(Increase) decrease in deferred income taxes
   
(180
)
   
213
 
Loss on discontinued operations, net of tax
   
1,039
     
780
 
Change in assets and liabilities:
               
Increase in accounts receivable
   
(43,978
)
   
(42,617
)
(Increase) decrease in inventories
   
(14,670
)
   
6,195
 
Decrease in prepaid expenses and other current assets
   
1,649
     
1,165
 
Increase (decrease) in accounts payable
   
(9,274
)
   
4,809
 
Increase (decrease) in sundry payables and accrued expenses
   
3,988
     
(10,656
)
Net changes in other assets and liabilities
   
(3,233
)
   
(2,964
)
Net cash used in operating activities
   
(45,716
)
   
(20,442
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Capital expenditures
   
(10,086
)
   
(4,363
)
Other investing activities
   
15
     
13
 
Net cash used in investing activities
   
(10,071
)
   
(4,350
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Repayments of term loan
    (1,250 )     (1,250 )
Net borrowings under revolving credit facilities
   
59,950
     
34,750
 
Net repayments of other debt and lease obligations
   
(8
)
   
(22
)
Purchase of treasury stock
   
(2,235
)
   
 
Increase in overdraft balances
   
315
     
125
 
Dividends paid
   
(6,392
)
   
(6,261
)
Net cash provided by financing activities
   
50,380
     
27,342
 
Effect of exchange rate changes on cash
   
(6
)
   
496
 
Net increase (decrease) in cash and cash equivalents
   
(5,413
)
   
3,046
 
CASH AND CASH EQUIVALENTS at beginning of period
   
32,526
     
21,150
 
CASH AND CASH EQUIVALENTS at end of period
 
$
27,113
   
$
24,196
 
                 
Supplemental disclosure of cash flow information:                
Cash paid during the period for:
               
Interest
 
$
2,241
   
$
3,970
 
Income taxes
 
$
3,532
   
$
3,163
 

See accompanying notes to consolidated financial statements (unaudited).

6

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2024
(Unaudited)

 (In thousands)
 
 
Common
Stock
   
Capital in
Excess of
Par Value
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Treasury
Stock
   
Total
SMP
   
Non-
Controlling
Interest
   
Total
 
Balance at December 31, 2023
 
$
47,872
   
$
101,751
   
$
573,226
   
$
(5,974
)
 
$
(81,811
)
 
$
635,064
   
$
15,809
   
$
650,873
 
Net earnings
   
     
     
8,824
     
     
     
8,824
     
166
     
8,990
 
Other comprehensive income (loss), net of tax
   
     
     
     
168
     
     
168
     
(4
)
   
164
 
Cash dividends paid
   
     
     
(6,392
)
   
     
     
(6,392
)
   
     
(6,392
)
Purchase of treasury stock
                            (2,571 )     (2,571 )           (2,571 )
Stock-based compensation
   
     
950
     
     
     
320
     
1,270
     
     
1,270
 
Employee Stock Ownership Plan
          3                   2,784       2,787             2,787  
Balance at March 31, 2024
 
$
47,872
   
$
102,704
   
$
575,658
   
$
(5,806
)
 
$
(81,278
)
 
$
639,150
   
$
15,971
   
$
655,121
 

Three Months Ended March 31, 2023
(Unaudited)

 
 
(In thousands)
 
Common Stock
   
Capital in Excess of Par Value
   
Retained Earnings
   
Accumulated Other Comprehensive Income (Loss)
   
Treasury Stock
   
Total
SMP
   
Non-
Controlling Interest
   
Total
 
Balance at December 31, 2022
 
$
47,872
   
$
105,615
   
$
564,242
   
$
(12,470
)
 
$
(95,239
)
 
$
610,020
   
$
11,018
   
$
621,038
 
Net earnings
   
     
     
11,918
     
     
     
11,918
     
39
     
11,957
 
Other comprehensive income (loss), net of tax
   
     
     
