10-Q 1 brhc10036941_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, 2022

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, 2022, there were 21,830,348 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.
Consolidated Financial Statements:
  
     
   3
 

   4
 

   5
 

  6
 

  7
 

 
8
     
Item 2.
25
     
Item 3.
35
     
Item 4.
36

PART II – OTHER INFORMATION

Item 1.
37

   
Item 2.
37

   
Item 6.
38
     
39

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)
  
2022
    
2021
  
 
  
(Unaudited)
  
Net sales
  
$
322,831
    
$
276,553
  
Cost of sales
    
232,991
      
192,769
  
Gross profit
    
89,840
      
83,784
  
Selling, general and administrative expenses
    
62,884
      
54,460
  
Restructuring and integration expenses
    
41
      
—
  
Operating income
    
26,915
      
29,324
  
Other non-operating income, net
    
1,449
      
635
  
Interest expense
    
805
      
209
  
Earnings from continuing operations before income taxes
    
27,559
      
29,750
  
Provision for income taxes
    
7,005
      
7,586
  
Earnings from continuing operations
    
20,554
      
22,164
  
Loss from discontinued operations, net of income taxes
    
(1,116
)
    
(1,164
)
Net earnings
    
19,438
      
21,000
  
Net earnings (loss) attributable to noncontrolling interest
     (8 )     —  
Net earnings attributable to SMP (a)
   $ 19,446     $ 21,000  
                 
Net earnings attributable to SMP
                
Earnings from continuing operations
   $
 20,562     $ 22,164  
Discontinued operations
     (1,116 )     (1,164 )
Total
   $ 19,446     $ 21,000  
                 
Per share data attributable to SMP
                
Net earnings per common share – Basic:
                
Earnings from continuing operations
  
$
0.94
    
$
0.99
  
Discontinued operations
    
(0.06
)
    
(0.05
)
Net earnings per common share – Basic
  
$
0.88
    
$
0.94
  
                 
Net earnings per common share – Diluted:
                
Earnings from continuing operations
  
$
0.91
    
$
0.97
  
Discontinued operations
    
(0.04
)
    
(0.05
)
Net earnings per common share – Diluted
  
$
0.87
    
$
0.92
  
                 
Dividend declared per share
  
$
0.27
    
$
0.25
  
                 
Average number of common shares
    
21,978,507
      
22,317,959
  
Average number of common shares and dilutive common shares
    
22,477,819
      
22,765,508
  

(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)
  
2022
    
2021
  
 
  
(Unaudited)
  
 
            
Net earnings
  
$
19,438
    
$
21,000
  
Other comprehensive income (loss), net of tax:
                
Foreign currency translation adjustments
    
(638
)
    
(1,916
)
Pension and postretirement plans
    
(5
)
    
(5
)
Total other comprehensive income (loss), net of tax
    
(643
)
    
(1,921
)
Total comprehensive income
    
18,795
      
19,079
  
Comprehensive income (loss) attributable to noncontrolling interest, net of tax:
                
Net earnings (loss)         
    (8 )     —  
Foreign currency translation adjustments
     3       —  
Comprehensive income (loss) attributable to noncontrolling interest, net of tax
     (5 )     —  
Comprehensive income attributable to SMP
   $ 18,800     $ 19,079  

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,
2022
    
December 31,
2021
  
 
  
(Unaudited)
        
ASSETS
            
CURRENT ASSETS:
            
Cash and cash equivalents
  
$
19,999
    
$
21,755
  
Accounts receivable, less allowances for discounts and expected credit losses of $6,660 and $6,170 in 2022 and 2021, respectively
    
225,303
      
180,604
  
Inventories
    
534,421
      
468,755
  
Unreturned customer inventories
    
22,221
      
22,268
  
Prepaid expenses and other current assets
    
17,471
      
17,823
  
Total current assets
    
819,415
      
711,205
  
 
                
Property, plant and equipment, net of accumulated depreciation of $232,112 and $227,788 for 2022 and 2021, respectively
    
102,984
      
102,786
  
Operating lease right-of-use assets
    
42,116
      
40,469
  
Goodwill
    
131,538
      
131,652
  
Other intangibles, net
    
104,344
      
106,234
  
Deferred income taxes
    
35,964
      
36,126
  
Investments in unconsolidated affiliates
    
45,518
      
44,087
  
Other assets
    
28,530
      
25,402
  
Total assets
  
$
1,310,409
    
$
1,197,961
  
 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
CURRENT LIABILITIES:
                
