Standard Motor Products, Inc 10-Q for FY2024 Q1
Standard Motor Products, Inc. (SMP)
10-Q
2024-05-01
For: 2024-03-31
View Original
Added on
April 04, 2026
About this 10-Q
Standard Motor Products, Inc filed this 10-Q on May 1, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $331.4M
- up 1.0% from $328.03M a year earlier
- Net income
- $8.82M
- down 26.0% from net income of $11.92M a year earlier
- Diluted EPS
- $0.39
- down 27.8% from $0.54 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the quarterly period ended March 31, 2024
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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Commission file number: 001-04743
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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(718 ) 392-0200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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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.
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).
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.
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Accelerated Filer ☐
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Non-Accelerated Filer ☐
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Smaller reporting company
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Emerging growth company
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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 $2.00 per share.
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Page No.
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Item 1.
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27
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Item 3.
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38
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Item 4.
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39
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PART II – OTHER INFORMATION
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Item 1.
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40
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| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 6.
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41
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| Signatures |
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42
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PART I - FINANCIAL INFORMATION
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CONSOLIDATED FINANCIAL STATEMENTS
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STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
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Three Months Ended
March 31,
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(In thousands, except share and per share data)
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2024
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2023
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(Unaudited)
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Net sales
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$
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$
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Cost of sales
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Gross profit
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Selling, general and administrative expenses
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Restructuring and integration expenses
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Operating income
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Other non-operating income, net
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Interest expense
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Earnings from continuing operations before income taxes
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Provision for income taxes
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Earnings from continuing operations
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Loss from discontinued operations, net of income taxes
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(
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(
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Net earnings
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Net earnings attributable to noncontrolling interest
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Net earnings attributable to SMP (a)
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$ | $ | ||||||
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Net earnings attributable to SMP
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Earnings from continuing operations
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$ | $ | ||||||
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Discontinued operations
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Total
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$ | $ | ||||||
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Per share data attributable to SMP
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Net earnings per common share – Basic:
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Earnings from continuing operations
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$
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$
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Discontinued operations
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(
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)
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(
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Net earnings per common share – Basic
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$
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$
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Net earnings per common share – Diluted:
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Earnings from continuing operations
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$
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$
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Discontinued operations
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(
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)
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(
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)
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Net earnings per common share – Diluted
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$
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$
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Dividend declared per share
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$
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$
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Average number of common shares
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Average number of common shares and dilutive common shares
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(a) Throughout this Form 10-Q, “SMP” refers to Standard Motor Products, Inc. and subsidiaries.
See accompanying notes to consolidated financial statements (unaudited).
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
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Three Months Ended
March 31,
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(In thousands)
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2024
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2023
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(Unaudited)
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Net earnings
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$
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$
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Other comprehensive income (loss), net of tax:
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Foreign currency translation adjustments
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(
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)
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Derivative instruments
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( |
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Pension and postretirement plans
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(
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(
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Total other comprehensive income, net of tax
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Total comprehensive income
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Comprehensive income (loss) attributable to noncontrolling interest, net of tax:
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Net earnings
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Foreign currency translation adjustments
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Comprehensive income attributable to noncontrolling interest, net of tax
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Comprehensive income attributable to SMP
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$ | $ | ||||||
See accompanying notes to consolidated financial statements (unaudited).
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
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(In thousands, except share and per share data)
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March 31,
2024
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December 31,
2023
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(Unaudited)
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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$
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Accounts receivable, less allowances for discounts and expected credit losses of $
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Inventories
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Unreturned customer inventories
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Prepaid expenses and other current assets
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Total current assets
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Property, plant and equipment, net of accumulated depreciation of $
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Operating lease right-of-use assets
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Goodwill
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Other intangibles, net
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Deferred income taxes
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Investments in unconsolidated affiliates
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Other assets
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Total assets
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$
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$
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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CURRENT LIABILITIES:
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Current portion of term loan and other debt
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$ |
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$ |
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Accounts payable
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Sundry payables and accrued expenses
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Accrued customer returns
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Accrued core liability
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Accrued rebates
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Payroll and commissions
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Total current liabilities
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Long-term debt
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Noncurrent operating lease liabilities
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Other accrued liabilities
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Accrued asbestos liabilities
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Total liabilities
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Commitments and contingencies
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Stockholders’ equity:
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Common stock – par value $
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Authorized –
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Capital in excess of par value
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Retained earnings
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Accumulated other comprehensive income
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Treasury stock – at cost (
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(
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(
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Total SMP stockholders’ equity
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Noncontrolling interest
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Total stockholders’ equity
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Total liabilities and stockholders’ equity
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$
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$
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See accompanying notes to consolidated financial statements (unaudited).
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
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(In thousands)
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Three Months Ended
March 31,
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2024
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2023
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(Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net earnings
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$
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$
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Adjustments to reconcile net earnings to net cash used in operating activities:
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Depreciation and amortization
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Amortization of deferred financing cost
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Increase to allowance for expected credit losses
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Increase to inventory reserves
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Equity income from joint ventures
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(
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Employee Stock Ownership Plan allocation
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Stock-based compensation
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(Increase) decrease in deferred income taxes
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Loss on discontinued operations, net of tax
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Change in assets and liabilities:
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Increase in accounts receivable
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(Increase) decrease in inventories
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Decrease in prepaid expenses and other current assets
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Increase (decrease) in accounts payable
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Increase (decrease) in sundry payables and accrued expenses
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Net changes in other assets and liabilities
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(
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Net cash used in operating activities
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Capital expenditures
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(
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Other investing activities
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Net cash used in investing activities
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(
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(
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Repayments of term loan
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Net borrowings under revolving credit facilities
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Net repayments of other debt and lease obligations
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(
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(
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Purchase of treasury stock
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(
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Increase in overdraft balances
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Dividends paid
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(
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(
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Net cash provided by financing activities
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Effect of exchange rate changes on cash
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(
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Net increase (decrease) in cash and cash equivalents
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(
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CASH AND CASH EQUIVALENTS at beginning of period
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CASH AND CASH EQUIVALENTS at end of period
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$
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$
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| Supplemental disclosure of cash flow information: | ||||||||
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Cash paid during the period for:
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Interest
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$
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$
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Income taxes
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$
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$
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See accompanying notes to consolidated financial statements (unaudited).
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
Three Months Ended March 31, 2024
(Unaudited)
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(In thousands)
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Common
Stock
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Capital in
Excess of
Par Value
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Retained
Earnings
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Accumulated
Other
Comprehensive
Income (Loss)
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Treasury
Stock
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Total
SMP
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Non-
Controlling
Interest
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Total
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Balance at December 31, 2023
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$
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$
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$
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$
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(
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)
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$
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(
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)
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$
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$
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$
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Net earnings
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Other comprehensive income (loss), net of tax
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(
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Cash dividends paid
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(
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(
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(
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| Purchase of treasury stock |
( |
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Stock-based compensation
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Employee Stock Ownership Plan
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Balance at March 31, 2024
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$
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$
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$
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$
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(
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)
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$
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(
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$
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$
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$
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Three Months Ended March 31, 2023
(Unaudited)
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(In thousands)
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Common Stock
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Capital in Excess of Par Value
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Retained Earnings
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Accumulated Other Comprehensive Income (Loss)
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Treasury Stock
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Total
SMP
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Non-
Controlling Interest
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Total
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Balance at December 31, 2022
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$
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$
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$
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$
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(
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)
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$
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(
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$
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$
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$
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Net earnings
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Other comprehensive income (loss), net of tax
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(
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Cash dividends paid
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(
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(
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(
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Stock-based compensation
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Employee Stock Ownership Plan
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Balance at March 31, 2023
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$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||
See accompanying notes to consolidated financial statements (unaudited).