     
1,469
     
     
1,469
     
(29
)
   
1,440
 
Cash dividends paid
   
     
     
(6,261
)
   
     
     
(6,261
)
   
     
(6,261
)
Stock-based compensation
   
     
1,044
     
     
     
488
     
1,532
     
     
1,532
 
Employee Stock Ownership Plan
          16                   2,950       2,966             2,966  
Balance at March 31, 2023
  $ 47,872     $ 106,675     $ 569,899     $ (11,001 )   $ (91,801 )   $ 621,644     $ 11,028     $ 632,672  

See accompanying notes to consolidated financial statements (unaudited).

7

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Note 1.  Basis of Presentation

Standard Motor Products, Inc. and its subsidiaries (referred to hereinafter in these notes to the consolidated financial statements as “we,” “us,” “our,” “SMP,” or the “Company”) is a leading manufacturer and distributor of premium replacement parts in the automotive aftermarket, and a custom-engineered solutions provider to vehicle and equipment manufacturers in diverse non-aftermarket end markets.  Our automotive aftermarket is comprised of two segments, Vehicle Control and Temperature Control, while our Engineered Solutions segment offers a broad array of conventional and future-oriented technologies in markets for commercial and light vehicles, construction, agriculture, power sports, marine, hydraulics and lawn and garden.  We sell our products primarily to retailers, warehouse distributors, original equipment manufacturers and original equipment service part operations in the United States, Canada, Europe, Asia, Mexico and other Latin American countries.

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, 2023.  The unaudited consolidated financial statements include our accounts and all domestic and international companies in which we have more than a 50% equity ownership, except in instances where the minority shareholder maintains substantive participating rights, in which case we follow the equity method of accounting.  In instances where we have more than a 50% equity ownership and the minority shareholder does not maintain substantive participating rights, our consolidated financial statements include the accounts of the company on a consolidated basis with its net income and equity reported at amounts attributable to both our equity position and that of the noncontrolling interest.  Investments in unconsolidated affiliates are accounted for on the equity method, as we do not have a controlling financial interest but have the ability to exercise significant influence.  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 2024 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.  Although we do not believe that there is a reasonable likelihood that there will be a material change in the future estimates, or in the assumptions that we use in calculating the estimates, the uncertain future effects, if any, of disruptions in the supply chain caused by geo-political risks, future increases in interest rates, inflation, macroeconomic uncertainty, and other unforeseen changes in the industry, or business, could materially impact the estimates, and may have a material adverse effect on our business, financial condition and results of operations.  Some of the more significant estimates include allowances for expected credit losses, cash discounts, valuation of inventory, valuation of long-lived assets, goodwill and other intangible assets, depreciation and amortization of long-lived assets, product liability exposures, asbestos, environmental and litigation matters, valuation of deferred tax assets, share based compensation and sales returns and other allowances.

8

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
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, 2023.

Recently Issued Accounting Pronouncements


Standards not yet adopted as of March 31, 2024


Standard
Description
Effective date
Effects on the financial statements or other significant matters
ASU 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
 
ASU 2023-07 will improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an interim and annual basis.
 
ASU 2023-07 expands segment disclosures by requiring disclosure of (1) significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss; (2) the amount and description of the composition of other segment items to reconcile to segment profit and loss; and (3) the CODM’s title and position and how the CODM uses the reported segment measures to allocate resources.  Additionally, ASU 2023-07 requires interim disclosures of all reportable segment profit or loss and assets previously required annually by Topic 280.
 
The ASU is effective for the fiscal years beginning after December 15, 2023, which for us is December 31, 2024, and all subsequent interim periods, with full retrospective application required to all prior periods presented. Early adoption is permitted.
 
The new standard will require expanding our segment disclosure to include additional segment level information. We are currently evaluating the full impact of adopting ASU 2023-07 on our consolidated financial statements, disclosures, processes and controls. On an ongoing basis, we will continue to assess the impact of the new standard through our planned date of adoption of December 31, 2024.
 