Notes payable
  
$
245,450
    
$
125,298
  
Current portion of other debt
    
3,235
      
3,117
  
Accounts payable
    
139,392
      
137,167
  
Sundry payables and accrued expenses
    
45,875
      
57,182
  
Accrued customer returns
    
46,085
      
42,412
  
Accrued core liability
    
23,513
      
23,663
  
Accrued rebates
    
42,606
      
42,472
  
Payroll and commissions
    
31,972
      
45,058
  
Total current liabilities
    
578,128
      
476,369
  
                 
Long-term debt
    
—
      
21
  
Noncurrent operating lease liabilities
    
32,281
      
31,206
  
Other accrued liabilities
    
25,178
      
25,040
  
Accrued asbestos liabilities
    
51,909
      
52,698
  
Total liabilities
    
687,496
      
585,334
  
                 
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
    
107,606
      
105,377
  
Retained earnings
    
545,830
      
532,319
  
Accumulated other comprehensive income
    
(8,815
)
    
(8,169
)
Treasury stock – at cost (2,011,019 shares and 1,911,792 shares in 2022 and 2021, respectively)
    
(80,622
)
    
(75,819
)
Total SMP stockholders’ equity
    
611,871
      
601,580
  
Noncontrolling interest
    
11,042
      
11,047
  
Total stockholders’ equity
    
622,913
      
612,627
  
Total liabilities and stockholders’ equity
  
$
1,310,409
    
$
1,197,961
  

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,
  
 
  
2022
    
2021
  
 
  
(Unaudited)
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net earnings
  
$
19,438
    
$
21,000
  
Adjustments to reconcile net earnings to net cash used in operating activities:
                
Depreciation and amortization
    
6,952
      
6,514
  
Amortization of deferred financing cost
    
67
      
57
  
Increase to allowance for expected credit losses
    
200
      
81
  
Increase to inventory reserves
    
1,188
      
47
  
Equity income from joint ventures
    
(939
)
    
(363
)
Employee Stock Ownership Plan allocation
    
574
      
628
  
Stock-based compensation
    
1,980
      
1,796
  
Decrease in deferred income taxes
    
188
      
1,065
  
Loss on discontinued operations, net of tax
    
1,116
      
1,164
  
Change in assets and liabilities:
                
(Increase) decrease in accounts receivable
    
(44,706
)
    
23,533
  
Increase in inventories
    
(67,662
)
    
(46,255
)
Decrease in prepaid expenses and other current assets
    
2,171
      
3,753
  
Increase in accounts payable
    
1,942
      
8,419
  
Decrease in sundry payables and accrued expenses
    
(21,226
)
    
(29,549
)
Net changes in other assets and liabilities
    
(5,245
)
    
(3,288
)
Net cash used in operating activities
    
(103,962
)
    
(11,398
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Acquisitions of and investments in businesses, net of cash acquired
    
—
      
(2,081
)
Capital expenditures
    
(6,449
)
    
(4,966
)
Other investing activities
    
—
      
2
  
Net cash used in investing activities
    
(6,449
)
    
(7,045
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Net borrowings under line-of-credit agreements
    
120,152
      
30,968
  
Net borrowings of other debt and lease obligations
    
188
      
1,440
  
Purchase of treasury stock
    
(6,517
)
    
(11,096
)
Increase in overdraft balances
    
444
      
373
  
Dividends paid
    
(5,935
)
    
(5,588
)
Net cash provided by financing activities
    
108,332
      
16,097
  
Effect of exchange rate changes on cash
    
323
      
(42
)
Net decrease in cash and cash equivalents
    
(1,756
)
    
(2,388
)
CASH AND CASH EQUIVALENTS at beginning of period
    
21,755
      
19,488
  
CASH AND CASH EQUIVALENTS at end of period
  
$
19,999
    
$
17,100
  
                 
Supplemental disclosure of cash flow information:
                
Cash paid during the period for:
                
Interest
  
$
644
    
$
147
  
Income taxes
  
$
3,793
    
$
1,666
  

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, 2022
(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, 2021
  
$
47,872
    
$
105,377
    
$
532,319
    
$
(8,169
)
  
$
(75,819
)
  