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
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)
|
$
|
|
||||||
|
Assets acquired and liabilities assumed:
|
||||||||
|
Cash and cash equivalents
|
$
|
|
||||||
|
Receivables
|
|
|||||||
|
Inventory
|
|
|||||||
|
Other current assets
|
|
|||||||
|
Property, plant and equipment, net
|
|
|||||||
|
Operating lease right-of-use assets
|
|
|||||||
|
Intangible assets (b)
|
|
|||||||
|
Goodwill
|
|
|||||||
|
Long term investments and other assets
|
|
|||||||
|
Current liabilities
|
(
|
)
|
||||||
|
Noncurrent operating lease liabilities
|
(
|
)
|
||||||
|
Subtotal
|
|
|||||||
|
Fair value of acquired noncontrolling interest
|
(
|
)
|
||||||
|
Total purchase consideration allocated to net assets acquired
|
$
|
|
||||||
| (a) | |
| (b) | |
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
|
$
|
|
$
|
|
$
|
|
||||||
| Restructuring and integration costs: |
||||||||||||
|
Amounts provided for during 2024 (a)
|
||||||||||||
|
Cash payments
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Foreign currency exchange rate changes
|
( |
) | ( |
) | ||||||||
|
Exit activity liability at March 31, 2024
|
$
|
|
$
|
|
$
|
|
||||||
|
(a)
|
|
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
|
$
|
|
$
|
|
||||
|
Work in process
|
|
|
||||||
|
Raw materials
|
|
|
||||||
|
Subtotal
|
|
|
||||||
|
Unreturned customer inventories
|
|
|
||||||
|
Total inventories
|
$
|
|
$
|
|
||||
Note 7. Acquired Intangible Assets
Acquired identifiable intangible assets consist of the following:
|
|
March 31,
2024
|
December 31,
2023
|
||||||
|
|
(In thousands)
|
|||||||
|
Customer relationships
|
$
|
|
$
|
|
||||
|
Patents, developed technology and intellectual property
|
|
|
||||||
|
Trademarks and trade names
|
|
|
||||||
|
Non-compete agreements
|
|
|
||||||
|
Supply agreements
|
|
|
||||||
|
Leaseholds
|
|
|
||||||
|
Total acquired intangible assets
|
|
|
||||||
|
Less: Accumulated amortization (a)
|
(
|
)
|
(
|
)
|
||||
|
Net acquired intangible assets
|
$
|
|
$
|
|
||||
| (a) |
|
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
|
$
|
|
$
|
|
||||
|
Liabilities
|
||||||||
|
Sundry payables and accrued expenses
|
$
|
|
$
|
|
||||
|
Noncurrent operating lease liabilities
|
|
|
||||||
|
Total operating lease liabilities
|
$
|
|
$
|
|
||||
|
Weighted Average Remaining Lease Term
|
||||||||
|
Operating leases
|
|
|
||||||
|
Weighted Average Discount Rate
|
||||||||
|
Operating leases
|
|
|
||||||
|
Three Months Ended
|
||||||||
|
Expense and Cash Flow Information
|
March 31,
|
|||||||
|
Lease Expense
|
2024 |
2023 |
||||||
|
Operating lease expense (a)
|
$
|
|
$
|
|
||||
|
Supplemental Cash Flow Information
|
||||||||
|
Cash paid for the amounts included in the measurement of lease liabilities:
|
||||||||
|
Operating cash flows from operating leases
|
$
|
|
$
|
|
||||
|
Right-of-use assets obtained in exchange for new operating lease obligations (b)
|
$
|
|
$
|
|
||||
|
(a)
|
|
|
(b)
|
|
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
|
$
|
|
||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
Thereafter
|
|
|||
|
Total lease payments
|
$
|
|
||
|
Less: Interest
|
(
|
)
|
||
|
Present value of lease liabilities
|
$
|
|
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 |
$ |
$ |
||||||
| Credit facility – revolver due 2027 |
||||||||
|
Other
|
|
|
||||||
|
Total debt
|
$
|
|
$
|
|
||||
|
|
||||||||
|
Current maturities of debt
|
$
|
|
$
|
|
||||
|
Long-term debt
|
|
|
||||||
|
Total debt
|
$
|
|
$
|
|
||||
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
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
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
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
2025
|
|
|
|
|
||||||||||||
|
2026
|
|
|
|
|
||||||||||||
|
2027
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Less: Current maturities
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||
|
Long-term debt
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
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
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
||||||
|
Other comprehensive income (loss) before reclassifications
|
(
|
)
|
|
(a) |
|
|
||||||||||
|
Amounts reclassified from accumulated other comprehensive income
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||
|
Other comprehensive income (loss), net
|
(
|
)
|
|
(
|
)
|
|
||||||||||
|
Balance at March 31,
2024
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
||||||
|
(a)
|
|
Reclassifications Out of Accumulated Other Comprehensive Income (in thousands)
|
|
Three Months Ended
|
|||
|
|
March 31, 2024
|
|||
|
Derivative cash flow hedge:
|
||||
|
Unrecognized (gain) loss (a)
|
$
|
(
|
)
|
|
|
Postretirement benefit plans:
|
||||
|
Unrecognized (gain) loss (b)
|
(
|
)
|
||
|
Total before income tax
|
(
|
)
|
||
|
Income tax (expense) benefit
|
(
|
)
|
||
|
Total reclassifications
|
$
|
(
|
)
|
|
|
(a)
|
|
|
(b)
|
|
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 two months two months of an executive reaching the age 65. Restricted shares granted to directors become vested upon the first anniversary of the date of grant.
Performance-based shares issued to eligible employees are subject to a three-year
measuring period and the achievement of performance targets and, depending upon the achievement of such performance targets, they may become vested no earlier than three years after the date of grant. Each period we evaluate the probability of achieving the applicable targets, and we adjust our accrual accordingly. Restricted shares (other than
long-term retention restricted shares) and performance shares issued to certain key executives and directors are subject to a or two year holding period upon the lapse of the vesting period. Forfeitures on stock grants are estimated at 5 % for employees and 0
Our restricted and performance-based share activity was as follows for the three months ended
March 31, 2024:
|
Shares
|
Weighted Average
Grant Date Fair
Value Per Share
|
|||||||
|
Balance at December 31, 2023
|
|
$
|
|
|||||
|
Granted
|
|
|
||||||
|
Vested
|
(
|
)
|
|
|||||
|
Forfeited
|
(
|
)
|
|
|||||
|
Balance at March 31, 2024
|
|
$
|
|
|||||
We recorded compensation expense related to restricted shares and performance-based shares of $1.3 million ($1 million, net of tax) and $1.5 million ($1.1 million, net of tax) for the three months ended March 31, 2024 and 2023, respectively. The unamortized compensation
expense related to our restricted and performance-based shares was $11.4 million at March 31, 2024, and is expected to be recognized as they vest over a weighted average period of 3.94 years and 0.08 years for employees and directors, respectively.
Note 12. Employee Benefits
We provide certain medical and dental care benefits to 13 former U.S. union employees. The postretirement medical and dental benefit obligation to the former
union employees as of March 31, 2024, and the related net periodic benefit cost for the plan for the three months ended March 31, 2024 and 2023 were not material.
We maintain a defined contribution Supplemental Executive Retirement Plan for key employees. Under the plan, these employees may elect to defer a portion of their
compensation and, in addition, we may at our discretion make contributions to the plan on behalf of the employees. In March 2024, we made company contributions to the plan of $0.5 million related to calendar year 2023.
18
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) –
(Continued)
We also have an Employee Stock Ownership Plan and Trust for employees who are not covered by a collective
bargaining agreement. In connection therewith, we maintain an employee benefits trust to which we contribute shares of treasury stock. We are authorized to instruct the trustees to distribute such shares toward the satisfaction of our future
obligations under the plan. The shares held in trust are not considered outstanding for purposes of calculating earnings per share until they are committed to be released. The trustees will vote the shares in accordance with their fiduciary
duties. During the three months ended March 31, 2024, we contributed to the trust an additional 68,700 shares from our treasury and released 68,700 shares from the trust leaving 200 shares
remaining in the trust as of March 31, 2024.
Note 13. Derivative
Financial Instruments
Interest Rate Swap
Agreements
We occasionally use
derivative financial instruments to reduce our market risk for changes in interest rates on our variable rate borrowings. The principal financial instruments used for cash flow hedging purposes are interest rate swap agreements. The interest rate
swaps effectively convert a portion of our variable rate borrowings under our existing facilities to a fixed rate based upon determined notional amount. We do not enter into interest rate swap agreements, or other financial instruments, for trading
or speculative purposes.
In June
2022, we entered into a seven year interest rate swap agreement with a notional amount of $100 million that is to mature in . The interest rate
swap agreement has been designated as a cash flow hedge of interest payments on $100 million of borrowings under our Credit Agreement.
Under the terms of the swap agreement, we will receive monthly variable interest payments based on one month Term SOFR and will pay
interest based upon a fixed rate of 2.683 % per annum, adjusted upward for the credit spread adjustment in the Credit Agreement of 0.10 % and the loan margin in the Credit Agreement of 1.25 %
at March 31, 2024.