 
ASU 2023-09,
Income Taxes (Topic 270): Improvements to Income Tax Disclosures
 
ASU 2023-09 will improve transparency and decision making usefulness of income tax disclosures.
 
ASU 2023-09 will expand the annual required effective income tax rate reconciliation disclosures to include (1) eight specific categories of rate reconciling items; (2) additional information for reconciling items that meet or exceed a quantitative threshold; and (3) expand the required disclosures to include reconciling percentages as well as reported amounts.  Additionally, the ASU 2023-09 will expand required annual disclosures of income taxes paid to include the disaggregation by federal, state and foreign jurisdictions.
The ASU is effective for annual reporting periods beginning after December 15, 2024, which for us is December 31, 2025, with prospective application. Early adoption and retrospective application are permitted.
The new standard will require expanding our annual income tax disclosures in our financial statements. We are currently evaluating the full impact of adopting ASU 2023-09 on our consolidated financial statements, disclosures, processes and controls. On an ongoing basis, we will continue to assess the impact of the new standard through our planned date of adoption of December 31, 2025.


9

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

We have reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on the Company’s consolidated financial statements.

Note 3.  Business Acquisitions and Investments


2023 Increase in Equity Investment



Investment in Foshan GWO YNG SMP Vehicle Climate Control & Cooling Products Co. Ltd.



In April 2014, we formed Foshan GWO YNG SMP Vehicle Climate Control & Cooling Products Co. Ltd. (“Gwo Yng”), a 50/50 joint venture with Gwo Yng Enterprise Co., Ltd., a China-based manufacturer of air conditioner accumulators, filter driers, hose assemblies and switches.  We acquired our 50% interest in the joint venture for approximately $14 million.  In March 2018, we acquired an additional 15% equity interest in the joint venture for Chinese yuan renminbi 26,475,583 (approximately $4.2 million), thereby increasing our equity interest in the joint venture to 65%.  While we increased our equity interest in the joint venture to 65%, the minority shareholder maintained substantive participating rights that allowed it to participate in certain significant financial and operating decisions that occur in the ordinary course of business.  As a result, we continued to account for our investment in the joint venture under the equity method of accounting.



In July 2023, we acquired an additional 15% equity interest in the joint venture for Chinese yuan renminbi 27,378,290 (approximately $4 million), thereby increasing our equity interest in Gwo Yng to 80%.  In connection with the transaction, we amended and restated the charter documents of Gwo Yng to remove all minority shareholder substantive participating rights, giving SMP control of Gwo Yng.  As a result, as of the closing date of the transaction, Gwo Yng was accounted for as a business combination achieved in stages (“a step acquisition”).  Accordingly, commencing on the closing of the transaction, we reported the results of Gwo Yng on a consolidated basis with the minority ownership interest reported as a noncontrolling interest.



The following table summarizes the allocation of the total step acquisition purchase consideration to the identifiable assets acquired and liabilities assumed based on their fair values (in thousands):

Total purchase consideration (a)
       
$
21,725
 
Assets acquired and liabilities assumed:
             
Cash and cash equivalents          
 
$
6,779
         
Receivables          
   
5,912
         
Inventory          
   
5,945
         
Other current assets          
   
528
         
Property, plant and equipment, net          
   
2,924
         
Operating lease right-of-use assets          
   
4,372
         
Intangible assets (b)          
   
532
         
Goodwill          
   
2,208
         
Long term investments and other assets
   
7,257
         
Current liabilities          
   
(6,004
)
       
Noncurrent operating lease liabilities
   
(3,455
)
       
                  Subtotal
           
26,998
 
       Fair value of acquired noncontrolling interest
           
(5,273
)
Total purchase consideration allocated to net assets acquired
         
$
21,725
 



(a) Total purchase consideration is the sum of the fair value of the previously held equity investment interest in Gwo Yng of $17.7 million and the cash paid of $4 million for the acquisition of the additional 15% equity ownership interest.