$
601,580
    
$
11,047
    
$
612,627
  
Net earnings (loss)
    
—
      
—
      
19,446
      
—
      
—
      
19,446
      
(8
)
    
19,438
  
Other comprehensive income, net of tax
    
—
      
—
      
—
      
(646
)
    
—
      
(646
)
    
3
      
(643
)
Cash dividends paid
    
—
      
—
      
(5,935
)
    
—
      
—
      
(5,935
)
    
—
      
(5,935
)
Purchase of treasury stock
    
—
      
—
      
—
      
—
      
(6,850
)
    
(6,850
)
    
—
      
(6,850
)
Stock-based compensation
    
—
      
1,860
      
—
      
—
      
120
      
1,980
      
—
      
1,980
  
Employee Stock Ownership Plan
    
—
      
369
      
—
      
—
      
1,927
      
2,296
      
—
      
2,296
  
Balance at March 31, 2022
  
$
47,872
    
$
107,606
    
$
545,830
    
$
(8,815
)
  
$
(80,622
)
  
$
611,871
    
$
11,042
    
$
622,913
  

Three Months Ended March 31, 2021
(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, 2020
  
$
47,872
    
$
105,084
    
$
463,612
    
$
(5,676
)
  
$
(60,656
)
  
$
550,236
    
$
—
    
$
550,236
  
Net earnings
    
—
      
—
      
21,000
      
—
      
—
      
21,000
      
—
      
21,000
  
Other comprehensive income, net of tax
    
—
      
—
      
—
      
(1,921
)
    
—
      
(1,921
)
    
—
      
(1,921
)
Cash dividends paid
    
—
      
—
      
(5,588
)
    
—
      
—
      
(5,588
)
    
—
      
(5,588
)
Purchase of treasury stock
    
—
      
—
      
—
      
—
      
(11,096
)
    
(11,096
)
    
—
      
(11,096
)
Stock-based compensation
    
—
      
1,148
      
—
      
—
      
648
      
1,796
      
—
      
1,796
  
Employee Stock Ownership Plan
    
—
      
134
      
—
      
—
      
2,379
      
2,513
      
—
      
2,513
  
Balance at March 31, 2021
  
$
47,872
    
$
106,366
    
$
479,024
    
$
(7,597
)
  
$
(68,725
)
  
$
556,940
    
$
—
    
$
556,940
  

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 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 utilized in the maintenance, repair and service of vehicles in the automotive aftermarket industry along with a complementary focus on specialized original equipment parts for manufacturers across multiple industries around the world.

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, 2021.  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 2022 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 the COVID-19 pandemic, Russia’s invasion of the Ukraine and resultant sanctions imposed by the U.S. and other governments, and the recent lockdowns in China, 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
Index

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, 2021.

Recently Issued Accounting Pronouncements

Standards not yet adopted as of March 31, 2022.

The following table provides a brief description of recently issued accounting pronouncements that have not yet been adopted as of March 31, 2022, and that could have an impact on our financial statements:

Standard
 
Description
 
Date of
adoption /
Effective Date
 
Effects on the financial
statements or other
significant matters
 
      
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
 
 
This standard is intended to provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The new standard is applicable to contracts that reference LIBOR, or another reference rate, expected to be discontinued due to reference rate reform.
 
Effective March 12, 2020 through December 31, 2022
 
The  new standard may be applied as of the beginning of an interim period that includes March 12, 2020 through December 31, 2022.  As certain of our contracts reference LIBOR, including our supply chain financing arrangements, we are currently reviewing the optional guidance in the standard to determine its impact upon the discontinuance of LIBOR. At this time, we do not believe that the new guidance, nor the discontinuance of LIBOR, will have a material impact on our consolidated financial statements and related disclosures.

Note 3.  Business Acquisitions and Investments

2021 Business Acquisitions

Acquisition of Capital Stock of Stabil Operative Group GmbH (“Stabil”)

In September 2021, we acquired 100% of the capital stock of Stabil Operative Group GmbH, a German company (“Stabil”), for Euros 13.7 million, or $16.3 million, subject to certain post-closing adjustments.  Stabil is a manufacturer and distributor of a variety of components, including electronic sensors, control units, and clamping devices to the European Original Equipment (“OE”) market, serving both commercial and light vehicle applications.  The acquired Stabil business was paid for with cash funded by borrowings under our revolving credit facility with JPMorgan Chase Bank, N.A., as agent, and is headquartered on the outskirts of Stuttgart, Germany with facilities in Germany and Hungary. The acquisition, reported as part of our Engine Management Segment, aligns with our strategy of expansion beyond our core aftermarket business into complementary areas, and gives us exposure to a diversified group of blue chip European commercial and light vehicle OE customers.

