Standard Motor Products, Inc 10-Q for FY2023 Q2
Standard Motor Products, Inc. (SMP)
10-Q
2023-08-02
For: 2023-06-30
View Original
Added on
April 04, 2026
About this 10-Q
Standard Motor Products, Inc filed this 10-Q on August 2, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $353.08M
- down 1.8% from $359.41M a year earlier
- Net income
- $9.14M
- down 52.2% from net income of $19.13M a year earlier
- Diluted EPS
- $0.41
- down 52.3% from $0.86 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 June 30, 2023
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 July 28, 2023, there were 21,725,967
outstanding shares of the registrant’s Common Stock, par value $2.00 per share.
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
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Page No.
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Item 1.
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3 |
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3
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4
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5
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6
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7
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9
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28
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Item 3.
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42
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Item 4.
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43
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PART I - FINANCIAL INFORMATION
| ITEM 1. |
CONSOLIDATED FINANCIAL STATEMENTS
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STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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|||||||||||||||
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(In thousands, except share and per share data)
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2023
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2022
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2023
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2022
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||||||||||||
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(Unaudited)
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(Unaudited)
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|||||||||||||||
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Net sales
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$
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$
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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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Other income, net
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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 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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(
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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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||||||||||||
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Net earnings attributable to noncontrolling interest
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||||||||||||
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Net earnings attributable to SMP (a)
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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 attributable to SMP
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||||||||||||||||
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Earnings from continuing operations
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$
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$
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$
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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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(
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)
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(
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)
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||||||||
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Total
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$
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$
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$
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$
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||||||||
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Per share data attributable to SMP
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||||||||||||||||
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Net earnings per common share – Basic:
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||||||||||||||||
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Earnings from continuing operations
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$
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$
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$
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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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(
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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 – Basic
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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 per common share – Diluted:
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||||||||||||||||
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Earnings from continuing operations
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$
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$
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$
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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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(
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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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$
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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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$
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$
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||||||||
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Average number of common shares
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||||||||||||
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Average number of common shares and dilutive common shares
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||||||||||||
(a) Throughout this Form 10Q, “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
June 30,
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Six Months Ended
June 30,
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||||||||||||||
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(In thousands)
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2023
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2022
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2023
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2022
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||||||||||||
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(Unaudited)
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(Unaudited)
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|||||||||||||||
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||||||||||||||||
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Net earnings
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$
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$
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$
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$
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||||||||
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Other comprehensive income (loss), net of tax:
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||||||||||||||||
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Foreign currency translation adjustments
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(
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)
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(
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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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(
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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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Total other comprehensive income, net of tax
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(
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)
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(
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)
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||||||||||
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Total Comprehensive income
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||||||||||||
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Comprehensive income (loss) attributable to noncontrolling interest, net of tax:
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||||||||||||||||
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Net earnings
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||||||||||||
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Foreign currency translation adjustments
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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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Comprehensive income (loss) attributable to noncontrolling interest, net of tax
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(
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)
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(
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)
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||||||||||
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Comprehensive income attributable to SMP
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$
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$
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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, except share and per share data)
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June 30,
2023
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December 31,
2022
|
||||||
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(Unaudited)
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|||||||
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ASSETS
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||||||||
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CURRENT ASSETS:
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||||||||
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Cash and cash equivalents
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$
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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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||||||
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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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||||||
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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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||||||
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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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||||||
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Total assets
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$
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$
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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 revolving credit facility
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$
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$
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||||
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Current portion of term loan and other debt
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||||||
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Accounts payable
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Sundry payables and accrued expenses
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||||||
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Accrued customer returns
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Accrued core liability
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Accrued rebates
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||||||
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Payroll and commissions
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||||||
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Total current liabilities
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||||||
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Long-term debt
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||||||
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Noncurrent operating lease liabilities
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||||||
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Other accrued liabilities
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||||||
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Accrued asbestos liabilities
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||||||
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Total liabilities
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||||||
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Commitments and contingencies
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|||||||
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Stockholders’ equity:
|
||||||||
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Common stock – par value $
|
||||||||
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Authorized –
|
|
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||||||
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Capital in excess of par value
|
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||||||
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Retained earnings
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||||||
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Accumulated other comprehensive income
|
(
|
)
|
(
|
)
|
||||
|
Treasury stock – at cost (
|
(
|
)
|
(
|
)
|
||||
|
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
|
$
|
|
$
|
|
||||
See accompanying notes to consolidated financial statements (unaudited).
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
|
(In thousands)
|
Six Months Ended
June 30,
|
|||||||
|
|
2023
|
2022
|
||||||
|
|
(Unaudited)
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net earnings
|
$
|
|
$
|
|
||||
|
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
|
||||||||
|
Depreciation and amortization
|
|
|
||||||
|
Amortization of deferred financing cost
|
|
|
||||||
|
Increase (decrease) to allowance for expected credit losses
|
|
(
|
)
|
|||||
|
Increase to inventory reserves
|
|
|
||||||
|
Equity income from joint ventures
|
(
|
)
|
(
|
)
|
||||
|
Employee stock ownership plan allocation
|
|
|
||||||
|
Stock-based compensation
|
|
|
||||||
|
(Increase) decrease in deferred income taxes
|
(
|
)
|
|
|||||
|
Loss on discontinued operations, net of tax
|
|
|
||||||
|
Change in assets and liabilities:
|
||||||||
|
Increase in accounts receivable
|
(
|
)
|
(
|
)
|
||||
|
(Increase) decrease in inventories
|
|
(
|
)
|
|||||
|
Increase in prepaid expenses and other current assets
|
(
|
)
|
(
|
)
|
||||
|
Increase in accounts payable
|
|
|
||||||
|
Increase (decrease) in sundry payables and accrued expenses
|
|
(
|
)
|
|||||
|
Net change in other assets and liabilities
|
(
|
)
|
(
|
)
|
||||
|
Net cash provided by (used in) operating activities
|
|
(
|
)
|
|||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Capital expenditures
|
(
|
)
|
(
|
)
|
||||
|
Other investing activities
|
|
|
||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Borrowings under the term loan
|
||||||||
|
Repayments of term loan
|
( |
) | ||||||
|
Net borrowings (repayments) under revolving credit facilities
|
(
|
)
|
|
|||||
|
Net borrowings (repayments) of other debt and lease obligations
|
(
|
)
|
|
|||||
|
Purchase of treasury stock
|
|
(
|
)
|
|||||
|
Payments of debt issuance costs
|
( |
) | ||||||
|
Increase in overdraft balances
|
|
|
||||||
|
Dividends paid
|
(
|
)
|
(
|
)
|
||||
|
Dividends paid to noncontrolling interest
|
( |
) | ||||||
|
Net cash provided by (used in) financing activities
|
(
|
)
|
|
|||||
|
Effect of exchange rate changes on cash
|
|
(
|
)
|
|||||
|
Net increase (decrease) in cash and cash equivalents
|
|
(
|
)
|
|||||
|
CASH AND CASH EQUIVALENTS at beginning of period
|
|
|
||||||
|
CASH AND CASH EQUIVALENTS at end of period
|
$
|
|
$
|
|
||||
|
Supplemental disclosure of cash flow information:
Cash paid during the period for:
|
||||||||
|
Interest
|
$
|
|
$
|
|
||||
|
Income taxes
|
$
|
|
$
|
|
||||
See accompanying notes to consolidated financial statements (unaudited).
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
Three Months Ended June 30, 2023
(Unaudited)
|
(In thousands)
|
Common
Stock
|
Capital in
Excess of
Par Value
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Treasury
Stock
|
Total
SMP
|
Non-
Controlling
Interest
|
Total
|
||||||||||||||||||||||||
|
Balance at March 31, 2023
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Net earnings
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||||||||
|
Cash dividends paid
|
|
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||
|
Dividends paid to noncontrolling interest
|
|
|
|
|
|
(
|
)
|
( |
) | |||||||||||||||||||||||
|
Stock-based compensation
|
|
(
|
)
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
Balance at June 30, 2023
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
Three Months Ended June 30, 2022
(Unaudited)
|
(In thousands)
|
Common
Stock
|
Capital in
Excess of
Par Value
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Treasury
Stock
|
Total
SMP
|
Non-
Controlling
Interest
|
Total
|
||||||||||||||||||||||||
|
Balance at March 31, 2022
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Net earnings
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Other comprehensive income, net of tax
|
|
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Cash dividends paid
|
|
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||
|
Purchase of treasury stock
|
|
|
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Balance at June 30, 2022
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
See accompanying notes to consolidated financial statements (unaudited).