The fair value of the
interest rate swap agreement as of March
31, 2024 and December 31, 2023 was an asset of $5.8 million and $3.9 million, respectively, which has been deferred and recorded in accumulated other comprehensive income, net of income taxes, in our consolidated balance sheet. When the interest expense
on the underlying borrowing is recognized, the deferred gain/loss in accumulated other comprehensive income is recorded in earnings as interest expense in the consolidated statements of operations. We perform quarterly hedge effectiveness
assessments and anticipate that the interest rate swap will be highly effective throughout its term.
Note 14. Fair Value Measurements
We follow a three-level fair value hierarchy that prioritizes the inputs to measure fair value. This hierarchy requires entities to maximize the use of “observable
inputs” and minimize the use of “unobservable inputs.” The three levels of inputs used to measure fair value are as follows:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect assumptions that market participants would use in pricing an asset or liability.
19
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
– (Continued)
The following is a summary of the estimated fair values, carrying amounts, and classification under the fair value hierarchy of our financial instruments at March 31,
2024 and December 31, 2023 (in thousands):
|
March 31, 2024
|
December 31, 2023
|
||||||||||||||||
|
Fair Value
Hierarchy
|
Fair Value | Carrying Amount | Fair Value | Carrying Amount | |||||||||||||
|
Cash and cash equivalents (a)
|
LEVEL1/2
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Deferred compensation
|
LEVEL 1
|
|
|
|
|
||||||||||||
|
Short term borrowings
|
LEVEL 2
|
|
|
|
|
||||||||||||
|
Long-term debt
|
LEVEL 2
|
|
|
|
|
||||||||||||
|
Cash flow interest rate swap
|
LEVEL 2
|
|
|
|
|
||||||||||||
| Long-term investments | LEVEL 2 |
||||||||||||||||
|
(a)
|
|
Cash equivalents consist of certificates of deposit with original maturities of three months, or less. These securities are accounted for as held-to-maturity and
recorded at amortized cost, which approximates their fair values at March 31, 2024. The fair value of the underlying assets held by the deferred compensation plan are based on the quoted market prices of the underlying funds which are held by
registered investment companies. The carrying value of our variable rate short-term borrowings and long-term debt under our credit facilities approximates fair value as the variable interest rates in the facilities reflect current market rates.
The fair value of our cash flow interest rate swap agreement is obtained from an independent third party, is based upon market quotes, and represents the net amount required to terminate the interest rate swap, taking into consideration
market rates and counterparty credit risk. Long-term investments consist of certificates of deposit with original maturities in excess of twelve months. These securities are accounted for as held-to-maturity and recorded at
amortized cost, which approximates their fair values at March 31, 2024.
20
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) –
(Continued)
Note 15. Earnings Per Share
The following are reconciliations of the net earnings attributable to SMP and the shares used in calculating basic and dilutive net earnings per common share
(in thousands, except per share data):
|
|
Three Months Ended
March 31,
|
|||||||
| 2024 |
2023 |
|||||||
|
Net Earnings Attributable to SMP -
|
|
|
||||||
|
Earnings from continuing operations
|
$
|
|
$
|
|
||||
|
Loss from discontinued operations
|
(
|
)
|
(
|
)
|
||||
|
Net earnings attributable to SMP
|
$
|
|
$
|
|
||||
|
|
||||||||
|
Basic Net Earnings Per Common Share Attributable to SMP -
|
|
|
||||||
|
Earnings from continuing operations per common share
|
$
|
|
$
|
|
||||
|
Loss from discontinued operations per common share
|
(
|
)
|
(
|
)
|
||||
|
Net earnings per common share attributable to SMP
|
$
|
|
$
|
|
||||
| Weighted average common shares outstanding | ||||||||
|
|
||||||||
|
Diluted Net Earnings Per Common Share Attributable to SMP -
|
||||||||
|
Earnings from continuing operations per common share
|
$
|
|
$
|
|
||||
|
Loss from discontinued operations per common share
|
(
|
)
|
(
|
)
|
||||
|
Net earnings per common share attributable to SMP
|
$
|
|
$
|
|
||||
|
|
||||||||
|
Weighted average common shares outstanding
|
|
|
||||||
|
Plus incremental shares from assumed conversions:
|
||||||||
|
Dilutive effect of restricted stock and performance-based stock
|
|
|
||||||
|
Weighted average common shares outstanding – Diluted
|
|
|
||||||
The shares listed below were not included in the computation of diluted net earnings per common share attributable to SMP because to do so would have been
anti-dilutive for the periods presented or because they were excluded under the treasury method (in thousands):
|
|
Three Months Ended
March 31,
|
|||||||
|
|
2024
|
2023
|
||||||
|
Restricted and performance-based shares
|
|
|
||||||
21
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) –
(Continued)
Note 16. Industry Segments
Our business is organized into three operating segments, Vehicle Control, Temperature Control and Engineered Solutions, each of which focuses on a specific line of business. Our automotive aftermarket business is comprised of two operating segments, Vehicle Control and Temperature
Control, while our Engineered Solutions operating segment offers a broad array of conventional and future-oriented technologies.
The following
tables show our net sales and operating income for each reportable operating segment (in thousands):
|
|
Three Months Ended
March 31,
|
|||||||
|
|
2024
|
2023
|
||||||
|
Net Sales (a)
|
||||||||
|
Vehicle Control
|
$ | $ | ||||||
|
Temperature Control
|
|
|
||||||
|
Engineered Solutions
|
||||||||
|
Other
|
|
|
||||||
|
Consolidated
|
$
|
|
$
|
|
||||
|
|
||||||||
|
Operating Income (Loss)
|
||||||||
| Vehicle Control |
$ | $ | ||||||
|
Temperature Control
|
|
|
||||||
|
Engineered Solutions
|
||||||||
|
Other
|
(
|
)
|
(
|
)
|
||||
|
Consolidated
|
$
|
|
$
|
|
||||
| (a) |
|
For the
disaggregation of our net sales from contracts with customers by major product group and geographic area within each of our operating segments, see Note 17, “Net Sales.”
Note 17. Net Sales
Disaggregation of Net Sales
We
disaggregate our net sales from contracts with customers by major product group and geographic area within each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our net sales are affected by economic
factors.
Major Product Group
The Vehicle Control operating segment generates its revenues from core aftermarket sales of ignition, emissions, and fuel delivery, electrical and safety, and wire sets and other
product categories. The Temperature Control operating segment generates its revenue from aftermarket sales of air conditioning system components and other thermal products. The Engineered Solutions operating segment generates revenues from
custom-engineered products to vehicle and equipment manufacturers in highly diversified global end-markets such as commercial and light vehicles, construction, agriculture, power sports and marine.
22
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) –
(Continued)
The following
table summarizes consolidated net sales by major product group within each operating segment for the three months ended March 31, 2024 and 2023 (in thousands):
|
Three Months Ended
March 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Vehicle Control
|
||||||||
|
Engine Management (Ignition, Emissions and Fuel Delivery)
|
$
|
|
$
|
|
||||
|
Electrical and Safety
|
|
|
||||||
|
Wire Sets and Other
|
|
|
||||||
|
Total Vehicle Control
|
|
|
||||||
|
Temperature Control
|
||||||||
|
AC System Components
|
|
|
||||||
|
Other Thermal Components
|
|
|
||||||
|
Total Temperature Control
|
|
|
||||||
|
Engineered Solutions
|
||||||||
|
Commercial Vehicle
|
|
|
||||||
|
Construction/Agriculture
|
|
|
||||||
|
Light Vehicle
|
|
|
||||||
|
All Other
|
|
|
||||||
|
Total Engineered Solutions
|
|
|
||||||
| Other |
||||||||
|
Total
|
$
|
|
$
|
|
||||
Geographic Area
We sell our line of products
primarily in the United States, with additional sales in Canada, Mexico, Europe, Asia and Latin America. Sales are attributed to countries based upon the location of the customer. Our sales are substantially denominated in U.S. dollars.