9
Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values, subject to final agreement of post-closing adjustments, which we do anticipate will be significant (in thousands):

Purchase price
        
$
16,290
  
Assets acquired and liabilities assumed:
              
Receivables
  
$
2,852
          
Inventory
    
5,126
          
Other current assets (1)
    
1,628
          
Property, plant and equipment, net
    
1,810
          
Operating lease right-of-use assets
    
4,971
          
Intangible assets
    
5,471
          
Goodwill
    
4,827
          
Current liabilities
    
(4,190
)
        
Noncurrent operating lease liabilities
    
(4,454
)
        
Deferred income taxes
    
(1,751
)
        
Net assets acquired
          
$
16,290
  


(1)
The other current assets balance includes $0.9 million of cash acquired.

Intangible assets acquired of $5.5 million consist of customer relationships that will be amortized on a straight-line basis over the estimated useful life of 20 years. Goodwill of $4.8 million was allocated to the Engine Management Segment.  The goodwill reflects relationships, business specific knowledge and the replacement cost of an assembled workforce associated with personal reputations.  The intangible assets and goodwill are not deductible for tax purposes.

Incremental revenues from the acquired Stabil business included in our consolidated statement of operations for the three months ended March 31, 2022 were $5.8 million.

Acquisition of Capital Stock of Trumpet Holdings, Inc. (“Trombetta”)

In May 2021, we acquired 100% of the capital stock of Trumpet Holdings, Inc., a Delaware corporation, (more commonly known as “Trombetta”), for $111.7 million. Trombetta is a leading provider of power switching and power management products to Original Equipment (“OE”) customers in various markets. The acquired Trombetta business was paid for in cash funded by borrowings under our revolving credit facility with JPMorgan Chase Bank, N.A., as agent, and has manufacturing facilities in Milwaukee, Wisconsin; Sheboygan Falls, Wisconsin; Tijuana, Mexico, as well as a 70% ownership in a joint venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”). The acquisition, to be reported as part of our Engine Management Segment, aligns with our strategy of expansion into the OE heavy duty market. 

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values, subject to finalization of amounts related to deferred income taxes, which we do not anticipate will be significant (in thousands):

Purchase price
        
$
111,711
  
Assets acquired and liabilities assumed:
              
Receivables
  
$
9,173
          
Inventory
    
12,460
          
Other current assets (1)
    
5,193
          
Property, plant and equipment, net
    
4,939
          
Operating lease right-of-use assets
    
3,847
          
Intangible assets
    
54,700
          
Goodwill
    
49,250
          
Current liabilities
    
(5,072
)
        
Noncurrent operating lease liabilities
    
(3,065
)
        
Deferred income taxes
    
(8,210
)
        
Subtotal
            
123,215
  
Fair value of acquired noncontrolling interest
            
(11,504
)
Net assets acquired
          
$
111,711
  

(1)
The other current assets balance includes $4.6 million of cash acquired.

10
Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Intangible assets acquired of $54.7 million consist of customer relationships of $39.4 million that will be amortized on a straight-line basis over the estimated useful life of 20 years; developed technology of $13.4 million that will be amortized on a straight-line basis over the estimated useful life of 15 years; and a trade name of $1.9 million that will be amortized on a straight-line basis over the estimated useful life of 10 years.  Goodwill of $49.3 million was allocated to the Engine Management Segment.  The goodwill reflects relationships, business specific knowledge and the replacement cost of an assembled workforce associated with personal reputations.  The intangible assets and goodwill are not deductible for tax purposes.

Incremental revenues from the acquired Trombetta business included in our consolidated statement of operations for the three months ended March 31, 2022 were $16.6 million.

Acquisition of Particulate Matter Sensor Business of Stoneridge, Inc. (“Soot Sensor”)

In March 2021 and November 2021, we finalized the acquisitions of certain Soot Sensor product lines from Stoneridge, Inc. for $2.9 million. The acquired product lines were paid for with cash funded by borrowings under our revolving credit facility with JPMorgan Chase Bank, N.A.  The assets acquired include inventory, machinery, and equipment and certain intangible assets.