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Six Months Ended June 30, 2023
(Unaudited)
|
(In thousands)
|
Common
Stock
|
Capital in
Excess of
Par Value
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Treasury
Stock
|
Total
SMP
|
Non-
Controlling
Interest
|
Total
|
||||||||||||||||||||||||
|
Balance at December 31, 2022
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Net earnings
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||||||||
|
Cash dividends paid
|
|
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||
|
Dividends paid to noncontrolling interest
|
( |
) | ( |
) | ||||||||||||||||||||||||||||
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Employee Stock Ownership Plan
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Balance at June 30, 2023
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
Six Months Ended June 30, 2022
(Unaudited)
|
(In thousands)
|
Common
Stock
|
Capital in
Excess of
Par Value
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Treasury
Stock
|
Total
SMP
|
Non-
Controlling
Interest
|
Total
|
||||||||||||||||||||||||
|
Balance at December 31, 2021
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Net earnings
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Other comprehensive income, net of tax
|
|
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Cash dividends paid
|
|
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||
|
Purchase of treasury stock
|
|
|
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Employee Stock Ownership Plan
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Balance at June 30, 2022
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
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 custom-engineered solutions for vehicle control and thermal management categories in diversified end markets. We sell our products
primarily to automotive aftermarket 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, 2022. 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 2023 presentation.
Reportable Segments
Beginning on January 1, 2023, we reorganized our business into
9
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, Russia’s invasion of the Ukraine and resultant sanctions imposed by the U.S. and other governments, the geo-political impact of U.S. relations with China, 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.
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, 2022.
Recently Issued Accounting Pronouncements
Standards that are not yet adopted as of June 30, 2023
There are no recently issued accounting pronouncements that have not been adopted as of June 30, 2023 that could have a material impact on our financial statements.
Note 3. Business Acquisitions and Investments
2022 Increase in Equity Investment
Investment in Foshan Che Yijia New Energy Technology Co., Ltd.
In August 2019, we acquired an approximate 29 %
minority interest in Foshan Che Yijia New Energy Technology Co., Ltd. (“CYJ”) for approximately $5.1 million. CYJ is a manufacturer
of automotive electric air conditioning compressors and is located in China. We determined, at that time, that due to a lack of a voting majority and other qualitative factors, we do not control the operations of CYJ and accordingly, our
investment in CYJ would be accounted for under the equity method of accounting.
In October 2022, we acquired an additional 3.55 %
equity interest in CYJ for RMB 1.7 million (approximately $242,000 ), increasing our minority ownership interest in CYJ from an approximate interest of 29 % to 33 %. The additional acquired ownership interest in
CYJ was paid for in cash funded by borrowings under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent. We will continue to account for our minority interest in CYJ using the equity method of accounting.
10
2022 Business Acquisitions
Acquisition of Capital Stock of Kade Trading GmbH (“Kade”)
In October 2022, we acquired
The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values (in thousands):
|
Purchase price
|
$
|
|
||||||
|
Assets acquired and liabilities assumed:
|
||||||||
|
Receivables
|
$
|
|
||||||
|
Inventory
|
|
|||||||
|
Other current assets (1)
|
|
|||||||
|
Property, plant and equipment, net
|
|
|||||||
|
Operating lease right-of-use assets
|
|
|||||||
|
Intangible assets
|
|
|||||||
|
Goodwill
|
|
|||||||
|
Current liabilities
|
(
|
)
|
||||||
|
Noncurrent operating lease liabilities
|
(
|
)
|
||||||
|
Deferred income taxes
|
(
|
)
|
||||||
|
Net assets acquired
|
$
|
|
||||||
| (1) |
|
Intangible assets acquired of $2.4 million consist of customer relationships that will be amortized on a straight-line basis over the estimated useful life of 15 years.
Incremental revenues from the acquired Kade business included in our consolidated statement of operations for the three months and six months ended June 30, 2023 were $1.7 million and $3.4 million,
respectively.
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 June 30, 2023 and December 31, 2022 and for the six months ended June 30, 2023, consisted of the following (in thousands):
|
|
Workforce
Reduction
|
Other Exit
Costs
|
Total
|
|||||||||
|
Exit activity liability at December 31, 2022
|
$
|
|
$
|
|
$
|
|
||||||
| Restructuring and integration costs: |
||||||||||||
|
Amounts provided for during 2023 (1)
|
||||||||||||
|
Cash payments
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Foreign currency exchange rate changes
|
||||||||||||
|
Exit activity liability at June 30, 2023
|
$
|
|
$
|
|
$
|
|
||||||
|
(1)
|
|
11
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 approximately $1.2 million were incurred during the six months ended June 30, 2023 consisting of (1) expenses of approximately $1 million of employee severance and bonuses related to our product line relocations, and (2) expenses of approximately $0.2 million related to the relocation of machinery and equipment to our manufacturing facilities in Reynosa, Mexico. Cash payments made of approximately $1 million during the six months ended June 30, 2023 consisted primarily of severance payments related to the sales force reduction. Additional
restructuring costs related to the initiative, and expected to be incurred, are approximately $1.6 million. We anticipate that the Cost
Reduction Initiative will be completed by the end of 2023.
Note 5. Sale of Receivables
We are party to several supply chain financing arrangements, in which we may sell certain of our customers’ trade accounts receivable to such customers’ financial
institutions. We sell our undivided interests in certain of these receivables at our discretion when we determine that the cost of these arrangements is less than the cost of servicing our receivables with existing debt. Under the terms of the
agreements, we retain no rights or interest, have no obligations with respect to the sold receivables, and do not service the receivables after the sale. As such, these transactions are being accounted for as a sale.
Pursuant to these agreements, we sold $211.6 million and
$382.5 million of receivables during the three months and six months ended June 30, 2023, respectively, and $218.4 million and $374.1 million for the comparable periods in 2022. Receivables presented at financial institutions and not yet collected as of June 30, 2023 were approximately $10.7 million and remained in our accounts receivable balance as of that date. There were no receivables presented at financial institutions and not yet collected as of December 31, 2022. 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 $12.4
million and $21.5 million related to the sale of receivables was included in selling, general and administrative expense in our
consolidated statements of operations for the three months and six months ended June 30, 2023, respectively, and $7.7 million and $11.2 million for the comparable periods in 2022.
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.
12
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:
|
|
June 30,
2023
|
December 31,
2022
|
||||||
|
|
(In thousands)
|
|||||||
|
Finished goods
|
$
|
|
$
|
|
||||
|
Work in process
|
|
|
||||||
|
Raw materials
|
|
|
||||||
|
Subtotal
|
|
|
||||||
|
Unreturned customer inventories
|
|
|
||||||
|
Total inventories
|
$
|
|
$
|
|
||||
Note 7. Goodwill and Acquired
Intangible Assets
Goodwill
In connection with our operating segment reorganization, we reassessed our reporting units and reallocated goodwill from the reporting units that existed prior to the
change to the new reporting units, using a relative fair value allocation approach similar to that used when a portion of a reporting unit is to be disposed of. We performed goodwill impairment tests as of January 1, 2023 on both the reporting
units in place prior to the change and the new reporting units, and concluded that the estimated fair values of each of the reporting units exceeded their respective carrying amounts and, therefore, no impairment charge was necessary.
Acquired Intangible Assets
Acquired identifiable intangible assets consist of the following:
|
|
June 30,
2023
|
December 31,
2022
|
||||||
|
|
(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 (1)
|
(
|
)
|
(
|
)
|
||||
|
Net acquired intangible assets
|
$
|
|
$
|
|
||||
| (1) |
|
Total amortization expense for acquired intangible assets was $2.1
million and $4.3 million for the three months and six months ended June 30, 2023, respectively, and $2.2 million and $4.3 million for the
comparable periods in 2022. Based on the current estimated useful lives assigned to our intangible assets, amortization expense is estimated to be $4.2
million for the remainder of 2023, $8.4 million in 2024, $8.4 million in 2025, $8.4 million in 2026 and $62.9 million in the aggregate for the years 2027 through 2041.
13
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 eleven 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 include all
operating leases acquired from the date of acquisition (in thousands):
|
Balance Sheet Information
|
June 30,
2023
|
December 31,
2022
|
||||||
|
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
|
|
%
|
|
%
|
||||
| Expense and Cash Flow Information |
Three Months Ended
June 30,
|
|||||||
|
|
2023
|
2022
|
||||||
|
Lease Expense
|
||||||||
|
Operating lease expense (a)
|
$
|
|
$
|
|
||||
|
Six Months Ended
June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Lease Expense
|
||||||||
|
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 lease obligations:
|
||||||||
|
Operating leases (b)
|
$
|
|
$
|
|
||||
| (a) |
|
|
|
(b)
|
|
14
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) –
(Continued)
Minimum Lease Payments
At June 30, 2023, we are obligated to make minimum lease payments through 2034, under operating leases, which are as follows (in thousands):
|
2023
|
$
|
|
||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
Thereafter
|
|
|||
|
Total lease payments
|
$
|
|
||
|
Less: Interest
|
(
|
)
|
||
|
Present value of lease liabilities
|
$
|
|
In May 2023, we signed a lease for a new distribution facility in Shawnee,
Kansas with a commencement date of July 1, 2023, and a lease termination date of November 30, 2033. The lease covers a building of 574,932
square feet. Base rent is approximately $3 million per annum beginning on December 1, 2023 increasing 3 % per annum each year thereafter, plus approximately $0.5
million for taxes and maintenance commencing on July 1, 2023. The expected right-of-use asset related to the lease is approximately $26.1
million. Balance sheet lease accounting and rent expense will be recorded beginning on July 1, 2023, the lease commencement date.