(b) Intangible assets consists of customer relationships of $0.4 million and capitalized software of $0.1 million.


10

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

Intangible assets of $0.4 million consisting of customer relationships is amortized on a straight-line basis over the estimated useful life of 10 years.  Goodwill of $2.2 million was allocated to the Temperature Control and Engineered Solutions segments in the amounts of $1.2 million and $1 million, respectively.  The goodwill reflects relationships, business specific knowledge and the replacement cost of an assembled workforce associated with personal reputations.



Incremental revenues from Gwo Yng included in our consolidated statement of operations for the three months ended March 31, 2024 were not material.

Note 4.   Restructuring and Integration Expenses

The aggregated liabilities included in “sundry payables and accrued expenses” and “other accrued liabilities” in the consolidated balance sheet relating to the restructuring and integration activities as of March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024, consisted of the following (in thousands):

 
 
Workforce
Reduction
   
Other Exit
Costs
   
Total
 
Exit activity liability at December 31, 2023
 
$
1,729
   
$
   
$
1,729
 
Restructuring and integration costs:
                       
Amounts provided for during 2024 (a)
    17       175       192  
Cash payments
   
(415
)
   
(175
)
   
(590
)
Foreign currency exchange rate changes
    (18 )           (18 )
Exit activity liability at March 31, 2024
 
$
1,313
   
$
   
$
1,313
 

(a)
Restructuring and integration expenses incurred during the three months ended March 31, 2024 consist of $101,000 in our Vehicle Control segment, $58,000 in our Temperature Control segment and $33,000 in our Engineered Solutions segment.

Restructuring Costs

Cost Reduction Initiative

During the fourth quarter of 2022, to further our ongoing efforts to improve operating efficiencies and reduce costs, we announced plans for a reduction in our sales force, and initiated plans to relocate certain product lines from our Independence, Kansas manufacturing facility and from our St. Thomas, Canada manufacturing facility to our manufacturing facilities in Reynosa, Mexico.

Restructuring expenses related to the Cost Reduction Initiative of $192,000 were incurred during the three months ended March 31, 2024 consisting of (1) expenses of $17,000 of employee severance related to our product line relocations, and (2) expenses of  $175,000 related to the relocation of machinery and equipment to our manufacturing facilities in Reynosa, Mexico.  Cash payments made of $590,000 during the three months ended March 31, 2024 consisted primarily of severance payments related to the sales force reduction. We anticipate that the Cost Reduction Initiative will be substantially completed by the end of the second quarter of 2024. Additional restructuring costs related to the initiative are expected to be immaterial.

Note 5.   Sale of Receivables

We are party to several supply chain financing arrangements, in which we may sell certain of our customers’ trade accounts receivable to such customers’ financial institutions.  We sell our undivided interests in certain of these receivables at our discretion when we determine that the cost of these arrangements 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 accounted for as a sale.

11

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Pursuant to these agreements, we sold $170.8 million and $170.9 million of receivables during the three months ended March 31, 2024 and 2023, respectively. Receivables presented at financial institutions and not yet collected as of March 31, 2024 and December 31, 2023 were approximately $10.9 million and $4.5 million, respectively, and remained in our accounts receivable balance as of that date. All receivables sold were reflected as a reduction of accounts receivable in the consolidated balance sheet at the time of sale. A charge in the amount of $10 million and $9 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, 2024 and 2023, respectively.

To the extent that these arrangements are terminated, our financial condition, results of operations, cash flows and liquidity could be adversely affected by extended payment terms, or delays or failures in collecting trade accounts receivable. The utility of the supply chain financing arrangements also depends upon a benchmark reference rate for the purpose of determining the discount rate applicable to each arrangement. If the benchmark reference rate increases significantly, we may be negatively impacted as we may not be able to pass these added costs on to our customers, which could have a material and adverse effect upon our financial condition, results of operations and cash flows.