The product lines acquired were used to manufacture sensors used in the exhaust and emission systems of diesel engines. The acquired product lines were located in Stoneridge’s facilities in Lexington, Ohio and Tallinn, Estonia.  We did not acquire these facilities, nor any of Stoneridge’s employees, and are in the process of completing the relocation of the acquired inventory and machinery & equipment related to the product lines to our engine management plants in Independence, Kansas and Bialystok, Poland.  The acquisition, reported as part of our Engine Management Segment, aligns with our strategy of expansion into the heavy duty parts market.  Customer relationships acquired include Volvo, CNHi and Hino.

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values (in thousands):

Purchase Price
        
$
2,924
  
Assets acquired and liabilities assumed:
              
Inventory
  
$
1,032
          
Machinery and equipment, net
    
1,137
          
Intangible assets
    
755
          
Net assets acquired
          
$
2,924
  

Intangible assets acquired of approximately $0.8 million consist of customer relationships that will be amortized on a straight-line basis over the estimated useful life of 10 years.

Incremental revenues from the acquired Soot Sensor business included in our consolidated statement of operations for the three months ended March 31, 2022 were $2.3 million.
11
Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
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, 2022 and December 31, 2021 and for the three months ended March 31, 2022, consisted of the following (in thousands):

 
  
Workforce
Reduction
    
Other Exit
Costs
    
Total
  
Exit activity liability at December 31, 2021
  
$
79
    
$
—
    
$
79
  
Restructuring and integration costs:
                        
Amounts provided for during 2022
     —       41       41  
Cash payments
    
(6
)
    
(41
)
    
(47
)
Exit activity liability at March 31, 2022
  
$
73
    
$
—
    
$
73
  

Integration Costs

Particulate Matter Sensor (“Soot Sensor”) Product Line Relocation

In connection with our acquisitions in March 2021 and November 2021 of certain soot sensor product lines from Stoneridge, Inc., we incurred certain integration expenses in connection with the relocation of certain inventory, machinery, and equipment from Stoneridge’s facilities in Lexington, Ohio and Tallinn, Estonia to our existing facilities in Independence, Kansas and Bialystok, Poland, respectively.  Integration expenses recognized and cash payments made of $41,000, during the three months ended March 31, 2022, related to these relocation activities in our Engine Management segment.  Additional relocation expenses of approximately $150,000 are expected to be incurred related to the relocations. We anticipate that the soot sensor product line relocation will be completed by the end of the second quarter of 2022.

Restructuring Costs

Plant Rationalization Programs

The 2016 Plant Rationalization Program, which included the shutdown and sale of our Grapevine, Texas facility, and the 2017 Orlando Plant Rationalization Program, which included the shutdown of our Orlando, Florida facility, have been substantially completed.  Cash payments made of $6,000 during the three months ended March 31, 2022, and the remaining aggregate liability of $73,000 consists of severance payments to former employees terminated in connection with these programs.

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 being accounted for as a sale.

Pursuant to these agreements, we sold $155.7 million and $191.4 million of receivables during the three months ended March 31, 2022 and 2021, respectively.  Receivables presented at financial institutions and not yet collected as of March 31, 2022 and December 31, 2021 were approximately $9.6 million and $1.3 million, respectively, and remained in our accounts receivable balance for those periods. 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 $3.5 million and $2.7 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, 2022 and 2021, respectively.

12
Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
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, delays or failures in collecting trade accounts receivables.  The utility of the supply chain financing arrangements also depends upon the LIBOR rate, or an alternative benchmark reference rate, as it is a component of the discount rate applicable to each arrangement.  If the LIBOR rate, or alternative 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,
2022
    
December 31,
2021
  
 
  
(In thousands)
  
Finished goods
  
$
333,350
    
$
296,739
  
Work in process
    
17,826
      
16,010
  
Raw materials
    
183,245
      
156,006
  
Subtotal
    
534,421
      
468,755
  
Unreturned customer inventories
    
22,221
      
22,268
  
Total inventories
  
$
556,642
    
$
491,023
  

Note 7.  Acquired Intangible Assets

Acquired identifiable intangible assets consist of the following:

 
  
March 31,
2022
    
December 31,
2021
  
 
  
(In thousands)
  
Customer relationships
  
$
156,894
    
$
157,020
  
Patents, developed technology and intellectual property
    
14,123
      
14,123
  
Trademarks and trade names
    
8,880
      
8,880
  
Non-compete agreements
    
3,282
      
3,280
  
Supply agreements
    
800
      
800
  
Leaseholds
    
160
      
160
  
Total acquired intangible assets
    
184,139
      
184,263
  
Less accumulated amortization (1)
    
(81,058
)
    
(78,932
)
Net acquired intangible assets
  
$
103,081
    
$
105,331
  


(1)
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.