The following tables provide
disaggregation of net sales information by geographic area within each operating segment for the three months ended March 31, 2024 and 2023 (in thousands):
|
Three
months ended March 31, 2024
|
Vehicle
Control
|
Temperature
Control
|
Engineered
Solutions
|
Other
|
Total
|
|||||||||||||||
|
Geographic Area:
|
||||||||||||||||||||
|
United States
|
$ |
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||
|
Canada
|
|
|
|
|
||||||||||||||||
|
Europe
|
|
|
|
|
||||||||||||||||
|
Mexico
|
|
|
|
|
||||||||||||||||
|
Asia
|
|
|
|
|
||||||||||||||||
|
Other foreign
|
|
|
|
|
||||||||||||||||
|
Total
|
$ |
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||
23
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) –
(Continued)
|
Three
months ended March 31, 2023
|
Vehicle
Control
|
Temperature
Control
|
Engineered
Solutions
|
Other
|
Total
|
|||||||||||||||
|
Geographic Area:
|
||||||||||||||||||||
|
United States
|
$ |
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||
|
Canada
|
|
|
|
|
||||||||||||||||
|
Europe
|
|
|
|
|
||||||||||||||||
|
Mexico
|
|
|
|
|
||||||||||||||||
| Asia |
||||||||||||||||||||
|
Other foreign
|
|
|
|
|
||||||||||||||||
|
Total
|
$ |
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||
Note 18. Commitments and Contingencies
Asbestos
In 1986, we acquired a brake business, which we subsequently sold in March 1998 and which is accounted for as a discontinued operation in the accompanying
statement of operations. When we originally acquired this brake business, we assumed future liabilities relating to any alleged exposure to asbestos-containing products manufactured by the seller of the acquired brake business. In accordance with
the related purchase agreement, we agreed to assume the liabilities for all new claims filed on or after September 2001. Our ultimate exposure will depend upon the number of claims filed against us on or after September 2001, and the amounts paid
for settlements, awards of asbestos-related damages, and defense of such claims. At March 31, 2024, approximately 1,460 cases were
outstanding for which we may be responsible for any related liabilities. Since inception in September 2001 through March 31, 2024, the amounts paid for settled claims and awards of asbestos-related damages, including interest, were approximately $77.7 million. We do not have insurance coverage for the indemnity and defense costs associated with the claims we face.
In evaluating our potential asbestos-related liability, we have considered various factors including, among other things, an actuarial study of the asbestos
related liabilities performed by an independent actuarial firm, our settlement amounts and whether there are any co-defendants, the jurisdiction in which lawsuits are filed, and the status and results of such claims. As is our accounting policy,
we consider the advice of actuarial consultants with experience in assessing asbestos-related liabilities to estimate our potential claim liability; and perform an actuarial evaluation in the third quarter of each year and whenever events or
changes in circumstances indicate that additional provisions may be necessary. The methodology used to project asbestos-related liabilities and costs in our actuarial study considered: (1) historical data available from publicly available studies;
(2) an analysis of our recent claims history to estimate likely filing rates into the future; (3) an analysis of our currently pending claims; (4) an analysis of our settlements and awards of asbestos-related damages to date; and (5) an analysis of
closed claims with pay ratios and lag patterns in order to develop average future settlement values. Based on the information contained in the actuarial study and all other available information considered by us, we have concluded that no amount
within the range of settlement payments and awards of asbestos-related damages was more likely than any other and, therefore, in assessing our asbestos liability we compare the low end of the range to our recorded liability to determine if an
adjustment is required.
In accordance with our policy
to perform an annual actuarial evaluation in the third quarter of each year, an actuarial study was performed as of August 31, 2023. The results of the August 31, 2023 study included an estimate of our undiscounted liability for settlement
payments and awards of asbestos-related damages, excluding legal costs, ranging from $84 million to $135.3 million for the period through 2065. The change from the prior year study, which was as of August 31, 2022, was a $15.2 million increase for the low end of the range and a $23.7
million increase for the high end of the range. The increase in the estimated undiscounted liability from the prior year study at both the low end and high end of the range reflects our actual experience, our historical data and certain
assumptions with respect to events that may occur in the future.
24
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) –
(Continued)
Based upon the results of the August 31, 2023 actuarial study, in September 2023 we increased our asbestos liability to $84 million, the low end of the range, and recorded an incremental pre-tax provision of $23.8 million in earnings (loss) from discontinued operations in the accompanying statement of operations. Future legal costs, which are expensed as incurred and reported in
earnings (loss) from discontinued operations in the accompanying statement of operations, are estimated, according to the August 31, 2023 study, to range from $53.1 million to $105.2 million for the period through 2065. Total operating cash outflows related to
discontinued operations, which include settlements, awards of asbestos-related damages and legal costs, net of taxes, were $3 million and
$2.6 million for the three months ended March 31, 2024 and 2023, respectively.
We plan to perform an annual actuarial evaluation during the third quarter of each year for the foreseeable future and whenever events or changes in
circumstances indicate that additional provisions may be necessary. Given the uncertainties associated with projecting such matters into the future and other factors outside our control, we can give no assurance that additional provisions will not
be required. We will continue to monitor events and changes in circumstances surrounding these potential liabilities in determining whether to perform additional actuarial evaluations and whether additional provisions may be necessary. At the
present time, however, we do not believe that any additional provisions would be reasonably likely to have a material adverse effect on our liquidity or consolidated financial position.
Other Litigation
We are currently involved in various other legal claims and legal proceedings (some of which may involve substantial amounts), including claims related to
commercial disputes, product liability, employment, and environmental. Although these legal claims and legal proceedings are subject to inherent uncertainties, based on our understanding and evaluation of the relevant facts and circumstances, we
believe that the ultimate outcome of these matters will not, either individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations. We may at any time determine that settling any of
these matters is in our best interests, which settlement may include substantial payments. Although we cannot currently predict the specific amount of any liability that may ultimately arise with respect to any of these matters, we will record
provisions when the liability is considered probable and reasonably estimable. Significant judgment is required in both the determination of probability and the determination as to whether an exposure can be reasonably estimated. As additional
information becomes available, we reassess our potential liability related to these matters. Such revisions of the potential liabilities could have a material adverse effect on our business, financial condition or results of operations.
25
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) –
(Continued)
Warranties
We generally warrant our products against certain manufacturing and other defects. These product warranties are provided for specific periods of time of the
product depending on the nature of the product. As of March 31, 2024 and 2023, we have accrued $23.1 million and $20.6 million, respectively, for estimated product warranty claims included in accrued customer returns. The accrued product warranty costs are based
primarily on historical experience of actual warranty claims.
The following table provides the changes in our product warranties (in thousands):
|
|
Three Months Ended
March 31,
|
|||||||
|
|
2024
|
2023
|
||||||
|
Balance, beginning of period
|
$
|
|
$
|
|
||||
|
Liabilities accrued for current year sales
|
|
|
||||||
|
Settlements of warranty claims
|
(
|
)
|
(
|
)
|
||||
|
Balance, end of period
|
$
|
|
$
|
|
|
|||
| ITEM 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements in this Report are
indicated by words such as “anticipates,” “expects,” “believes,” “intends,” “plans,” “estimates,” “projects,” “strategies” and similar expressions. These statements represent our expectations based on current information and assumptions and are
inherently subject to risks and uncertainties. Our actual results could differ materially from those which are anticipated or projected as a result of certain risks and uncertainties, including, but not limited to, changes or loss in business
relationships with our major customers and in the timing, size and continuation of our customers’ programs; changes in our supply chain financing arrangements, such as changes in terms, termination of contracts and/or the impact of rising interest
rates; the ability of our customers to achieve their projected sales; competitive product and pricing pressures; increases in production or material costs, including procurement costs resulting from higher tariffs, and inflationary cost increases in
raw materials, labor and transportation, that cannot be recouped in product pricing; the performance of the automotive aftermarket and/or other end-markets that we supply; changes in the product mix and distribution channel mix; economic and market
conditions; successful integration of acquired businesses; our ability to achieve benefits from our cost savings initiatives; product liability matters (including, without limitation, those related to asbestos-related contingent liabilities); the
effects of disruptions in the supply chain caused by geopolitical risks; as well as other risks and uncertainties, such as those described under Risk Factors, Quantitative and Qualitative Disclosures About Market Risk and those detailed herein and
from time to time in the filings of the Company with the SEC. Forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise. In addition, historical information should not be considered as an indicator of future performance. The following discussion should be read in conjunction with the unaudited consolidated financial statements,
including the notes thereto, included elsewhere in this Report.
Overview
We are 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 business is
organized into three operating segments. Our automotive aftermarket business 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. 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 America countries.