Note 6.   Inventories

Inventories, which are stated at the lower of cost (determined by means of the first-in, first-out method) and net realizable value, consist of the following:

 
 
March 31,
2024
   
December 31,
2023
 
 
 
(In thousands)
 
Finished goods
 
$
314,809
   
$
302,557
 
Work in process
   
17,344
     
18,503
 
Raw materials
   
188,549
     
186,015
 
Subtotal
   
520,702
     
507,075
 
Unreturned customer inventories
   
18,007
     
18,240
 
Total inventories
 
$
538,709
   
$
525,315
 

Note 7.   Acquired Intangible Assets

Acquired identifiable intangible assets consist of the following:

 
 
March 31,
2024
   
December 31,
2023
 
 
 
(In thousands)
 
Customer relationships
 
$
159,843
   
$
159,641
 
Patents, developed technology and intellectual property
   
14,123
     
14,123
 
Trademarks and trade names
   
8,880
     
8,880
 
Non-compete agreements
   
3,308
     
3,295
 
Supply agreements
   
800
     
800
 
Leaseholds
   
160
     
160
 
Total acquired intangible assets
   
187,114
     
186,899
 
Less: Accumulated amortization (a)
   
(98,163
)
   
(95,681
)
Net acquired intangible assets
 
$
88,951
   
$
91,218
 


(a)
Applies to all intangible assets, except for trademarks and trade names totaling $2.6 million, which has an indefinite useful life and, as such, is not being amortized.

12

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Total amortization expense for acquired intangible assets was $2.1 million and $2.2 million for the three months ended March 31, 2024 and 2023, respectively. Based on the current estimated useful lives assigned to our intangible assets, amortization expense is estimated to be $6.4 million for the remainder of 2024, $8.5 million in 2025, $8.5 million in 2026, $8.5 million in 2027 and $54.5 million in the aggregate for the years 2028 through 2041.

Note 8.  Leases

We have operating and finance leases for our manufacturing facilities, warehouses, office space, automobiles, and certain equipment. Our leases have remaining lease terms of up to ten years, some of which may include one or more five-year renewal options. We have not included any of the renewal options in our operating lease payments as we concluded that it is not reasonably certain that we will exercise any of these renewal options. Leases with an initial term of twelve months or less are not recorded on the balance sheet.  Operating lease expense is recognized on a straight-line basis over the lease term.  Finance leases are not material.


The following tables provide quantitative disclosures related to our operating leases and includes all operating leases acquired from the date of acquisition (in thousands):


Balance Sheet Information
 
March 31,
2024
   
December 31,
2023
 
Assets
           
Operating lease right-of-use assets          
 
$
102,060
   
$
100,065
 
                 
Liabilities
               
Sundry payables and accrued expenses
 
$
17,973
   
$
17,139
 
Noncurrent operating lease liabilities
   
90,667
     
88,974
 
Total operating lease liabilities          
 
$
108,640
   
$
106,113
 
Weighted Average Remaining Lease Term
               
    Operating leases          
 
8.3 Years
   
8.3 Years
 
Weighted Average Discount Rate
               
    Operating leases          
   
4.9%
   
4.8%
                 
   
Three Months Ended
 
Expense and Cash Flow Information
 
March 31,
 
Lease Expense
  2024
    2023
 
Operating lease expense (a)          
 
$
4,820
   
$
3,109
 
                 
Supplemental Cash Flow Information
               
Cash paid for the amounts included in the measurement of lease liabilities:
               
    Operating cash flows from operating leases
 
$
4,131
   
$
2,834
 
Right-of-use assets obtained in exchange for new operating lease obligations (b)          
 