Total amortization expense for acquired intangible assets was $2.1 million for both the three months ended March 31, 2022 and 2021.  Based on the current estimated useful lives assigned to our intangible assets, amortization expense is estimated to be $6.5 million for the remainder of 2022, $8.3 million in 2023, $8.3 million in 2024, $8.3 million in 2025 and $69.1 million in the aggregate for the years 2026 through 2041.
13
Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Note 8.  Leases

Quantitative Lease Disclosures

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 included the five-year renewal option for one of our leases in our operating lease payments as we concluded that it is reasonably certain that we will exercise the option.  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 in the Stabil and Trombetta acquisitions from the date of acquisition (in thousands):

Balance Sheet Information
  
March 31,
2022
    
December 31,
2021
  
Assets
            
Operating lease right-of-use assets
  
$
42,116
    
$
40,469
  
 
                
Liabilities
                
Sundry payables and accrued expenses
  
$
11,140
    
$
10,544
  
Noncurrent operating lease liabilities
    
32,281
      
31,206
  
Total operating lease liabilities
  
$
43,421
    
$
41,750
  
                 
 
Balance Sheet Information
    
March 31,
2022
      
December 31,
2021 
 
Weighted Average Remaining Lease Term
                
Operating leases
  
5.1 Years
    
5.3 Years
  
 
                
Weighted Average Discount Rate
                
Operating leases
    
3.1
%
    
3
%

Expense and Cash Flow Information
  
Three Months Ended
March 31,
  
   
2022
    
2021
  
Lease Expense
            
Operating lease expense (a)
  
$
2,830
    
$
2,336
  
                 
Supplemental Cash Flow Information
                
Cash paid for the amounts included in the measurement of lease liabilities:
                
Operating cash flows from operating leases
  
$
 2,760    
$
 2,302  
Right-of-use assets obtained in exchange for new lease obligations:
                
Operating leases
  
$
 3,866    
$
 3,603  

(a)
Excludes expenses of approximately $0.4 million and $0.7 million for the three months ended March 31, 2022 and 2021, respectively, 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.
14
Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Minimum Lease Payments

At March 31, 2022, we are obligated to make minimum lease payments through 2031, under operating leases, which are as follows (in thousands):

2022
  
$
8,403
  
2023
    
10,076
  
2024
    
7,789
  
2025
    
6,529
  
2026
    
5,810
  
Thereafter
    
6,988
  
Total lease payments
  
$
45,595
  
Less: Interest
    
(2,174
)
Present value of lease liabilities
  
$
43,421
  

Note 9.  Credit Facilities and Long-Term Debt

Total debt outstanding is summarized as follows:

 
  
March 31,
2022
    
December 31,
2021
  
 
  
(In thousands)
  
Revolving credit facilities
  
$
245,450
    
$
125,298
  
Other (1)
    
3,235
      
3,138
  
Total debt
  
$
248,685
    
$
128,436
  
 
                
Current maturities of debt
  
$
248,685
    
$
128,415
  
Long-term debt
    
—
      
21
  
Total debt
  
$
248,685
    
$
128,436
  

(1)
Other includes borrowings under our Polish overdraft facility of Zloty 13.2 million (approximately $3.2 million) and Zloty 12.3 million (approximately $3 million) as of March 31, 2022 and December 31, 2021, respectively.

Revolving Credit Facility

In March 2022, the Company and its wholly owned subsidiaries, SMP Motor Products Ltd. and Trumpet Holdings, Inc., entered into an amendment to our Credit Agreement, dated as of October 28, 2015 (as amended by the First Amendment to Credit Agreement, dated as of December 10, 2018), with JP Morgan Chase Bank, N.A., as agent, and a syndicate of lenders for our senior secured revolving credit facility. The amendment provides for the drawdown of an additional $50 million from the agreement’s accordion feature to increase the line of credit under the revolving credit facility from $250 million to $300 million, and updates the benchmark provisions to replace LIBOR with Term SOFR as the reference rate.  The amended credit agreement has a maturity date of December 10, 2023, and allows for a $10 million line of credit to Canada as part of the $300 million available for borrowing.