Vehicle Control is our core aftermarket business deriving its sales from three major product groups (1) Ignition, Emissions & Fuel Delivery, which includes the
traditional internal combustion engine (ICE) dependent categories; (2) Electrical & Safety, which includes powertrain neutral vehicle technologies such as electrical switches/relays, safety related
products such as anti-lock brake and vehicle speed sensors, tire pressure monitoring, park assist sensors, and advanced driver assistance components; and (3) Wire Sets & Other, which includes spark plug
wire sets and other related products, and are product categories we have noted to be in secular decline based upon product life cycle.
Our Temperature Control operating segment is our thermal aftermarket business segment poised to benefit from the broader adoption of air conditioning and other thermal systems. These systems will provide
passenger comfort regardless of the vehicles’ powertrain, and are being developed to cool batteries and other products used on electric vehicles. Segment offerings include sales from thermal products in the aftermarket business under two major
product groups – (1) AC System Components, which includes compressors, connecting lines, heat exchangers, and expansion devices; and (2) Other Thermal Components,
which includes parts that provide engine, transmission, electric drive motor, and battery temperature management.
Our Engineered Solutions segment supplies custom-engineered solutions to vehicle and equipment manufacturers in highly diversified global end-markets such as commercial and light vehicles, construction,
agriculture, power sports and marine. Segment offerings include product categories that offer a broad array of conventional and future-oriented technologies, including those that are specific to vehicle electrification as well as those that are
powertrain-neutral.
Overview of Financial Performance
The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto. This discussion summarizes the significant factors affecting our results of operations and the financial condition of our
business during the three months ended March 31, 2024 and 2023.
|
Three Months Ended
|
||||||||
|
March 31,
|
||||||||
|
(In thousands, except per share data)
|
2024
|
2023
|
||||||
|
Net sales
|
$
|
331,403
|
$
|
328,028
|
||||
|
Gross profit
|
89,522
|
91,267
|
||||||
|
Gross profit %
|
27
|
%
|
27.8
|
%
|
||||
|
Operating income
|
14,619
|
20,746
|
||||||
|
Operating income %
|
4.4
|
%
|
6.3
|
%
|
||||
|
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
|
8,824
|
11,918
|
||||||
|
Per share data attributable to SMP – Diluted:
|
||||||||
|
Earnings from continuing operations
|
$
|
0.44
|
$
|
0.57
|
||||
|
Discontinued operations
|
(0.05
|
)
|
(0.03
|
)
|
||||
|
Net earnings per common share
|
$
|
0.39
|
$
|
0.54
|
||||
Consolidated net sales for the three months ended March 31, 2024 were $331.4 million, an increase of $3.4 million, or 1%, compared to $328 million in the same period in 2023. Consolidated net sales increased in our Vehicle Control and Engineered
Solutions operating segments, while consolidated net sales in our Temperature Control operating segment decreased when compared to the comparable period in the prior year.
The increase in net sales in the three months ended March 31, 2024 when compared to the comparable period in the prior year reflects the impact of multiple factors including:
| • |
the stable demand in the automotive aftermarket business with expected flat to low single digit annual sales growth,
|
| • |
the timing of pre-season customer orders in our Temperature Control operating segment in 2024, which were slightly lower than the strong customer orders in the first quarter of 2023. Overall, full year results at Temperature Control will
be dependent upon summer weather conditions and customer inventory levels, and
|
| • |
strong customer demand and new business wins in our Engineered Solutions operating segment with continued optimism about the long-term growth potential of the complementary markets served in this segment.
|
Gross margins as a percentage of net sales decreased to 27% in the first quarter of 2024 when compared to 27.8% in the comparable quarter in 2023. The gross margin percentage at Vehicle Control remained flat year-over-year, while the gross
margins at Temperature Control increased and gross margins at Engineered Solutions decreased. Automotive aftermarket gross margins in the first three months of 2024 reflect the positive impact of pricing and improved operating performance, along
with the favorable customer sales mix in Vehicle Control and Temperature Control, all of which was offset by lingering inflationary cost increases in certain raw materials, labor and transportation expenses. The gross margin decrease in Engineered
Solutions was driven by an unfavorable customer sales mix and inflationary cost increases. While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost savings initiatives coupled with customer
pricing should help to offset this impact to our gross margins.
Operating margin as a percentage of net sales for the three months ended March 31, 2024 was 4.4% as compared to 6.3% for the same period in 2023. Included in our operating margin were selling, general and administrative expenses (“SG&A”) of
$74.7 million, or 22.6% of net sales for the three months ended March 31, 2024 compared to $69.6 million, or 21.2% of net sales, for the same period in 2023. The $5.1 million increase in SG&A expenses in the first quarter of 2024 as compared to
the first quarter of 2023 is principally due to (1) increased rent and redundancy expenses of approximately $1.1 million as we transition away from our Edwardsville, Kansas distribution center to our new facility in Shawnee, Kansas, (2) higher
interest related costs of $1 million incurred in our supply chain financing arrangements, and (3) higher distribution and freight costs related to higher sales. Excluding the impact of the incremental distribution expansion costs and supply chain
interest costs, SG&A expenses in the first quarter of 2024 were 21.9% of consolidated net sales, just slightly higher than the percentage in the comparable prior year period.
Overall, our core automotive aftermarket business remains stable, and we continue to be optimistic about the long-term growth potential of the complementary markets served in our Engineered Solutions operating segment.
New Distribution Facility in Shawnee, Kansas
In May 2023, we signed a lease for a new distribution facility in Shawnee, Kansas with a lease commencement date of July 1, 2023. The new facility will expand our total distribution network square footage to meet our growing demands in the
automotive aftermarket industry. The new 575,000 square foot facility will replace our current 363,000 square foot facility in Edwardsville, Kansas, and integrate state-of-the-art technologies to deliver improved logistics capabilities, operational
efficiencies, as well as enhanced employee, customer and supplier experiences. The new facility is located just five miles away from our Edwardsville facility, enabling us to retain our existing workforce avoiding the additional costs of hiring and
training. The facility will have a phased opening beginning in 2024 and be fully operational in early 2025. We will incur additional costs in 2024 and 2025 during the phase-in period while we operate the two facilities.
Impact of Global Supply Chain Disruption and Inflation
Disruptions in global supply chains continue to persist, resulting in longer lead times, delays in procuring component parts and raw materials, and in inflationary cost increases in certain raw materials, labor and transportation. In response to
the global supply chain volatility and lingering inflationary cost increases, we have taken, and continue to take, several actions to mitigate the impact by working closely with our suppliers and customers to minimize any potential adverse impacts on
our business, including implementing cost savings initiatives and maintaining inventory at levels to minimize potential disruptions from out-of-stock raw materials and components to ensure higher fill rates with our customers. We believe that we
have also benefited from our geographically diversified manufacturing footprint and our strategy to bring more product manufacturing in-house, especially with respect to product availability and fill rates. We expect these inflationary trends to
continue for some time, and while we believe that we will be able to somewhat offset the impact, there can be no assurances that unforeseen future events in the global supply chain affecting the availability of materials and components, and/or
increasing commodity pricing, will not have an adverse effect on our business, financial condition and results of operations.
Sustainability
Our Company was founded in 1919 on the values of integrity, common decency and respect for others. These values are embodied in our Code of Ethics, which has been adopted by the Board of Directors of the Company to serve as a statement of
principles to guide our decision-making and reinforce our commitment to these values in all aspects of our business. These values also serve as the foundation for our continued focus on many important sustainability issues.
We have made significant strides with respect to our sustainability initiatives, building awareness of the environmental impact of our operations, and challenging ourselves to reduce our impact by reducing our usage of energy and water, reducing
our generation of waste, increasing our recycling efforts and reducing our Scope 1 and Scope 2 greenhouse gas emissions. Additionally, we believe our product offering contributes to a greener car parc through several key product categories that are
critical components in automotive systems designed to improve fuel economy and reduce harmful emissions, such as fuel injectors, exhaust gas recirculation valves, sensors and tubes, and evaporative emission control system components. We also bring to
market alternative energy products, which utilize cleaner burning fuels or are designed for electric or hybrid electric vehicles, and we remanufacture key categories within our product portfolio, such as air conditioning compressors, diesel injectors
and diesel pumps, through processes that save energy and reduce waste.
With each year, we intend to further our commitment to sustainability initiatives, improving our environmental stewardship, finding ways to give back to our communities, and enhancing the diversity and inclusion of our workforce while offering
opportunities for development. Information on our sustainability initiatives can be found in our most current sustainability report and on our corporate website at ir.smpcorp.com under “Environmental &
Social Responsibility” and at smpcares.smpcorp.com. Information in our sustainability report and on our corporate websites regarding our sustainability initiatives are referenced for general information
only and are not incorporated by reference in this Report.