Note 9. Credit Facilities and Long-Term Debt
Total debt outstanding is summarized as follows:
|
|
June 30,
2023
|
December 31,
2022
|
||||||
|
|
(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, 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.
15
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 were 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 June 30, 2023 under the Credit Agreement were $223 million, consisting of current borrowings of $58.7 million and long-term debt of $164.3
million; while outstanding borrowings at December 31, 2022 were $239.5 million, consisting of current borrowings of $55 million and long-term debt of $184.5
million. Letters of credit outstanding under the Credit Agreement were $2.4
At June 30, 2023, the weighted average interest rate under our Credit Agreement was 5.6 %, which consisted of $223 million in borrowings under Term SOFR, adjusted for the impact of the
interest rate swap agreement on $100 million of borrowings. At December 31, 2022, the weighted average interest rate under our Credit
Agreement was 5.2 %, which consisted of $237
million in borrowings at 5.2 % 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 $2.5 million at 8 %. During the six months ended June 30, 2023, our average daily alternative base
rate loan balance was $0.2 million, compared to a balance of $10.8 million for the six months ended June 30, 2022 and a balance of $5.6
million for the year ended December 31, 2022.
16
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 October 2022, our
Polish subsidiary, SMP Poland sp. z.o.o., amended its overdraft facility with HSBC Continental Europe (Spolka Akcyjna) Oddzial w Polsce to provide for borrowings under the facility in Euros and U.S. Dollars. Under the amended terms, the overdraft
facility provides for borrowings of up to Zloty 30 million (approximately $7.3 million) if borrowings are solely in Zloty, or up to 85 % of
the Zloty 30 million limit (approximately $6.2
million) if borrowings are in Euros and/or U.S. Dollars. The overdraft facility has an initial maturity date in December 2022, with automatic three-month
renewals until June 2027, subject to cancellation by either party, at its sole discretion, at least 30 days prior to the commencement of
the three-month renewal period. Borrowings under the amended overdraft facility will bear interest at a rate equal to (1) the one month Warsaw Interbank Offered Rate (“WIBOR”) + 1.5 % for borrowings in Polish Zloty, (2) the one month Euro Interbank Offered Rate (“EURIBOR”) + 1.5 % for borrowings in Euros, and (3) the Mid-Point of the Fed Target Range + 1.75 % 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
Maturities of Debt
As of June 30, 2023, 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 2023
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
2024
|
|
|
|
|
||||||||||||
|
2025
|
|
|
|
|
||||||||||||
|
2026
|
|
|
|
|
||||||||||||
|
2027
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Less: current maturities
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Long-term debt
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Deferred Financing Costs
We have deferred financing costs of approximately $1.8
million and $2.1 million as of June 30, 2023 and December 31, 2022, respectively. Deferred financing costs are related to our term loan
and revolving credit facilities. Deferred financing costs as of June 30, 2023, assuming no prepayments, are being amortized in the amounts of $0.2
million for the remainder of 2023, $0.5 million in 2024, $0.5 million in 2025, $0.5 million in 2026 and $0.1 million in 2027.
17
Note 10. Accumulated Other Comprehensive Income
Changes in Accumulated Other Comprehensive Income by Component (in thousands)
|
Three Months Ended June 30,
2023
|
|||||||||||||||||
|
Foreign
Currency
Translation
|
Unrecognized
Postretirement
Benefit Costs
(Credit)
|
Unrealized
derivative
gains
(losses)
|
Total
|
||||||||||||||
|
Balance at March 31, 2023
attributable to SMP
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||||
|
Other comprehensive income before reclassifications
|
|
|
|
(1) |
|
||||||||||||
|
Amounts reclassified from accumulated other comprehensive income
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||
|
Other comprehensive income, net
|
|
(
|
)
|
|
|
||||||||||||
|
Balance at June 30,
2023 attributable to SMP
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||
|
Foreign
Currency
Translation
|
Unrecognized
Postretirement
Benefit Costs
(Credit)
|
Unrealized
derivative
gains
(losses)
|
Total | ||||||||||||||
|
Balance at December 31, 2022
attributable to SMP
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||||
|
Other comprehensive income before reclassifications
|
|
|
|
(1) |
|
||||||||||||
|
Amounts reclassified from accumulated other comprehensive income
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||
|
Other comprehensive income, net
|
|
(
|
)
|
|
|
||||||||||||
|
Balance at June 30,
2023 attributable to SMP
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||||
|
(1)
|
Consists of the unrecognized gain relating to the
change in fair value of the cash flow interest rate hedge of $
|
Reclassifications Out of Accumulated Other Comprehensive Income (in thousands)
|
|
Three Months
Ended
|
Six Months
Ended
|
||||||
|
Details About Accumulated Other Comprehensive Income Components
|
June 30, 2023
|
June 30, 2023
|
||||||
|
Derivative cash flow hedge:
|
||||||||
|
Unrecognized gain (loss) (1)
|
$
|
(
|
)
|
$ | ( |
) | ||
|
Postretirement Benefit Plans:
|
||||||||
|
Unrecognized gain (loss) (2)
|
(
|
)
|
( |
) | ||||
|
Total before income tax
|
(
|
)
|
( |
) | ||||
|
Income tax expense
|
(
|
)
|
( |
) | ||||
|
Total reclassifications attributable to SMP
|
$
|
(
|
)
|
$ | ( |
) | ||
|
(1)
|
|
|
(2)
|
|
18
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.
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 six months ended
June 30, 2023:
|
Shares
|
Weighted Average
Grant Date Fair
Value Per Share
|
|||||||
|
Balance at December 31, 2022
|
|
$
|
|
|||||
|
Granted
|
|
|
||||||
|
Vested
|
(
|
)
|
|
|||||
|
Forfeited
|
(
|
)
|
|
|||||
|
Balance at June 30, 2023
|
|
$
|
|
|||||
We recorded compensation expense related to restricted shares and performance-based shares of $3.2 million ($2.4 million, net of tax) and $3.9 million ($2.9 million, net of tax) for the six months ended June 30, 2023 and 2022, respectively. The unamortized compensation expense related to our restricted and
performance-based shares was $11.2 million at June 30, 2023, and is
expected to be recognized as they vest over a weighted average period of 4 years and 0.83 years for employees and directors,
respectively.
19
Note 12. Employee Benefits
We provide certain medical and dental care benefits to 14 former U.S. union employees. The postretirement medical and dental benefit obligation to the former
union employees as of June 30, 2023, and the related net periodic benefit cost for the plan for the three and six months ended June 30, 2023 and 2022 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 2023, we made company contributions to the plan of $0.8 million related to calendar year 2022.
We also have an Employee Stock Ownership Plan 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 six months ended June 30, 2023, we contributed to the trust an additional 72,800 shares from our treasury and released 72,800
shares from the trust leaving 200 shares remaining in the trust as
of June 30, 2023.
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 1.50 %
at June 30, 2023.
The fair value of the
interest rate swap agreement as of June
30, 2023 and December 31, 2022 was an asset of $5.8 million and $5.2 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 plan to perform quarterly
hedge effectiveness assessments and anticipate that the interest rate swap will be highly effective throughout its term.
20
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.
The following is a summary of the estimated fair values, carrying amounts, and classification under the fair value hierarchy of our financial instruments at June 30,
2023 and December 31, 2022 (in thousands):
|
June 30, 2023
|
December 31, 2022
|
||||||||||||||||
|
Fair Value
Hierarchy
|
Fair Value | Carrying Amount | Fair Value | Carrying Amount | |||||||||||||
|
Cash and cash equivalents
|
LEVEL 1
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Deferred compensation
|
LEVEL 1
|
|
|
|
|
||||||||||||
|
Short term borrowings
|
LEVEL 1
|
|
|
|
|
||||||||||||
|
Long-term debt
|
LEVEL 1
|
|
|
|
|
||||||||||||
|
Cash flow interest rate swap
|
LEVEL 2
|
|
|
|
|
||||||||||||
The carrying value of cash and cash equivalents approximates fair value due to the short maturity of those investments. 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 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.
21
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 attributable to SMP (in thousands, except per share data):
|
Three Months Ended
June 30,
|
Six Months
Ended
June 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
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
June 30,
|
Six Months Ended
June 30,
|
||||||||||||||
|
|
2023
|
2022
|
2023
|
2022
|
||||||||||||
|
Restricted and performance-based shares
|
|
|
|
|
||||||||||||
22
Note 16. Industry Segments
Beginning on January 1, 2023, we reorganized our business into three operating segments – Engineered Solutions, Vehicle Control and Temperature Control.