Direct borrowings under the amended credit agreement bear interest at SOFR for the selected term (adjusted to include a 0.10% credit spread adjustment) 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.
15
Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
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 supply chain financing arrangements and eligible inventory.  After taking into account outstanding borrowings under the amended credit agreement, there was an additional $52 million available for us to borrow pursuant to the formula at March 31, 2022.  The loss of business of one or more of our key customers or, a significant reduction in purchases of our products from any one of them, could adversely impact availability under our amended revolving credit facility.

Outstanding borrowings under the credit agreement, which are classified as current liabilities, were $245.5 million and $125.3 million at March 31, 2022 and December 31, 2021, respectively; while letters of credit outstanding under the credit agreement were $2.6 million at both March 31, 2022 and December 31, 2021, respectively.  Borrowings under the credit agreement have been classified as current liabilities based upon accounting rules and certain provisions in the agreement.

At March 31, 2022, the weighted average interest rate on our amended credit agreement was 1.8%, which consisted of $230 million in direct borrowings at 1.5% and an alternative base rate loan of $15.5 million at 3.75%.  At December 31, 2021, the weighted average interest rate on our amended credit agreement was 1.4%, which consisted of $125 million in direct borrowings at 1.4% and an alternative base rate loan of $0.3 million at 3.5%. During the three months ended March 31, 2022, our average daily alternative base rate loan balance was $2.6 million compared to a balance of $1.2 million for the three months ended March 31, 2021 and a balance of $1.1 million for the year ended December 31, 2021.

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, 2022, we were not subject to these covenants.  Additionally, the amended credit agreement permits us to pay cash dividends of $25 million in any fiscal year, so long as after giving effect to the payment (a) our borrowing availability is greater than, or equal to, the greater of $25 million or 10% of the commitments, or (b) our borrowing availability is greater than $15 million and our fixed charge coverage ratio is at least 1.15 to 1; and to make stock repurchases of $20 million in any fiscal year, so long as after giving effect to the repurchases our borrowing availability is greater than, or equal to, the greater of $25 million or 10% of the commitments.  Provided specific conditions are met, the amended credit agreement also permits acquisitions, permissible debt financing, capital expenditures, cash dividend payments greater than $25 million, and stock repurchases of greater than $20 million.

Polish Overdraft Facility

In February 2022, our Polish subsidiary, SMP Poland sp. z.o.o., amended its overdraft facility with HSBC Continental Europe (Spolka Akcyjna) Oddzial w Polsce, formerly HSBC France (Spolka Akcyjna) Oddzial w Polsce.  The amended overdraft facility provides for borrowings of up to Zloty 30 million (approximately $7.2 million).  Availability under the amended facility commences in March 2022 and ends in June 2022, 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.  Borrowings under the overdraft facility will bear interest at a rate equal to WIBOR + 1.5% and are guaranteed by Standard Motor Products, Inc., the ultimate parent company.  At March 31, 2022 and December 31, 2021, borrowings under the overdraft facility were Zloty 13.2 million (approximately $3.2 million) and Zloty 12.3 million (approximately $3 million), respectively.
16
Index

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Deferred Financing Costs

We have deferred financing costs of approximately $0.6 million and $0.4 million as of March 31, 2022 and December 31, 2021, respectively.  Deferred financing costs as of March 31, 2022 are related to our amended revolving credit facility.  In connection with the amendment to our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, entered into in March 2022, we incurred and capitalized approximately $0.2 million of financing costs related to bank, legal and other professional fees which are being amortized, along with the preexisting deferred financing costs, through 2023, the term of the amended agreement.  Deferred financing costs as of March 31, 2022 are being amortized in the amounts of $0.3 million for the remainder of 2022, and $0.3 million in 2023.

Note 10.  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.

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 approximately two months of an executive reaching the ages 60 and 63, and become fully vested on or within approximately two months of an executive reaching the age 65.  Restricted shares granted to directors become fully vested upon the first annive