Interim Results of Operations
Comparison of the Three Months Ended March 31, 2024 to the Three Months Ended March 31, 2023
Sales. Consolidated net sales for the three months ended March 31, 2024 were $331.4 million, an increase of $3.4 million, or 1%, compared to $328
million in the same period of 2023, with the majority of our net sales to customers located in the United States. Consolidated net sales increased in our Vehicle Control and Engineered Solutions operating segments, while consolidated net sales in
our Temperature Control operating segment decreased when compared to the comparable period in the prior year.
The following table summarizes consolidated net sales by segment and by major product group within each segment for the three months ended March 31, 2024 and 2023 (in thousands):
|
Three Months Ended
|
||||||||
|
March 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Vehicle Control
|
||||||||
|
Engine Management (Ignition, Emissions and Fuel Delivery)
|
$
|
116,085
|
$
|
116,083
|
||||
|
Electrical and Safety
|
52,407
|
51,804
|
||||||
|
Wire Sets and Other
|
17,032
|
16,690
|
||||||
|
Total Vehicle Control
|
185,524
|
184,577
|
||||||
|
Temperature Control
|
||||||||
|
AC System Components
|
49,960
|
50,798
|
||||||
|
Other Thermal Components
|
21,648
|
21,608
|
||||||
|
Total Temperature Control
|
71,608
|
72,406
|
||||||
|
Engineered Solutions
|
||||||||
|
Commercial Vehicle
|
22,908
|
20,232
|
||||||
|
Construction/Agriculture
|
10,076
|
11,692
|
||||||
|
Light Vehicle
|
21,803
|
23,019
|
||||||
|
All Other
|
19,484
|
16,102
|
||||||
|
Total Engineered Solutions
|
74,271
|
71,045
|
||||||
|
Other
|
—
|
—
|
||||||
|
Total
|
$
|
331,403
|
$
|
328,028
|
||||
Vehicle Control’s net sales for the three months ended March 31, 2024 increased $0.9 million, or 0.5%, to $185.5 million compared to compared to $184.6 million in the same period of 2023. Demand in the Vehicle Control aftermarket segment remains
relatively stable and our net sales performance in the first quarter of 2024 is in line with our expected flat to low single digit annual sales growth in the automotive aftermarket.
Temperature Control’s net sales for the three months ended March 31, 2024 decreased $0.8 million, or 1.1%, to $71.6 million compared to $72.4 million in the same period of 2023. Temperature Control’s net sales for the first quarter of 2024
reflects the impact of the timing of pre-season customer orders in 2024, which were slightly lower than the strong customer orders in the first quarter of 2023. Overall, full year results at Temperature Control will be dependent upon summer weather
conditions and customer inventory levels.
Engineered Solutions’ net sales for the three months ended March 31, 2024 increased $3.3 million, or 4.5%, to $74.3 million compared to $71 million in the same period of 2023. Overall, net sales in our Engineered Solutions operating segment
showed year-over-year improvement driven by strong demand and new business wins, and we continue to be optimistic about the long-term growth potential of the complementary markets served in our Engineered Solutions operating segment.
Gross Margins. Gross margins, as a percentage of consolidated net sales, decreased to 27% in the first quarter of 2024, compared to 27.8% in the first quarter of 2023. The following
table summarizes gross margins by segment for the three months ended March 31, 2024 and 2023, respectively (in thousands):
|
Three Months Ended
March 31,
|
Vehicle Control
|
Temperature Control
|
Engineered Solutions
|
Other
|
Total
|
|||||||||||||||
|
2024
|
||||||||||||||||||||
|
Net sales
|
$
|
185,524
|
$
|
71,608
|
$
|
74,271
|
$
|
—
|
$
|
331,403
|
||||||||||
|
Gross margins
|
58,899
|
19,689
|
10,934
|
—
|
89,522
|
|||||||||||||||
|
Gross margin percentage
|
31.7
|
%
|
27.5
|
%
|
14.7
|
%
|
—
|
27
|
%
|
|||||||||||
|
2023
|
||||||||||||||||||||
|
Net sales
|
$
|
184,577
|
$
|
72,406
|
$
|
71,045
|
$
|
—
|
$
|
328,028
|
||||||||||
|
Gross margins
|
58,472
|
19,155
|
13,640
|
—
|
91,267
|
|||||||||||||||
|
Gross margin percentage
|
31.7
|
%
|
26.5
|
%
|
19.2
|
%
|
—
|
27.8
|
%
|
|||||||||||
Compared to the first three months of 2023, gross margins at Vehicle Control remained flat at 31.7%, while gross margins at Temperature Control increased 1 percentage point from 26.5 % to 27.5%, and gross margins at Engineered Solutions decreased
4.5 percentage points from 19.2% to 14.7%.
The gross margin percentage in our Vehicle Control operating segment remained flat year-over-year reflecting the positive impact of pricing, operating performance and customer sales mix, offset by the lingering inflationary increases in material
and labor costs; while the gross margin percentage increase in our Temperature Control operating segment reflects the impact of pricing and operating performance, as well as favorable customer sales mix. Gross margins as a percentage of net sales in
our Engineered Solutions operating segment decreased in the first quarter of 2024 when compared to the comparable period in 2023 driven primarily by unfavorable customer sales mix and inflationary cost increases. All of our operating segments were
negatively impacted by the lingering inflationary cost increases in certain raw materials, labor and transportation expenses. While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost
savings initiatives coupled with customer pricing should help to offset this impact to our gross margins.
Selling, General and Administrative Expenses. Selling, general and administrative expenses (“SG&A”) increased to $74.7 million, or 22.6% of consolidated net sales, in the first
quarter of 2024, as compared to $69.6 million, or 21.2% of consolidated net sales in the first quarter of 2023. The $5.1 million increase in SG&A expenses in the first quarter of 2024 as compared to the first quarter of 2023 is principally due to
(1) increased rent and redundancy expenses of approximately $1.1 million as we transition away from our Edwardsville, Kansas distribution center to our new distribution facility in Shawnee, Kansas, (2) higher interest related costs of $1 million
incurred in our supply chain financing arrangements, and (3) higher distribution and freight costs related to higher sales. Excluding the impact of the incremental distribution expansion costs and supply chain interest costs, SG&A expenses in
the first quarter of 2024 were 21.9% of consolidated net sales, just slightly higher than the percentage in the comparable prior year period.
Restructuring and Integration Expenses. Restructuring and integration expenses were $0.2 million in first three months of 2024 compared to $0.9 million in the same period of 2023.
Restructuring and integration expenses incurred in the first three months of 2024 and 2023 relate to the Cost Reduction Initiative announced in the fourth quarter of 2022.
Restructuring and integration expenses incurred during the three months ended March 31, 2024 of $0.2 million consisted primarily of expenses in connection with the relocation of machinery and equipment to our manufacturing facilities in Reynosa,
Mexico; while restructuring and integration expenses incurred during the three months ended March 31, 2023 consisted of (1) employee severance expenses of approximately $0.8 million related to our product line relocations, and (2) expenses of
approximately $0.1 million related to the relocation of machinery and equipment to our manufacturing facilities in Reynosa, Mexico. 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.
Operating Income. Operating income was $14.6 million, or 4.4% of consolidated net sales, in the first quarter of 2024 compared to $20.7 million, or 6.3% of consolidated net sales, in the
first quarter of 2023. The year-over-year decrease in operating income of $6.1 million is primarily the result of lower gross margins as a percentage of net sales, and higher SG&A expenses, including the incremental distribution expansion costs,
offset, in part, by higher net sales and lower restructuring and integration expenses.
Other Non-Operating Income, Net. Other non-operating income, net was $0.8 million in the first quarter of 2024, compared to other non-operating income, net of $0.2 million in the first
quarter of 2023. The year-over-year increase in other non-operating income, net results from the increase in year-over-year equity income from our joint ventures. Equity income from our joint ventures increased in spite of the year-over-year
decline in the equity income of Gwo Yng, reflecting the impact of our acquisition of an additional 15% equity interest in Gwo Yng in July 2023. Commencing on the date of our equity interest increase, the financial results of Gwo Yng were no longer
accounted for under the equity method of accounting. Instead, Gwo Yng’s financial results are reported on a consolidated basis, resulting in lower joint venture equity income. As such, other non-operating income, net includes incremental equity
income of Gwo Yng of $0.2 million in the first quarter of 2023.