The new operating segment structure provides clarity regarding the unique dynamics and margin profiles of the markets served by each segment, better aligns our operating segments with our strategic focus on diversification, and provides greater
transparency into our positioning to capture growth opportunities in the future.
Engineered Solutions is a new operating segment created by carving out all non-aftermarket business from our prior Engine Management and Temperature Control operating segments. 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.
Vehicle Control is the new
name for our Engine Management operating segment. It includes our core aftermarket business after carving out all non-aftermarket business to our Engineered Solutions operating segment. The Vehicle Control operating segment includes sales from
ignition, emissions, and fuel delivery, electrical and safety, and wire sets and other product categories.
Temperature Control is our ongoing operating
segment, after the carve out of all non-aftermarket business to our Engineered Solutions operating segment, that derives its sales from air conditioning system components and other thermal product categories. Our Temperature Control operating
segment is poised to benefit from the broader adoption of air conditioning and other thermal systems.
The following tables show our net sales and operating income for each reportable operating segment (in thousands):
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||
| June 30, |
June 30,
|
|||||||||||||||
|
|
2023
|
2022
|
2023 | 2022 | ||||||||||||
|
Net Sales (a)
|
||||||||||||||||
|
Vehicle Control
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Temperature Control
|
||||||||||||||||
|
Engineered Solutions
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Consolidated
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
|
||||||||||||||||
|
Operating Income
|
||||||||||||||||
|
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.
23
The following table
summarizes consolidated net sales by major product group within each operating segment for the three months and six months ended June 30, 2023 and 2022 (in thousands):
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
June 30,
|
June 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
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 and six
months ended June 30, 2023 and 2022 (in thousands):
|
Three months ended June 30, 2023
|
Vehicle
Control
|
Temperature
Control
|
Engineered
Solutions
|
Other
|
Total
|
|||||||||||||||
|
Geographic Area:
|
||||||||||||||||||||
|
United States
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Canada
|
|
|
|
|
|
|||||||||||||||
|
Europe
|
|
|
|
|
|
|||||||||||||||
|
Mexico
|
|
|
|
|
|
|||||||||||||||
|
Asia
|
|
|
|
|
|
|||||||||||||||
|
Other foreign
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
24
|
Three months ended June 30, 2022
|
Vehicle
Control
|
Temperature
Control
|
Engineered
Solutions
|
Other
|
Total
|
|||||||||||||||
|
Geographic Area:
|
||||||||||||||||||||
|
United States
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Canada
|
|
|
|
|
|
|||||||||||||||
|
Europe
|
|
|
|
|
|
|||||||||||||||
|
Mexico
|
|
|
|
|
|
|||||||||||||||
|
Asia
|
|
|
|
|
|
|||||||||||||||
|
Other foreign
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Six months ended June 30, 2023
|
Vehicle
Control
|
Temperature
Control
|
Engineered
Solutions
|
Other
|
Total
|
|||||||||||||||
|
Geographic Area:
|
||||||||||||||||||||
|
United States
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Canada
|
|
|
|
|
|
|||||||||||||||
|
Europe
|
|
|
|
|
|
|||||||||||||||
|
Mexico
|
|
|
|
|
|
|||||||||||||||
|
Asia
|
|
|
|
|
|
|||||||||||||||
|
Other foreign
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Six months ended June 30, 2022
|
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 June 30, 2023, approximately 1,465 cases were outstanding
for which we may be responsible for any related liabilities. Since inception in September 2001 through June 30, 2023, the amounts paid for settled claims and awards of asbestos-related damages, including interest, were approximately $68.3 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.
25
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, 2022. The
results of the August 31, 2022 study included an estimate of our undiscounted liability for settlement payments and awards of asbestos-related damages, excluding legal costs, ranging from $68.8 million to $111.6 million for the period through 2065. The change from the
prior year study, which was as of August 31,2021, was a $7.9 million increase for the low end of the range and an $11.4 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.
Based upon the results of the August 31, 2022 actuarial study, in September 2022 we increased our asbestos liability to $68.8 million, the low end of the range, and recorded an incremental pre-tax provision of $18.5 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, 2022 study, to range from $53.2
million to $105.7 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 $4.5 million and $9.5 million for the six months ended June 30, 2023 and 2022, 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
In connection with the aforementioned former brake business, we were subject to a legal proceeding alleging a breach of contract claim of the related
purchase agreement. On May 11, 2023, we were found liable for approximately $11 million. Although it is expected that the Court will
finalize its judgment by the end of the third quarter of 2023, we recorded a pre-tax provision of $11 million in earnings (loss) from
discontinued operations in the accompanying statement of operations in the second quarter of 2023.
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.
26
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 June 30, 2023 and 2022, we have accrued $23.6 million and $23.8 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 |
Six
Months Ended |
|||||||||||||||
|
|
June 30,
|
June 30,
|
||||||||||||||
|
|
2023
|
2022
|
2023
|
2022
|
||||||||||||
|
Balance, beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Liabilities accrued for current year sales
|
|
|
|
|
||||||||||||
|
Settlements of warranty claims
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Balance, end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
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 aftermarket, non-aftermarket, industrial equipment and original equipment markets; changes in the product mix and
distribution channel mix; economic and market conditions; successful integration of acquired businesses; our ability to achieve benefits from our cost savings initiatives; product liability and environmental matters (including, without
limitation, those related to asbestos-related contingent liabilities and remediation costs at certain properties); the effects of a widespread public health crisis, including the coronavirus (COVID-19) pandemic; the effects of disruptions in the
supply chain; Russia’s invasion of the Ukraine and resultant sanctions imposed by the U.S. and other governments; the geo-political impact of U.S. relations with China; climate-related risks, such as physical and transition 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
With over 100 years in business, we are a leader in the industries we serve and a trusted partner for all of our stakeholders. We manufacture and distribute premium replacement parts for our customers in the automotive aftermarket, while
providing customized solutions for vehicle control and thermal management products in diversified end markets represented by our Engineered Solutions segment. We are a global manufacturer with over 6,000 employees (inclusive of temporary and
joint venture employees) across nearly 39 manufacturing, distribution and engineering facilities and offices located in North America, Europe and Asia. We sell our products primarily to automotive aftermarket 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.
Beginning on January 1, 2023, we reorganized our business into three operating segments – Engineered Solutions, Vehicle Control and Temperature Control.
Engineered Solutions is a new operating segment created by carving out all non-aftermarket business from our prior Engine Management and Temperature Control operating
segments, which will now solely reflect parts sales to aftermarket channels. 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, and is expected to provide a platform for growth. Segment offerings include product categories from both of our legacy operating segments, and 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.
Vehicle Control is the new name for our Engine Management operating segment. It includes our core aftermarket business after carving out of all non-aftermarket business to
our Engineered Solutions operating segment. The Vehicle Control segment includes sales from three new 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 remains substantially unchanged, as only a small portion of its business moved to Engineered Solutions, and this legacy aftermarket
business segment is poised to benefit from the broader adoption of air conditioning and other thermal systems. Those 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.
The reorganization of our operating segments provides clarity regarding the unique dynamics and margin profiles of the markets served by each segment, better aligns with our strategic focus on diversification, and provides greater transparency
into how we are positioned to capture growth opportunities of the future.
The following table summarizes the reorganization of our operating segments, and provides a comparison of our operating segments during 2022 and in 2023:
|
Operating Segments as of 2022
|
Operating Segments in 2023
|
|
|
Engine Management:
|
Vehicle Control (Aftermarket):
|
|
|
Ignition, Emissions, Fuel & Safety
|
Engine Management (Ignition, Emissions & Fuel Delivery)
|
|
|
Wire and Cable
|
Electrical & Safety
|
|
|
Wire Sets & Other
|
||
|
Temperature Control:
|
Temperature Control (Aftermarket):
|
|
|
Compressors
|
AC System Components
|
|
|
Other Climate Control Parts
|
Other Thermal Components
|
|
|
Engineered Solutions (non-Aftermarket):
|
||
|
Commercial Vehicle
|
||
|
Light Vehicle
|
||
|
Construction & Agriculture
|
||
|
All Other
|
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 June 30, 2023 and 2022.
|
Three Months Ended
|
||||||||
|
June 30,
|
||||||||
|
(In thousands, except per share data)
|
2023
|
2022
|
||||||
|
Net sales
|
$
|
353,075
|
$
|
359,412
|
||||
|
Gross profit
|
101,269
|
96,351
|
||||||
|
Gross profit %
|
28.7
|
%
|
26.8
|
%
|
||||
|
Operating income
|
27,178
|
27,893
|
||||||
|
Operating income %
|
7.7
|
%
|
7.8
|
%
|
||||
|
Earnings from continuing operations before income taxes
|
24,697
|
27,999
|
||||||
|
Provision for income taxes
|
6,289
|
7,122
|
||||||
|
Earnings from continuing operations
|
18,408
|
20,877
|
||||||
|
Loss from discontinued operations, net of income taxes
|
(9,221
|
)
|
(1,666
|
)
|
||||
|
Net earnings
|
9,187
|
19,211
|
||||||
|
Net earnings (loss) attributable to noncontrolling interest
|
50
|
85
|
||||||
|
Net earnings attributable to SMP
|
9,137
|
19,126
|
||||||
|
Per share data attributable to SMP – Diluted:
|
||||||||
|
Earnings from continuing operations
|
$
|
0.83
|
$
|
0.93
|
||||
|
Discontinued operations
|
(0.42
|
)
|
(0.07
|
)
|
||||
|
Net earnings per common share
|
$
|
0.41
|
$
|
0.86
|
||||
Consolidated net sales for the three months ended June 30, 2023 were $353.1 million, a decrease of $6.3 million, or 1.8%, compared to net sales of $359.4 million in the same period in 2022. Net sales decreased in our Vehicle Control and
Temperature Control operating segments, while net sales in our Engineered Solutions operating segment increased when compared to the comparable period in the prior year.