$
5,628
   
$
29,092
 

(a)
Excludes expenses of approximately $0.8 million for each of the three months ended March 31, 2024 and 2023, related to non-lease components such as maintenance, property taxes, etc., and operating lease expense for leases with an initial term of 12 months or less, which is not material.
(b)
Includes $4.7 million of right-of-use assets related to the lease modification and extension for our manufacturing facility in Bialystok, Poland during the three months ended March 31, 2024, and $27.8 million of right-of-use assets related to the lease modification and extension for our distribution center and office in Lewisville, Texas during the three months ended March 31, 2023.
13

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

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

Minimum Lease Payments

At March 31, 2024, we are obligated to make minimum lease payments through 2034, under operating leases, which are as follows (in thousands):

2024
 
$
13,904
 
2025
   
16,624
 
2026
   
15,190
 
2027
   
14,245
 
2028
   
12,616
 
Thereafter
   
62,092
 
Total lease payments
 
$
134,671
 
Less: Interest
   
(26,031
)
Present value of lease liabilities
 
$
108,640
 

Note 9.   Credit Facilities and Long-Term Debt

Total debt outstanding is summarized as follows:

 
 
March 31,
2024
   
December 31,
2023
 
 
 
(In thousands)
 
Credit facility – term loan due 2027
  $
91,250     $
92,500  
Credit facility – revolver due 2027
    123,450       63,500  
Other
   
202
     
211
 
Total debt
 
$
214,902
   
$
156,211
 
 
               
Current maturities of debt
 
$
5,030
   
$
5,029
 
Long-term debt
   
209,872
     
151,182
 
Total debt
 
$
214,902
   
$
156,211
 

Term Loan and Revolving Credit Facility

In June 2022, the Company entered into a new Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (the “Credit Agreement”).  The Credit Agreement provides for a $500 million credit facility comprised of a $100 million term loan facility (the “term loan”) and a $400 million multi-currency revolving credit facility available in U.S. dollars, euros, British pound sterling, Swiss francs, Canadian dollars and other currencies as agreed to by the administrative agent and the lenders (the “revolving facility”). The Credit Agreement replaces and refinances the 2015 Credit Agreement.

Borrowings under the Credit Agreement were used to repay all outstanding borrowings under the 2015 Credit Agreement, and pay certain fees and expenses incurred in connection with the Credit Agreement, with future borrowings used for other general corporate purposes of the Company and its subsidiaries.  The term loan amortizes in quarterly installments of 1.25% in each of the first four years, and quarterly installments of 2.5% in the fifth year of the Credit Agreement.  The revolving facility has a $25 million sub-limit for the issuance of letters of credit and a $25 million sub-limit for the borrowing of swingline loans.  The maturity date is June 1, 2027.  The Company may request up to two one-year extensions of the maturity date.

The Company may, upon the agreement of one or more then existing lenders or of additional financial institutions not currently party to the Credit Agreement, increase the revolving facility commitments or obtain incremental term loans by an aggregate amount not to exceed (x) the greater of (i) $168 million or (ii) 100% of consolidated EBITDA (as defined in the Credit Agreement) for the four fiscal quarters ended most recently before such date, plus (y) the amount of any voluntary prepayment of term loans, plus (z) an unlimited amount so long as, immediately after giving effect thereto, the pro forma First Lien Net Leverage Ratio (as defined in the Credit Agreement) does not exceed 2.5 to 1.0.

14

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Term loan and revolver facility borrowings in U.S. dollars bear interest, at the Company’s election, at a rate per annum equal to Term SOFR plus 0.10% plus an applicable margin, or an alternate base rate plus an applicable margin, where the alternate base rate is the greater of the prime rate, the federal funds effective rate plus 0.50%, and one-month Term SOFR plus 0.10% plus 1.00%. Term loan borrowings are being made at one-month Term SOFR. The applicable margin for the term benchmark borrowings ranges from 1.0% to 2.0%, and the applicable margin for alternate base rate borrowings ranges from 0% to 1.0%, in each case, based on the total net leverage ratio of the Company and its restricted subsidiaries.  The Company may select interest periods of one, three or six months for Term SOFR borrowings.  Interest is payable at the end of the selected interest period, but no less frequently than quarterly.