Interest Expense. Interest expense decreased to $2.1 million in the first quarter of 2024 compared to $3.9 million in the same period of 2023. The year-over-year decrease in interest
expense reflects the impact of lower average outstanding borrowings in the first quarter of 2024 when compared to the first quarter of 2023, and slightly lower year-over-year average interest rates on our credit facilities.
Income Tax Provision. The income tax provision in the first quarter of 2024 was $3.3 million at an
effective tax rate of 25% compared to $4.4 million at an effective tax rate of 25.6% for the same period in 2023. The effective tax rate was essentially flat year-over-year.
Loss from Discontinued Operations. During the first quarter of 2024 and 2023, the loss from discontinued operations, net of tax was $1 million and $0.8 million, respectively. The loss
from discontinued operations, net of tax, reflects legal and other administrative expenses associated with our asbestos-related liability. As discussed more fully in Note 18, “Commitments and Contingencies” in the notes to our consolidated financial
statements (unaudited), we are responsible for certain future liabilities relating to alleged exposure to asbestos containing products.
Net Earnings Attributable to Noncontrolling Interest. Net earnings attributable to noncontrolling interest relates to the minority shareholders’ interest in our 70% owned joint venture
in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”) and, in our 80% ownership in Gwo Yng, commencing in July 2023 upon the completion of our step acquisition. Net earnings attributable to the noncontrolling interest
were $166,000 and $39,000 during the three months ended March 31, 2024 and March 31, 2023, respectively.
Restructuring and Integration Programs
For a detailed discussion on the restructuring and integration costs, see Note 4, “Restructuring and Integration Expenses,” of the notes to our consolidated financial statements (unaudited).
Liquidity and Capital Resources
Our primary cash requirements include working capital, capital expenditures, regular quarterly dividends, stock repurchases, principal and interest payments on indebtedness and acquisitions. The following table summarizes our primary sources of
funds including ongoing net cash flows from operating activities and availability under our Credit Agreement.
|
March 31,
|
December 31,
|
|||||||||||
|
(In thousands)
|
2024
|
2023
|
2023
|
|||||||||
|
Operating cash flows
|
$
|
(45,716
|
)
|
$
|
(20,442
|
)
|
$
|
144,260
|
||||
|
Total debt
|
$
|
214,902
|
$
|
273,101
|
$
|
156,211
|
||||||
|
Cash and cash equivalents
|
27,113
|
24,196
|
32,526
|
|||||||||
|
Net debt
|
$
|
187,789
|
$
|
248,905
|
$
|
123,685
|
||||||
|
Remaining borrowing capacity
|
$
|
274,230
|
$
|
220,881
|
$
|
334,180
|
||||||
|
Total liquidity
|
301,343
|
245,077
|
366,706
|
|||||||||
Operating Activities. During the first three months of 2024, cash used in operating activities was $45.7 million compared to $20.4 million in the same period of 2023. The increase in
cash used in operating activities resulted primarily from the decrease in net earnings, the larger year-over-year increase in accounts receivable, the increase in inventories compared to a decrease in inventories in the prior year, and the decrease
in accounts payable compared to an increase in accounts payable in the prior year, partially offset by the larger year-over-year decrease in prepaid expenses and other current assets, and the increase in sundry payables and accrued expenses compared
to a decrease in sundry payables and accrued expenses in the prior year.
Net earnings during the first quarter of 2024 were $9 million compared to $12 million in the first quarter of 2023. During the first three months of 2024, (1) the increase in accounts receivable was $44 million compared to the year-over-year
increase in accounts receivable of $42.6 million in 2023; (2) the increase in inventories was $14.7 million compared to the year-over-year decrease in inventories of $6.2 million in 2023; (3) the decrease in accounts payable was $9.3 million compared
to the year-over-year increase in accounts payable of $4.8 million in 2023; (4) the decrease in prepaid expenses and other current assets was $1.6 million compared to the year-over-year decrease in prepaid expenses and other current assets of $1.2
million in 2023; and (5) the increase in sundry payables and accrued expenses was $4 million compared to the year-over-year decrease in sundry payables and accrued expenses of $10.7 million in 2023. During the year ended December 31, 2023, we
generated significant operating cash flow by reducing our inventory to more normalized levels while actively managing our accounts receivable and accounts payable. We will continue to actively manage our working capital to maximize our operating cash
flow, and now that global supply chains have stabilized, expect cash flows from operations to return to historical levels.
Investing Activities. Cash used in investing activities was $10.1 million in the first three months of 2024 compared to $4.4 million in the same
period of 2023. Investing activities during the first three months of 2024 and 2023 consisted of capital expenditures of $10.1 million and $4.4 million, respectively. The year-over-year increase in capital expenditures relates to the implementation
of upgraded automation equipment, racking and other equipment, as we invest in the start-up of our new distribution facility in Shawnee, Kansas.
Financing Activities. Cash provided by financing activities was $50.4 million in the first three months of 2024 as compared to $27.3 million in
the same period of 2023. During the first three months of 2024, (1) we increased borrowings under our Credit Agreement by $58.7 million; (2) paid dividends of $6.4 million; and (3) made cash payments for the repurchase of shares of our common stock
of $2.2 million. Cash provided by borrowings under our Credit Agreement in the three months ended March 31, 2024 was used to fund our operating activities, investing activities, pay dividends, and repurchase shares of our common stock.
During the first three months of 2023, (1) we increased borrowings under our Credit Agreement by $33.5 million; and (2) we paid dividends of $6.3 million. Cash provided by borrowings under our Credit Agreement in the three months ended March 31,
2023 was used to fund our operating activities, investing activities, and pay dividends.
Dividends of $6.4 million and $6.3 million were paid in the three months ended March 31, 2024 and 2023, respectively. Quarterly dividends were paid at a rate of $0.29 in both 2024 and 2023.
Liquidity.
Our primary cash requirements include working capital, capital expenditures, regular quarterly dividends, stock repurchases, principal and interest payments on indebtedness and acquisitions. Our primary sources of funds are ongoing net cash flows
from operating activities and availability under our Credit Agreement (as detailed below).
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.
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.
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.
In order to reduce our accounts receivable balances and improve our cash flow, 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.
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.
In July 2022, our Board of Directors authorized the purchase of up to $30 million of our common stock under a stock repurchase program. Stock will be purchased from time to time in the open market, or through private transactions, as market
conditions warrant. Under this program, during the three months ended March 31, 2024, we repurchased 79,922 shares of our common stock at a total cost of $2.6 million. As of March 31, 2024, there was approximately $27.4 million available for future
stock purchases under the program. From the end of the first quarter through April 29, 2024, we repurchased an additional 106,440 shares of our common stock under the program at a total
cost of $3.5 million, thereby reducing the amount available for future repurchases under the Board of Directors authorization to $23.9 million.
Material Cash Commitments
Material cash commitments as of March 31, 2024 consist of required cash payments to service our outstanding borrowings of $214.7 million under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent and the future minimum cash requirements
of $134.7 million through 2034 under operating leases. All of our other cash commitments as of March 31, 2024 are not material. For additional information related to our material cash commitments, see Note 8, “Leases,” and Note 9, “Credit
Facilities and Long-Term Debt,” in the notes to our consolidated financial statements (unaudited).
We anticipate that our cash flow from operations, available cash, and available borrowings under our Credit Agreement will be adequate to meet our future liquidity needs for at least the next twelve months. Significant assumptions underlie this
belief, including, among other things, that we will be able to mitigate the future impact, if any, of disruptions in the supply chain caused by geo-political risks, future increases in interest rates, and significant inflationary cost increases in
raw materials, labor and transportation that we are unable to pass through our customers, macroeconomic uncertainty, and that there will be no material adverse developments in our business, liquidity or capital requirements. If material adverse
developments were to occur in any of these areas, there can be no assurance that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our Credit Agreement in amounts sufficient to
enable us to pay the principal and interest on our indebtedness, or to fund our other liquidity needs. In addition, if we default on any of our indebtedness, or breach any financial covenant in our Credit Agreement, our business could be adversely
affected.
For further information regarding the risks in our business, refer to Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023.
Critical Accounting Policies and Estimates
We have identified the accounting policies and estimates surrounding the “Valuation of Long-Lived and Intangible Assets and Goodwill,” and “Asbestos Litigation” as critical to our business operations and the understanding of our results of
operations. The impact and any associated risks related to these policies and estimates on our business operations is discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies
and estimates affect our reported and expected financial results. There have been no material changes to these and other 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.