The decrease in net sales in our Vehicle Control segment primarily reflects the impact of lower sales to a customer that filed for bankruptcy in the first quarter of the year; while Temperature Control’s net sales for the second quarter of
2023 reflects the impact of a rainy spring and early summer season across key markets, and thus impacted the timing of early season customer orders in 2023, which were lower than the strong customer orders of the second quarter of 2022 when sales
were up 6.4% and customers replenished their prior year inventory levels. Net sales in our Engineered Solutions segment showed year-over-year improvement driven by increased pricing and new business wins, and we continue to be optimistic about
the long-term growth potential of the complementary markets served in our newly created Engineered Solutions operating segment.
Gross margins as a percentage of net sales increased to 28.7% in the second quarter of 2023 compared to 26.8% in the second quarter of 2022. The gross margin percentages in both our Vehicle Control and Engineered Solutions segments increased
year-over-year, while the gross margin percentage decreased in our Temperature Control segment. The overall consolidated gross margin percentage increase reflects the impact of increased pricing and operating performance, which more than offset
the lower fixed cost absorption due to lower production levels as we work down our inventory balances, the lower sales volumes in Temperature Control, the weakening of the U.S. dollar on our international operations and the negative impact from
the different margin profile in Engineered Solutions. Although all of our operating segments were negatively impacted by ongoing inflationary cost increases in certain raw materials, labor and transportation expenses, we anticipate that our
annual cost savings initiatives and ability to pass through higher prices to our customers should continue offset much of the impact on our gross margins.
Operating margin as a percentage of net sales for the three months ended June 30, 2023 was essentially flat at 7.7% as compared to 7.8% for the same period in 2022. Included in our operating margin were selling, general and administrative
expenses (“SG&A”) of $73.8 million, or 20.9% of net sales for the three months ended June 30, 2023 compared to $68.5 million, or 19% of net sales, for the same period in 2022. The $5.3 million increase in SG&A expenses in the second
quarter of 2023 as compared to the second quarter of 2022 is principally due to higher interest rate related costs of $4.8 million incurred in our supply chain financing arrangements. Excluding the impact of the incremental interest rate costs
incurred in our supply chain financing arrangements, SG&A expenses in the second quarter of 2023 were 19.6% of consolidated net sales, slightly higher than the percentage in the comparable prior year period.
Overall, we remain optimistic for the balance of the year. Our sales team continues to explore new sales opportunities, we remain optimistic about the long-term potential growth opportunities in our Engineered Solutions segment, our cost
savings programs remain on track and we are confident that our focus on cash flow will result in generating significant operating cash flow for the balance of 2023.
Impact of Russia’s Invasion of the Ukraine
Russia’s invasion of the Ukraine, and the resultant sanctions imposed by the U.S. and other governments, have created risks, uncertainties and disruptions impacting business continuity, liquidity and asset values not only in the Ukraine and
Russia, but in markets worldwide. Significant price increases have occurred in gas and energy markets, as well as in other commodities. Although we have no facilities or business operations in either the Ukraine or Russia, have historically had
only minor sales to customers in Russia, which we have subsequently discontinued, and have not experienced additional significant disruptions in the supply chain, the inherent risks and uncertainties surrounding the invasion are being closely
monitored. We have manufacturing and distribution facilities in Bialystok, Poland and Pecel, Hungary. Our facility in Bialystok, Poland does not use natural gas in its production process, or for heating, and, as such, is not impacted by Russia’s
decision to halt the export of all natural gas to Poland and Bulgaria. While we have not been impacted by the war to date, there can be no assurances that any escalation of the invasion will not have an adverse impact on our business, financial
condition and results of operations.
Impact of Global Supply Chain Disruption and Inflation
Disruptions in the global economy have impeded global supply chains, resulted in longer lead times and delays in procuring component parts and raw materials, and resulted in inflationary cost increases in certain raw materials, labor and
transportation. In response to the global supply chain volatility and 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 the pass through of higher costs to our customers in the form of price increases, 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.
Environmental, Social, & Governance (“ESG”)
Our Company was founded in 1919 on the values of integrity, common decency and respect for others. These values continue to this day and 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 increased focus on many important environmental,
social and governance issues, such as environmental stewardship and our efforts to identify and implement practices that reduce our environmental impact while achieving our business goals; our attention to diversity, equity and inclusion,
employee development, retention, and health and safety; and our community engagement initiatives, to name a few.
We have made significant strides with respect to our ESG 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 greenhouse gas emissions (“GHG”), with the ambition of achieving net-zero total Scope 1 and Scope 2 GHG emissions by 2050. With each year, we intend to further our commitment
to improving our environmental stewardship and finding ways to give back to our communities. Additional information on our ESG initiatives can be found on our corporate website at ir.smpcorp.com under
“Environmental & Social Responsibility” (including our most recent sustainability report) and at smpcares.smpcorp.com. Information on our corporate websites regarding our ESG 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 June 30, 2023 to the Three Months Ended June 30, 2022
Sales. Consolidated net sales for the three months ended June 30, 2023 were $353.1 million, a decrease of $6.3 million, or 1.8%, compared to
$359.4 million in the same period of 2022, with the majority of our net sales to customers located in the United States. Net sales decreased in our Vehicle Control and Temperature Control operating segments, while net sales in our Engineered
Solutions operating segment increased 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 June 30, 2023 and 2022 (in thousands):
|
Three Months Ended
|
||||||||
|
June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Vehicle Control
|
||||||||
|
Engine Management (Ignition, Emissions and Fuel Delivery)
|
$
|
113,589
|
$
|
111,581
|
||||
|
Electrical and Safety
|
52,867
|
57,054
|
||||||
|
Wire Sets and Other
|
17,333
|
17,136
|
||||||
|
Total Vehicle Control
|
183,789
|
185,771
|
||||||
|
Temperature Control
|
||||||||
|
AC System Components
|
74,449
|
81,608
|
||||||
|
Other Thermal Components
|
22,625
|
24,029
|
||||||
|
Total Temperature Control
|
97,074
|
105,637
|
||||||
|
Engineered Solutions
|
||||||||
|
Commercial Vehicle
|
26,742
|
19,503
|
||||||
|
Construction/Agriculture
|
8,103
|
11,222
|
||||||
|
Light Vehicle
|
23,548
|
23,039
|
||||||
|
All Other
|
13,819
|
14,240
|
||||||
|
Total Engineered Solutions
|
72,212
|
68,004
|
||||||
|
Other
|
—
|
—
|
||||||
|
Total
|
$
|
353,075
|
$
|
359,412
|
||||
Vehicle Control’s net sales for the three months ended June 30, 2023 decreased slightly to $183.8 million compared to $185.8 million in the same period of 2022. Net sales in the electrical and safety product group for the three months ended
June 30, 2023 decreased year-over-year; while net sales increased slightly in the engine management (ignition, emissions, and fuel delivery) product group and remained essentially flat in the wire sets and other product group when compared to the
three months ended June 30, 2022. The decrease in net sales in our Vehicle Control operating segment primarily reflects lower sales to a customer that filed for bankruptcy in the first quarter of the year.
Temperature Control’s net sales for the three months ended June 30, 2023 decreased $8.5 million, or 8.1%, to $97.1 million compared to $105.6 million in the same period of 2022. Net sales declined in each of the AC systems components and
other thermal components product groups for the three months ended June 30, 2023 when compared to the comparable period in the prior year. Temperature Control’s net sales for the second quarter of 2023 reflects the impact of a rainy spring and
early summer season across key markets, and thus impacted the timing of early season customer orders in 2023, which were lower than the strong customer orders of the second quarter of 2022 when sales were up 6.4% and customers replenished their
prior year inventory levels. 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 June 30, 2023 increased $4.2 million, or 6.2%, to $72.2 million compared to $68 million in the same period of 2022. Net sales increased in the each of the commercial vehicle and light
vehicle product groups for the three months ended June 30, 2023 when compared to the three month ended June 30, 2022; while net sales in the construction and agriculture, and all other product groups declined year-over-year. Overall, net sales
in our Engineered Solutions operating segment showed year-over-year improvement driven by increased pricing and new business wins, and we continue to be optimistic about the long-term growth potential of the complementary markets served in our
newly created Engineered Solutions operating segment.