The Company’s obligations under the Credit Agreement are guaranteed by its material domestic subsidiaries (each, a “Guarantor”), and secured by a first priority perfected security interest in substantially all of the existing and future personal property of the Company and each Guarantor, subject to certain exceptions.  The collateral security described above also secures certain banking services obligations and interest rate swaps and currency or other hedging obligations of the Company owing to any of the then existing lenders or any affiliates thereof.  Concurrently with the Company’s entry into the Credit Agreement, the Company also entered into a seven year interest rate swap agreement with Wells Fargo Bank, N.A., Co-Syndication Agent and lender under the Credit Agreement, on $100 million of borrowings under the Credit Agreement. The interest rate swap agreement matures in May 2029.

Outstanding borrowings at March 31, 2024 under the Credit Agreement were $214.7 million, consisting of current borrowings of $5 million and long-term debt of $209.7 million; while outstanding borrowings at December 31, 2023 were $156 million, consisting of current borrowings of $5 million and long-term debt of $151 million.  Letters of credit outstanding under the Credit Agreement were $2.3 million at both March 31, 2024 and December 31, 2023.

At March 31, 2024, the weighted average interest rate under our Credit Agreement was 5.5%, which consisted of $211 million in borrowings under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100 million of borrowings, and an alternative base rate borrowing of $3.7 million at 8.8%.  At December 31, 2023, the weighted average interest rate under our Credit Agreement was 5%, which consisted of $156 million in borrowings at 5% under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100 million of borrowings.  During the three months ended March 31, 2024, our average daily alternative base rate loan balance was $1.7 million, compared to a balance of $0.3 million for the three months ended March 31, 2023 and a balance of $0.1 million for the year ended December 31, 2023.

The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets.  The Credit Agreement also contains customary events of default.

Polish Overdraft Facility

In November 2023, our Polish subsidiary, SMP Poland sp. z.o.o., further amended its overdraft facility with HSBC Continental Europe (Spolka Akcyjna) Oddzial w Polsce. The overdraft facility, as amended, provides for borrowings under the facility in euros and U.S. dollars. Under the amended terms, the overdraft facility provides for borrowings of up to Polish zloty 30 million (approximately $7.5 million) if borrowings are solely in Polish zloty, or up to 85% of the Polish zloty 30 million limit (approximately $6.4 million) if borrowings are in euros and/or U.S. dollars. The overdraft facility had an original maturity date in March 2024, with automatic three-month renewals until June 2027, subject to cancellation by either party, at its sole discretion, at least 30 days prior to the commencement of the three-month renewal period. The facility automatically renewed in March 2024 to a June 2024 maturity date. Borrowings under the amended overdraft facility will bear interest at a rate equal to (1) the one month Warsaw Interbank Offered Rate (“WIBOR”) + 1.0% for borrowings in Polish zloty, (2) the one month Euro Interbank Offered Rate (“EURIBOR”) + 1.0% for borrowings in euros, and (3) the Mid-Point of the Fed Target Range + 1.25% for borrowings in U.S. dollars.  Borrowings under the overdraft facility are guaranteed by Standard Motor Products, Inc., the ultimate parent company.  There were no borrowings outstanding under the overdraft facility at both March 31, 2024 and December 31, 2023.

15

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Maturities of Debt

As of March 31, 2024, maturities of debt through 2027, assuming no prepayments, are as follows (in thousands):

   
Revolving
Credit Facility
   
Term Loan
Facility
   
Polish
Overdraft
Facility and
Other Debt
   
Total
 
Remainder of 2024
 
$
   
$
3,750
   
$
22
   
$
3,772
 
2025
   
     
5,000
     
31
     
5,031
 
2026
   
     
7,500
     
48
     
7,548
 
2027
   
123,450
     
75,000
     
101
     
198,551
 
Total
 
$
123,450
   
$
91,250
   
$
202
   
$
214,902
 
Less: Current maturities
   
     
(5,000
)
   