You should be aware that preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date
of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. We can give no assurances that actual results will not differ from those estimates. Although we do not believe that there is a
reasonable likelihood that there will be a material change in the future estimates, or in the assumptions that we use in calculating the estimates, the uncertain future effects, if any, of the 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.
Recently Issued Accounting Pronouncements
For a detailed discussion on recently issued accounting pronouncements and their impact on our consolidated financial statements, see Note 2, “Summary of Significant Accounting Policies” of the notes to our consolidated financial statements
(unaudited).
| ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Quantitative and Qualitative Disclosure about Market Risk
We are exposed to market risk, primarily related to foreign currency exchange and interest rates. These exposures are actively monitored by management. Our exposure to foreign exchange rate risk is due to certain costs, revenues and borrowings
being denominated in currencies other than one of our subsidiary’s functional currency. Similarly, we are exposed to market risk as the result of changes in interest rates, which may affect the cost of our financing. It is our policy and practice to
use derivative financial instruments only to the extent necessary to manage exposures. We do not hold or issue derivative financial instruments for trading or speculative purposes.
Exchange Rate Risk
We have exchange rate exposure, primarily, with respect to the Canadian dollar, the euro, the British pound sterling, the Polish zloty, the Hungarian forint, the Mexican peso, the Taiwan dollar, the Chinese yuan renminbi and the Hong Kong dollar.
As of March 31, 2024 and December 31, 2023, our monetary assets and liabilities which are subject to this exposure are immaterial, therefore, the potential immediate loss to us that would result from a hypothetical 10% change in foreign currency
exchange rates would not be expected to have a material impact on our earnings or cash flows. This sensitivity analysis assumes an unfavorable 10% fluctuation in the exchange rates affecting the foreign currencies in which monetary assets and
liabilities are denominated and does not take into account the incremental effect of such a change on our foreign currency denominated revenues.
Interest Rate Risk
We manage our exposure to interest rate risk through the proportion of fixed rate debt and variable rate debt in our debt portfolio. To reduce our market risk for changes in interest rates on our variable rate borrowings, and to manage a portion
of our exposure to changes in interest rates, we occasionally enter into interest rate swap agreements.
In June 2022, we entered into a seven year interest rate swap agreement with a notional amount of $100 million that is to mature in May 2029. The interest rate swap agreement has been designated as a cash flow hedge of interest payments on $100
million of borrowings under our Credit Agreement. Under the terms of the swap agreement, we will receive monthly variable interest payments based on one month Term SOFR and will pay interest based upon a fixed rate of 2.683% per annum, adjusted
upward for the credit spread adjustment in the Credit Agreement of 0.10% and the loan margin in the Credit Agreement of 1.25% at March 31, 2024.
As of March 31, 2024, we had $214.7 million of outstanding borrowings under our Credit Agreement, of which $114.7 million bears interest at variable rates of interest and $100 million bears interest at fixed rates, after consideration of the
interest rate swap agreement entered into in June 2022. Additionally, we invest our excess cash in highly liquid short-term investments. Based upon our current level of borrowings under our facilities and our excess cash, the effect of a
hypothetical, instantaneous and unfavorable change of 100 basis points in the interest rate may have an approximate $0.9 million annualized negative impact on our earnings or cash flows.
In addition, 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. During the three months ended March 31, 2024, we sold $170.8 million of receivables.
Depending upon the level of sales of receivables pursuant these agreements, the effect of a hypothetical, instantaneous and unfavorable change of 100 basis points in the margin rate may have an approximate $1.7 million negative impact on our earnings
or cash flows based upon receivables sold in the three months ended March 31, 2024. The charge related to the sale of receivables is included in selling, general and administrative expenses in our consolidated statements of operations.
Other than the aforementioned, there have been no significant changes to the information presented in Item 7A (Market Risk) of our Annual Report on Form 10-K for the year ended December 31, 2023.
| ITEM 4. |
CONTROLS AND PROCEDURES
|
(a) Evaluation of Disclosure Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule
13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this Report.
(b) Changes in Internal Control Over Financial Reporting.
During the quarter ended March 31, 2024, we have not made any changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting. We review, document and test our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the 2013 Internal Control – Integrated
Framework. We may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business. These efforts may lead to various changes in our internal control over financial reporting.
PART II – OTHER INFORMATION
| ITEM 1. |
LEGAL PROCEEDINGS
|
The information required by this Item is incorporated herein by reference to the information set forth in Item 1, “Consolidated Financial Statements” of this Report under the caption “Asbestos” appearing in Note 18, “Commitments and
Contingencies,” of the notes to our consolidated financial statements (unaudited).
| ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
The following table provides information relating to the Company’s purchases of its common stock for the first quarter of 2024:
|
Period
|
Total Number of
Shares Purchased
(a)
|
Average
Price Paid Per Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (b)
|
Maximum Number (or
Approximate Dollar
Value) of Shares that
may yet be Purchased
Under the Plans or
Programs (b)
|
||||||||||||
|
January 1 – 31, 2024
|
—
|
$
|
—
|
—
|
$
|
—
|
||||||||||
|
February 1 – 29, 2024
|
—
|
—
|
—
|
—
|
||||||||||||
|
March 1 – 31, 2024
|
79,922
|
32.18
|
79,922
|
27,428,342
|
||||||||||||
|
Total
|
79,922
|
$
|
32.18
|
79,922
|
$
|
27,428,342
|
||||||||||
| (a) |
All shares were purchased through the publicly announced stock repurchase programs in open-market transactions.
|
| (b) |
In July 2022, our Board of Directors authorized the purchase of up $30 million of our common stock under a stock repurchase program. Stock will be purchased from time to time in the open market, or through private transactions, as market
conditions warrant. Under this program, during the three months ended March 31, 2024, we repurchased 79,922 shares of our common stock at a total cost of $2.6 million. As of March 31, 2024, there was approximately $27.4 million available
for future stock purchases under the program. From the end of the first quarter through April 29, 2024, we repurchased an additional
106,440 shares of our common stock under the program at a total cost of $3.5 million, thereby reducing the amount available for future repurchases under the Board of Directors authorization to $23.9 million.
|
| ITEM 6. |
EXHIBITS
|
|
Exhibit
Number
|
|
|
31.1
|
|
|
31.2
|
|
|
32.1
|
|
|
32.2
|
|
|
101.INS**
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
|
|
101.SCH**
|
Inline XBRL Taxonomy Extension Schema Document.
|
|
101.CAL**
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.LAB**
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE**
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
101.DEF**
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
|
104
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
|
** In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to the Original Filing shall be deemed to be “furnished” and not “filed.”
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
STANDARD MOTOR PRODUCTS, INC.
|
|
|
(Registrant)
|
|
|
Date: May 1, 2024
|
/s/ Nathan R. Iles
|
|
Nathan R. Iles
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial and
|
|
|
Accounting Officer)
|
42
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Eric P. Sills, certify that:
|
1.
|
I have reviewed this report on Form 10-Q of Standard Motor Products, Inc.;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
|
| 4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c) |
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
|
| d) |
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
| 5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
|
| a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
|
| b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
|
Date: May 1, 2024
|
|
|
/s/ Eric P. Sills
|
|
|
Eric P. Sills
|
|
|
Chief Executive Officer and President
|
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Nathan R. Iles, certify that:
|
1.
|
I have reviewed this report on Form 10-Q of Standard Motor Products, Inc.;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
|
| 4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c) |
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
|
| d) |
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
| 5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
|
| a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
|
| b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
|
Date: May 1, 2024
|
|
|
/s/ Nathan R. Iles
|
|
|
Nathan R. Iles
|
|
|
Chief Financial Officer
|
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Standard Motor Products, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Eric P. Sills, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
| (1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
| (2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
|
|
/s/ Eric P. Sills
|
|
|
Eric P. Sills
|
|
|
Chief Executive Officer and President
|
|
|
May 1, 2024
|
* A signed original of this written statement required by Section 906 has been provided to Standard Motor Products, Inc. and will be retained by Standard Motor Products, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Standard Motor Products, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Nathan R. Iles, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
| (1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
| (2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
|
|
/s/ Nathan R. Iles
|
|
|
Nathan R. Iles
|
|
|
Chief Financial Officer
|
|
|
May 1, 2024
|
* A signed original of this written statement required by Section 906 has been provided to Standard Motor Products, Inc. and will be retained by Standard Motor Products, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.