Gross Margins. Gross margins, as a percentage of consolidated net sales, increased to 28.7% in the second quarter of 2023, compared to 26.8% in the second quarter of 2022. The
following table summarizes gross margins by segment for the three months ended June 30, 2023 and 2022, respectively (in thousands):
|
Three Months Ended
June 30,
|
Vehicle Control
|
Temperature Control
|
Engineered Solutions
|
Other
|
Total
|
|||||||||||||||
|
2023
|
||||||||||||||||||||
|
Net sales
|
$
|
183,789
|
$
|
97,074
|
$
|
72,212
|
$
|
—
|
$
|
353,075
|
||||||||||
|
Gross margins
|
60,109
|
26,512
|
14,648
|
—
|
101,269
|
|||||||||||||||
|
Gross margin percentage
|
32.7
|
%
|
27.3
|
%
|
20.3
|
%
|
—
|
28.7
|
%
|
|||||||||||
|
2022
|
||||||||||||||||||||
|
Net sales
|
$
|
185,771
|
$
|
105,637
|
$
|
68,004
|
$
|
—
|
$
|
359,412
|
||||||||||
|
Gross margins
|
53,728
|
29,315
|
13,308
|
—
|
96,351
|
|||||||||||||||
|
Gross margin percentage
|
28.9
|
%
|
27.8
|
%
|
19.6
|
%
|
—
|
26.8
|
%
|
|||||||||||
Compared to the second quarter of 2022, gross margins at Vehicle Control increased 3.8 percentage points from 28.9% to 32.7%. Gross margins at Temperature Control decreased 0.5 percentage points from 27.8% to 27.3%, and gross margins at
Engineered Solutions increased 0.7 percentage points from 19.6% to 20.3%.
The gross margin percentage increase in our Vehicle Control operating segment reflects the positive impact of increased pricing and operating performance, which more than offset higher material and labor costs, as well as the lower fixed cost
absorption due to lower production levels than those achieved in the same period in 2022. The gross margin percentage decrease in our Temperature Control operating segment reflects the impact of lower sales volumes; while the gross margin
percentage increase at our Engineered Solutions operating segment is driven primarily by higher sales and increased pricing, which more than offset the negative impact of customer sales mix. All of our operating segments were negatively impacted
by the ongoing 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 our ability to pass through higher prices to our customers should help to offset much of this impact to our gross margins.
Selling, General and Administrative Expenses. Selling, general and administrative expenses (“SG&A”) were $73.8 million, or 20.9% of consolidated net sales, in the second quarter
of 2023, as compared to $68.5 million, or 19% of consolidated net sales, in the second quarter of 2022. The $5.3 million increase in SG&A expenses as compared to the second quarter of 2022 is principally due to higher interest rate related
costs of $4.8 million incurred in our supply chain financing arrangements. Excluding the impact of the incremental interest rate costs incurred in our supply chain financing arrangements, SG&A expenses in the second quarter of 2023 were
19.6% of consolidated net sales, slightly higher than the percentage in the comparable prior year period, primarily due to lower sales volume.
Restructuring and Integration Expenses. Restructuring and integration expenses were $0.3 million for the three months ended June 30, 2023. Restructuring and integration expenses
incurred in the second quarter of 2023 relate to product line relocations from our Independence, Kansas manufacturing facility and from our St. Thomas, Canada manufacturing facility to our manufacturing facilities in Reynosa, Mexico, as part of
our Cost Reduction Initiative announced during the fourth quarter of 2022. Total restructuring expenses incurred during the three months ended June 30, 2023 related to the initiative of $0.3 million consisted of (1) expenses of approximately
$0.1 million consisting of employee severance and bonuses related to our product line relocations, and (2) expenses of approximately $0.2 million related to the relocation of machinery and equipment to our manufacturing facilities in Reynosa,
Mexico. Additional restructuring costs related to the initiative, and expected to be incurred, are approximately $1.6 million. We anticipate that the Cost Reduction Initiative will be completed by the end of 2023.
Operating Income. Operating income was $27.2 million, or 7.7% of consolidated net sales, in the second quarter of 2023, compared to $27.9 million, or 7.8% of consolidated net sales,
in the second quarter of 2022. The year-over-year decrease in operating income of $0.7 million is primarily the result of the impact of lower operating income in the Temperature Control segment stemming from lower net sales, and higher interest
rate related costs of $4.8 million incurred in our supply chain financing arrangements included in SG&A expenses offset, in part, by higher gross margins as a percentage of sales in the Vehicle Control and Engineered Solutions segments.
Other Non-Operating Income (Expense), Net. Other non-operating income, net was $0.8 million in the second quarter of 2023, compared to $1.9 million in the second quarter of 2022.
The year-over-year decrease in other non-operating income (expense), net results from the decrease in year-over-year equity income from our joint ventures, due in part to lower production related to inventory reduction plans, and the unfavorable
impact of changes in foreign currency exchange rates.
Interest Expense. Interest expense increased to $3.3 million in the second quarter of 2023, compared to $1.8 million in the second quarter of 2022. The year-over-year increase in
interest expense reflects the impact of higher year-over-year average interest rates on our credit facilities offset, in part, by the impact of slightly lower average outstanding borrowings in the second quarter of 2023 when compared to the
second quarter of 2022.
Income Tax Provision. The income tax provision in the second quarter of 2023 was $6.3 million at an effective tax rate of 25.5% compared to
$7.1 million at an effective tax rate of 25.4% for the same period in 2022. The effective tax rate was essentially flat year-over-year.
Loss from Discontinued Operations. Loss from discontinued operations, net of income tax, reflects legal expenses and other costs associated with our asbestos-related liability.
During the second quarter of 2023 and 2022, the loss from discontinued operations, net of tax was $9.2 million and $1.7 million, respectively. The loss from discontinued operations includes an $11 million pre-tax provision in the second quarter
of 2023 which arose from the May 11, 2023 court ruling in a breach of contract claim in connection with a legal proceeding with a third party; and legal and other administrative expenses, before taxes, of $1.5 million and $2.3 million in the
second quarter of 2023 and 2022, respectively. 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 (loss) attributable to noncontrolling interest relates to our 70% ownership in a joint venture in Hong Kong, with
operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”). Net earnings attributable to the noncontrolling interest of $50,000 and $85,000 during the three months ended June 30, 2023 and 2022, respectively, represents 30% of the net
earnings of Trombetta Asia, Ltd.
Comparison of the Six Months Ended June 30, 2023 to the Six Months Ended June 30, 2022
Sales. Consolidated net sales for the six months ended June 30, 2023 were $681.1 million, a slight decrease of $1.1 million, compared to
$682.2 million in the same period of 2022, with the majority of our net sales to customers in the United States. Net sales decreased in our Temperature Control operating segment, while net sales in our Vehicle Control and Engineered Solutions
operating segments increased 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 six months ended June 30, 2023 and 2022 (in thousands):
|
Six Months Ended
|
||||||||
|
June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Vehicle Control
|
||||||||
|
Engine Management (Ignition, Emissions and Fuel Delivery)
|
$
|
229,672
|
$
|
220,730
|
||||
|
Electrical and Safety
|
104,671
|
109,311
|
||||||
|
Wire Sets and Other
|
34,023
|
32,994
|
||||||
|
Total Vehicle Control
|
368,366
|
363,035
|
||||||
|
Temperature Control
|
||||||||
|
AC System Components
|
120,201
|
128,982
|
||||||
|
Other Thermal Components
|
49,279
|
49,713
|
||||||
|
Total Temperature Control
|
169,480
|
178,695
|
||||||
|
Engineered Solutions
|
||||||||
|
Commercial Vehicle
|
46,599
|
40,954
|
||||||
|
Construction/Agriculture
|
20,898
|
22,206
|
||||||
|
Light Vehicle
|
46,514
|
49,114
|
||||||
|
All Other
|
29,246
|
28,239
|
||||||
|
Total Engineered Solutions
|
143,257
|
140,513
|
||||||
|
Other
|
—
|
— |
||||||
|
Total
|
$
|
681,103
|
$
|
682,243
|
||||
Vehicle Control’s net sales for the six months ended June 30, 2023 increased $5.4 million, or 1.5%, to $368.4 million compared to $363 million in the same period of 2022. Net sales in the electrical and safety, and wire sets and other product
groups for the six months ended June 30, 2023 increased year-over-year; while net sales in the electrical and safety product group decreased in the six months ended June 30, 2023 when compared to the comparable period in the prior year. Overall,
the increase in net sales in our Vehicle Control operating segment reflects the positive impact of increased pricing and the $7.3 million increase in net sales in the first quarter of 2023, offset in part, by lower sales to a customer that filed
for bankruptcy in the first quarter of the year.