(30
)
   
(5,030
)
Long-term debt
 
$
123,450
   
$
86,250
   
$
172
   
$
209,872
 

Deferred Financing Costs

We have deferred financing costs of approximately $1.5 million and $1.6 million as of March 31, 2024 and December 31, 2023, respectively.  Deferred financing costs are related to our term loan and revolving credit facilities. Deferred financing costs as of March 31, 2024, assuming no prepayments, are being amortized in the amounts of $0.4 million for the remainder of 2024, $0.5 million in 2025, $0.5 million in 2026 and $0.1 million in 2027.

16

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Note 10.  Accumulated Other Comprehensive Income Attributable to SMP

Changes in Accumulated Other Comprehensive Income by Component (in thousands)

   
Three Months Ended March 31, 2024
 
   
Foreign
Currency
Translation
   
Unrealized
derivative
gains
(losses)
   
Unrecognized
Postretirement
Benefit Costs
(Credit)
   
Total
 
Balance at December 31, 2023
 
$
(8,897
)
 
$
2,899
   
$
24
   
$
(5,974
)
Other comprehensive income (loss) before reclassifications
   
(1,220
)
   
1,888
 (a)    
     
668
 
Amounts reclassified from accumulated other comprehensive income
   
     
(497
)
   
(3
)
   
(500
)
Other comprehensive income (loss), net
   
(1,220
)
   
1,391
     
(3
)
   
168
 
Balance at March 31, 2024
 
$
(10,117
)
 
$
4,290
   
$
21
   
$
(5,806
)

 
(a)
Consists of the unrecognized gain relating to the change in fair value of the cash flow interest rate hedge of $1.9 million ($1.4 million, net of tax), plus cash settlement receipts of $0.7 million ($0.5 million, net of tax) in the three months ended March 31, 2024.

Reclassifications Out of Accumulated Other Comprehensive Income (in thousands)

 
 
Three Months Ended
 

 
March 31, 2024
 
Derivative cash flow hedge:
     
Unrecognized (gain) loss (a)
 
$
(671
)
Postretirement benefit plans:
       
Unrecognized (gain) loss (b)
   
(5
)
Total before income tax
   
(676
)
Income tax (expense) benefit
   
(176
)
Total reclassifications
 
$
(500
)

 
(a)
Unrecognized accumulated other comprehensive income (loss) related to the cash flow interest rate hedge is reclassified to earnings and reported as part of interest expense in our consolidated statements of operations when the interest payments on the underlying borrowings are recognized.

 
(b)
Unrecognized accumulated other comprehensive income (loss) related to our post retirement plans is reclassified to earnings and included in the computation of net periodic postretirement benefit costs, which are included in other non-operating income (expense), net in our consolidated statements of operations (see Note 12, “Employee Benefits,” for additional information).

Note 11.  Stock-Based Compensation Plans

We account for our stock-based compensation plans in accordance with the provisions of FASB ASC 718, Stock Compensation, which requires that a company measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.  The cost is recognized in the consolidated statement of operations over the period during which an employee is required to provide service in exchange for the award.

17

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Restricted and Performance Stock Grants

We are authorized to issue, among other things, shares of restricted and performance-based stock to eligible employees and restricted stock to directors of up to 2,050,000 shares under the Amended and Restated 2016 Omnibus Incentive Plan (“Plan”).  Shares issued under the Plan that are cancelled, forfeited or expire by their terms are eligible to be granted again under the Plan.

As part of the Plan, we currently grant shares of restricted stock to eligible employees and our independent directors and performance-based shares to eligible employees.  We grant eligible employees two types of restricted stock (standard restricted shares and long-term retention restricted shares).  Standard restricted shares granted to employees become fully vested no earlier than three years after the date of grant.  Long-term retention restricted shares granted to selected executives vest at a 25% rate on or within