Temperature Control’s net sales for the six months ended June 30, 2023 decreased $9.2 million, or 5.2%, to $169.5 million compared to $178.7 million in the same period of 2022. Net sales declined in the AC systems components product group for
the six months ended June 30, 2023 when compared to the comparable period in the prior year; while net sales in the other thermal components product group was essentially flat year-over-year. Temperature Control’s net sales for the first six
months of 2023 reflect the impact of a rainy spring and early summer season across key markets, and thus impacted the timing of early season customer orders in 2023, which were lower than the strong customer orders of the comparable period of
2022 when sales were up 14.7% and customers replenished their prior year inventory levels. Overall, full year results at Temperature Control will be dependent upon summer weather conditions and customer inventory levels.
Engineered Solutions’ net sales for the six months ended June 30, 2023 increased $2.8 million, or 2%, to $143.3 million compared to $140.5 million in the same period of 2022. Net sales increased in the each of the commercial vehicle and all
other product groups for the six months ended June 30, 2023 when compared to the six months ended June 30, 2022; while net sales in the construction and agriculture, and light vehicle product groups declined year-over-year. Overall, net sales in
our Engineered Solutions operating segment showed a year-over-year improvement driven by increased pricing and new business wins, and we continue to be optimistic about the long-term growth potential of the complementary markets served in our
newly created Engineered Solutions operating segment.
Gross Margins. Gross margins, as a percentage of consolidated net sales, increased to 28.3% in the first six months of 2023, compared to 27.3% during the same period in 2022. The
following table summarizes gross margins by segment for the six months ended June 30, 2023 and 2022, respectively (in thousands):
|
Six Months Ended
June 30,
|
Vehicle
Control
|
Temperature Control
|
Engineered Solutions
|
Other
|
Total
|
|||||||||||||||
|
2023
|
||||||||||||||||||||
|
Net sales
|
$
|
368,366
|
$
|
169,480
|
$
|
143,257
|
$
|
—
|
$
|
681,103
|
||||||||||
|
Gross margins
|
118,581
|
45,667
|
28,288
|
—
|
192,536
|
|||||||||||||||
|
Gross margin percentage
|
32.2
|
%
|
26.9
|
%
|
19.7
|
%
|
—
|
28.3
|
%
|
|||||||||||
|
2022
|
||||||||||||||||||||
|
Net sales
|
$
|
363,035
|
$
|
178,695
|
$
|
140,513
|
$
|
—
|
$
|
682,243
|
||||||||||
|
Gross margins
|
109,152
|
48,803
|
28,236
|
—
|
186,191
|
|||||||||||||||
|
Gross margin percentage
|
30.1
|
%
|
27.3
|
%
|
20.1
|
%
|
—
|
27.3
|
%
|
|||||||||||
Compared to the first six months of 2022, gross margins at Vehicle Control increased 2.1 percentage points from 30.1% to 32.2%. Gross margins at Temperature Control decreased 0.4 percentage points from 27.3% to 26.9%, and gross margins at
Engineered Solutions decreased 0.4 percentage points from 20.1% to 19.7%.
The gross margin percentage increase in our Vehicle Control operating segment reflects the positive impact of increased pricing and operating performance, which more offset increases in material and labor costs, as well as the lower fixed cost
absorption due to lower production levels than those achieved in the same period in 2022. The gross margin percentage decrease in our Temperature Control operating segment reflects the impact of lower sales volumes; while the gross margin
percentage decrease at our Engineered Solutions operating segment is primarily driven by the negative impact of customer sales mix. All of our operating segments were negatively impacted by the ongoing 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 our ability to pass through higher prices to our
customers should help to offset much of this impact to our gross margins.
Selling, General and Administrative Expenses. Selling, general and administrative expenses (“SG&A”) were $143.5 million, or 21.1% of consolidated net sales, in the first six
months of 2023, as compared to $131.4 million, or 19.3% of consolidated net sales in the first six months of 2022. The $12.1 million increase in SG&A expenses as compared to the first six months of 2022 is principally due to (1) higher
interest rate related costs of $10.3 million incurred in our supply chain financing arrangements, and (2) higher distribution costs. Excluding the impact of the incremental interest rate costs incurred in our supply chain financing arrangements,
SG&A expenses in the six months of 2023 were 19.6% of consolidated net sales, slightly higher than the percentage in the comparable prior year period.
Restructuring and Integration Expenses. Restructuring and integration expenses were $1.2 million in six months ended June 30, 2023 compared to $44,000 in the comparable period of
2022. Restructuring and integration expenses incurred in the first six months of 2023 relate to product line relocations from our Independence, Kansas manufacturing facility and from our St. Thomas, Canada manufacturing facility to our
manufacturing facilities in Reynosa, Mexico, as part of our Cost Reduction Initiative announced during the fourth quarter of 2022. Total restructuring expenses incurred during the six months ended June 30, 2023 related to the initiative of $1.2
million consisted of (1) expenses of approximately $1 million consisting of employee severance and bonuses related to our product line relocations, and (2) expenses of approximately $0.2 million related to the relocation of machinery and
equipment to our manufacturing facilities in Reynosa, Mexico. Additional restructuring costs related to the initiative and expected to be incurred, are approximately $1.6 million. We anticipate that the Cost Reduction Initiative will be
completed by the end of 2023.
Operating Income. Operating income was $47.9 million, or 7% of consolidated net sales, in the six months ended June 30, 2023, compared to $54.8 million, or 8% of consolidated net
sales, in the six months ended June 30, 2022. The year-over-year decrease in operating income of $6.9 million is primarily the result of the impact of lower operating income in the Temperature Control segment stemming from lower net sales, and
higher interest rate related costs of $10.3 million incurred in our supply chain financing arrangements included in SG&A expenses offset, in part, by higher gross margins as a percentage of net sales in the Vehicle Control and Engineered
Solutions segments.
Other Non-Operating Income (Expense), Net. Other non-operating income, net was $1 million in the first six months of 2023, compared to $3.4 million in the first six months of 2022.
The year-over-year decrease in other non-operating income (expense), net results from the decrease in year-over-year equity income from our joint ventures, due in part to lower production related to inventory reduction plans, and the unfavorable
impact of changes in foreign currency exchange rates.
Interest Expense. Interest expense increased to $7.1 million in the first six months of 2023, compared to $2.6 million for the same period in 2022. The year-over-year increase in
interest expense reflects the impact of higher year-over-year average interest rates on our credit facilities, and the impact of higher average outstanding borrowings in the first half of 2023 when compared to the first half of 2022.
Income Tax Provision. The income tax provision for the six months ended June 30, 2023 was $10.7 million at an effective tax rate of 25.5%,
compared to $14.1 million at an effective tax rate of 25.4% for the same period in 2022. The effective tax rate was essentially flat year-over-year.
Loss from Discontinued Operations. Loss from discontinued operations, net of income tax, reflects legal expenses and other costs associated with our asbestos-related liability.
During the first six months of 2023 and 2022, the loss from discontinued operations, net of tax was $10 million and $2.8 million, respectively. The loss from discontinued operations includes an $11 million pre-tax provision in the second quarter
of 2023 which arose from the May 11, 2023 court ruling in a breach of contract claim in connection with a legal proceeding with a third party; and legal and other administrative expenses, before taxes, of $2.5 million and $3.8 million in the
first six months of 2023 and 2022, respectively. 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 (loss) attributable to noncontrolling interest relates to our 70% ownership in a joint venture in Hong Kong, with
operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”). Net earnings attributable to the noncontrolling interest of $89,000 and $77,000 during the six months ended June 30, 2023 and 2022, respectively, represents 30% of the net earnings
of Trombetta Asia, Ltd.
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.
|
June 30,
|
December 31,
|
|||||||||||
|
(In thousands)
|
2023
|
2022
|
2022
|
|||||||||
|
Operating cash flows
|
$
|
39,370
|
$
|
(95,333
|
)
|
|||||||
|
Total debt
|
$
|
223,216
|
$
|
267,454
|
$
|
239,620
|
||||||
|
Cash
|
23,019
|
14,186
|
21,150
|
|||||||||
|
Net debt
|
$
|
200,197
|
$
|
253,268
|
$
|
218,470
|
||||||
|
Remaining borrowing capacity
|
$
|
269,631
|
$
|
232,933
|
$
|
255,631
|
||||||
|
Total liquidity
|
292,650
|
247,119
|
276,781
|
|||||||||
Operating Activities. During the first six months of 2023, cash provided by operating activities was $39.4 million compared to cash used in operating activities of $95.3 million in
the same period of 2022. The increase in cash provided by operating activities resulted primarily from the smaller year-over-year increase in accounts receivable, the decrease in inventories compared to an increase in inventories in the prior
year, the larger year-over-year increase in accounts payable, the smaller year-over-year increase 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 offset, in part, by the decrease in net earnings.
Net earnings during the first six months of 2023 were $21.1 million compared to $38.6 million in the first six months of 2022. During the first six months of 2023, (1) the increase in accounts receivable was $48.3 million compared to the
year-over-year increase in accounts receivable of $49.7 million in 2022; (2) the decrease in inventories was $30.9 million compared to the year-over-year increase in inventories of $87.7 million in 2022; (3) the increase in accounts payable was
$4.3 million compared to the year-over-year increase in accounts payable of $1.6 million in 2022; (4) the increase in prepaid expenses and other current assets was $0.5 million compared to the year-over-year increase in prepaid expenses and other
current assets of $7.1 million in 2022; and (5) the increase in sundry payables and accrued expenses was $2.8 million compared to the year-over-year decrease in sundry payables and accrued expenses of $5 million in 2022.
During the second quarter and first six months of 2023, we actively managed our working capital generating operating cash flow of $59.8 million and $39.4 million, respectively, reducing our inventory to more normalized levels. We anticipate
further inventory decreases during 2023 as we continue to actively manage our working capital to maximize our operating cash flow.
Investing Activities. Cash used in investing activities was $9.4 million in the first six months of 2023, compared to $13.2 million in the
same period of 2022. Investing activities during the first six months of 2023 and 2022 consisted of capital expenditures of $9.5 million and $13.2 million, respectively.
Financing Activities. Cash used in financing activities was $29.1 million in the first six months of 2023 as compared to cash provided by
financing activities of $101.7 million in the same period of 2022. During the first six months of 2023, we (1) reduced our borrowings under our Credit Agreement by $16.5 million; and (2) paid dividends of $12.5 million. Cash provided by our
operating activities was used to reduce our borrowings under our Credit Agreement, fund our investing activities and pay dividends.
In June 2022, we entered into a new credit agreement with JPMorgan Chase Bank, N.A., as agent. The new credit agreement provides for a $500 million credit facility comprised of a $100 million term loan facility and a $400 million revolving
credit facility. During the first six months of 2022, we (1) increased our borrowings under our credit facilities by $139.2 million; (2) made cash payments of $2.1 million for debt issuance costs in connection with our refinancing; (3) made cash
payments for the repurchase of shares of our common stock of $25.6 million; and (4) paid dividends of $11.8 million. Cash provided by borrowings under our credit facilities were used to fund our operating activities, investing activities, payment
of debt issuance costs, purchase shares of our common stock and pay dividends.
Dividends of $12.5 million and $11.8 million were paid in 2023 and 2022, respectively. In February 2023, our Board of Directors voted to increase our quarterly dividend from $0.27 per share in 2022 to $0.29 per share in 2023.
Liquidity.
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, 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 were 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 June 30, 2023 under the Credit Agreement were $223 million, consisting of current borrowings of $58.7 million and long-term debt of $164.3 million; while outstanding borrowings at December 31, 2022 were $239.5
million, consisting of current borrowings of $55 million and long-term debt of $184.5 million. Letters of credit outstanding under the Credit Agreement were $2.4 million at both June 30, 2023 and December 31, 2022.
At June 30, 2023, the weighted average interest rate under our Credit Agreement was 5.6%, which consisted of $223 million in borrowings under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100 million of
borrowings. At December 31, 2022, the weighted average interest rate under our Credit Agreement was 5.2%, which consisted of $237 million in borrowings at 5.2% 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 $2.5 million at 8%. During the six months ended June 30, 2023, our average daily alternative base rate loan balance was $0.2 million, compared to a balance of $10.8 million for the
six months ended June 30, 2022 and a balance of $5.6 million for the year ended December 31, 2022.
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 October 2022, our Polish subsidiary, SMP Poland sp. z.o.o., amended its overdraft facility with HSBC Continental Europe (Spolka Akcyjna) Oddzial w Polsce to provide for borrowings under the facility in Euros and U.S. Dollars. Under the
amended terms, the overdraft facility provides for borrowings of up to Zloty 30 million (approximately $7.3 million) if borrowings are solely in Zloty, or up to 85% of the Zloty 30 million limit (approximately $6.2 million) if borrowings are in
Euros and/or U.S. Dollars. The overdraft facility has an initial maturity date in December 2022, with automatic three-month renewals until June 2027, subject to cancellation by either party, at its sole discretion, at least 30 days prior to the
commencement of the three-month renewal period. Borrowings under the amended overdraft facility will bear interest at a rate equal to (1) the one month Warsaw Interbank Offered Rate (“WIBOR”) + 1.5% for borrowings in Polish Zloty, (2) the one
month Euro Interbank Offered Rate (“EURIBOR”) + 1.5% for borrowings in Euros, and (3) the Mid-Point of the Fed Target Range + 1.75% 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 June 30, 2023 and December 31, 2022.
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 being accounted for as a sale.
Pursuant to these agreements, we sold $211.6 million and $382.5 million of receivables during the three months and six months ended June 30, 2023, respectively, and $218.4 million and $374.1 million for the comparable periods in 2022.
Receivables presented at financial institutions and not yet collected as of June 30, 2023 were approximately $10.7 million and remained in our accounts receivable balance as of that date. There were no receivables presented at financial
institutions and not yet collected as of December 31, 2022. 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 $12.4 million and $21.5
million related to the sale of receivables was included in selling, general and administrative expense in our consolidated statements of operations for the three months and six months ended June 30, 2023, respectively, and $7.7 million and $11.2
million for the comparable periods in 2022.
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
receivables. 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. To date, there have been no repurchases of our common stock under the program.
Material Cash Commitments
Material cash commitments as of June 30, 2023 consist of required cash payments to service our outstanding borrowings of $223 million under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, the future minimum cash requirements of
$93.6 million through 2034 under operating leases, and future cash payments relating to our restructuring activities of $1.7 million. All of our other cash commitments as of June 30, 2023 are not material. For additional information related to
our material cash commitments, see Note 4, “Restructuring and Integration Expenses”, 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, Russia’s invasion of the Ukraine and resultant sanctions imposed by the U.S. and other governments,
the geo-political impact of U.S. relations with China, 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, 2022.
Critical Accounting Policies
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, 2022.
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, Russia’s
invasion of the Ukraine and resultant sanctions imposed by the U.S. and other governments, the geo-political impact of U.S. relations with China, 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
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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, the Polish Zloty, the Hungarian Forint, the Mexican Peso, the Taiwan Dollar, the Chinese Yuan Renminbi and the Hong Kong Dollar. As of
June 30, 2023 and December 31, 2022, 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 to 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 1.50% at June 30, 2023.
As of June 30, 2023, we had approximately $223 million of outstanding borrowings under our Credit Agreement, of which approximately $123 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 $1 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 and six months ended June 30, 2023, we sold $211.6 million and
$382.5 million of receivables, respectively. 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 $2.1 million and $3.8 million negative impact on our earnings or cash flows during the three months and six months ended June 30, 2023, respectively. 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, 2022.
| ITEM 4. |
CONTROLS AND PROCEDURES
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(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 June 30, 2023, 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
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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 6. |
EXHIBITS
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Exhibit
Number
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|
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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|
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Certification of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS**
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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).
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101.SCH**
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Inline XBRL Taxonomy Extension Schema Document.
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101.CAL**
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Inline XBRL Taxonomy Extension Calculation Linkbase Document.
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101.LAB**
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Inline XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE**
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Inline XBRL Taxonomy Extension Presentation Linkbase Document.
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101.DEF**
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Inline XBRL Taxonomy Extension Definition Linkbase Document.
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104
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
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** 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.
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(Registrant)
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Date: August 2, 2023
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/s/ Nathan R. Iles
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Nathan R. Iles
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Chief Financial Officer
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(Principal Financial and
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Accounting Officer)
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45
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Eric P. Sills, certify that:
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1.
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I have reviewed this report on Form 10-Q of Standard Motor Products, Inc.;
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| 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;
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| 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;
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| 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
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| 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
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| 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
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| 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.
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Date: August 2, 2023
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||
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/s/ Eric P. Sills
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||
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Eric P. Sills
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||
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Chief Executive Officer and President
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EXHIBIT 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Nathan R. Iles, certify that:
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1.
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I have reviewed this report on Form 10-Q of Standard Motor Products, Inc.;
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| 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;
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| 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;
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| 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;
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| 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
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| 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
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| 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.
|
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Date: August 2, 2023
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|
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/s/ Nathan R. Iles
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|
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Nathan R. Iles
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|
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Chief Financial Officer
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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 June 30, 2023 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.
|
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/s/ Eric P. Sills
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||
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Eric P. Sills
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||
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Chief Executive Officer and President
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||
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August 2, 2023
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||
* 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 June 30, 2023 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.
|
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/s/ Nathan R. Iles
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Nathan R. Iles
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Chief Financial Officer
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August 2, 2023
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* 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.