STANDARD MOTOR PRODUCTS INC

Previous wording

Our Temperature Control operating segment services our core automotive aftermarket customers with thermal products, and is poised to benefit from the broader adoption of air conditioning and other thermal systems. These systems will provide passenger comfort regardless of the vehicles’ powertrain, and are being developed to cool batteries and other products used on electric vehicles. Segment offerings include sales from thermal products in the aftermarket business under two major product groups:– (1)AC System Components, which includes compressors, connecting lines, heat exchangers, and expansion devices; and (2)Other Thermal Components, which includes parts that provide engine, transmission, electric drive motor, and battery temperature management.

Current wording

Our Temperature Control operating segment services our core automotive aftermarket customers with thermal products, and is poised to benefit from the broader adoption of air conditioning and other thermal systems. These systems will provide passenger comfort regardless of the vehicles’ powertrain, and are being developed to cool batteries and other products used on electric vehicles. Segment offerings include sales from thermal products in the aftermarket business under two major product groups:– (1)AC System Components, which includes compressors, connecting lines, heat exchangers, and expansion devices; and

Previous wording

Consolidated net sales for the three months ended June 30, 2024 were $389.8 million, an increase of $36.7 million, or 10.4%, compared to net sales of $353.1 million in the same period in 2023. Net sales increased in all our operating segments, when compared to the comparable period in the prior year.

Current wording

Consolidated net sales for the three months ended September 30, 2024 were $399.3 million, an increase of $12.9 million, or 3.3%, compared to net sales of $386.4 million in the same period in 2023. Net sales increased in all our operating segments, when compared to the same period in the prior year.

Previous wording

The increase in net sales in the three months ended June 30, 2024 when compared to the comparable period in the prior year reflects the impact of multiple factors including:

Current wording

The increase in net sales in the three months ended September 30, 2024 when compared to the same period in the prior year reflects the impact of multiple factors including:

Previous wording

Gross margins as a percentage of net sales decreased very slightly to 28.6% in the second quarter of 2024 compared to 28.7% in the second quarter of 2023. The gross margin percentage in our Temperature Control segment increased year-over-year, while the gross margin percentage decreased in both our Vehicle Control and Engineered Solutions segments. The gross margin percentage increase in our Temperature Control segment results from the impact of higher sales volumes, customer mix and the impact of cost control measures, while the gross margin percentage decrease in our Vehicle Control segment reflects the lingering inflationary increase in material and labor costs. Although Engineered Solutions’ gross margin percentages improved from levels reported in the first quarter of 2024, the Engineered Solutions’ gross margin percentage continued to be negatively impacted by inflationary cost increases. While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost savings initiatives coupled with customer pricing should help to offset this impact to our gross margins.

Current wording

Gross margins as a percentage of net sales increased to 30.4% in the third quarter of 2024 compared to 29.7% in the third quarter of 2023. The gross margin percentage in our Temperature Control and Vehicle Control segments increased year-over-year, while the gross margin percentage decreased in our Engineered Solutions segment. While all segments benefited from favorable manufacturing cost absorption due to higher production levels, the gross margin percentage increase in our Vehicle Control segment also reflects the impact of increased pricing and saving initiatives, despite lingering inflationary increases in material and labor costs. The gross margin percentage increase in our Temperature Control segment also results from the impact of higher sales volumes, customer mix and the impact of cost control measures. The Engineered Solutions’ gross margin percentage also continued to be negatively impacted by inflationary cost increases. While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost savings initiatives should help to offset this impact to our gross margins.

Previous wording

Operating margin as a percentage of net sales for the three months ended June 30, 2024 decreased to 6.4% as compared to 7.7% for the same period in 2023. Included in our operating margin were selling, general and administrative expenses of $83.9 million, or 21.5% of net sales for the three months ended June 30, 2024 compared to $73.8 million, or 20.9% of net sales, for the same period in 2023. The $10.1 million increase in selling, general and administrative expenses in the second quarter of 2024 as compared to the second quarter of 2023 is principally due to (1) $2.4 million of due diligence, legal and other professional fees related to our planned acquisition of Nissens Automotive, (2) increased rent and incremental expenses of approximately $1.3 million as we transition away from our Edwardsville, Kansas distribution center to our new distribution facility in Shawnee, Kansas, (3) higher interest related costs of $0.9 million incurred in our supply chain financing arrangements, and (4) higher distribution and freight costs of $3.1 million related to higher sales.

Current wording

Operating margin as a percentage of net sales for the three months ended September 30, 2024 increased to 9.3% as compared to 9.0% for the same period in 2023. Included in our operating margin were selling, general and administrative expenses of $81.2 million, or 20.3% of net sales for the three months ended September 30, 2024 compared to $79.8 million, or 20.6% of net sales, for the same period in 2023. The$1.4 million increase inselling, general and administrative expenses in the third quarter of 2024 as compared to the third quarter of 2023 is principally due to (1) increased rent and incremental expenses of approximately $1.1 million as we transition away from our Edwardsville, Kansas distribution center to our new distribution facility in Shawnee, Kansas, (2) higher distribution and freight costs of $0.5 million related to higher sales, and (3) higher interest related costs of $0.3 million incurred in our supply chain financing arrangements, (4) partially offset by $1.0 million of derivative gains from forward foreign exchange contracts executed during the third quarter to economically hedge the purchase price on the pending Nissens Automotive acquisition.

Previous wording

During the second quarter of 2024, as part of our commitment to optimize our cost structure and provide professional development opportunities to our employees, we offered a voluntary incentive package of severance and other benefit enhancements to eligible employees in the United States and Canada. The offer period ended on June 14, 2024. During the second quarter of 2024 we recorded expenses of $2.6 million, with additional expenses to be recorded of approximately $3.1 million in the remainder of 2024, $0.4 million in 2025, and $0.1 million in 2026 for an aggregate cost of approximately $6.2 million. It is anticipated that the voluntary retirement incentive program will reduce operating expenses beginning in the second half of 2024. Expenses incurred pursuant to the program are recorded in restructuring and integration expenses in our statement of operations.

Current wording

During the second quarter of 2024, as part of our commitment to optimize our cost structure and provide professional development opportunities to our employees, we offered a voluntary retirement incentive package of severance and other benefit enhancements to eligible employees in the United States and Canada. The offer period ended on June 14, 2024. During the third quarter of 2024, we expanded the program to include involuntary separations. We recorded expenses of $5.6 million in the third quarter of 2024, with additional expenses to be recorded of approximately $1.3 million in the remainder of 2024, $0.6 million in 2025, and $0.1 million in 2026 for an aggregate cost of approximately $7.6 million. It is anticipated that the overall separation program will reduce operating expenses for the remainder of 2024. Expenses incurred pursuant to the program are recorded in restructuring and integration expenses in our statement of operations.

Previous wording

Sales. Consolidated net sales for the three months ended June 30, 2024 were $389.8 million, an increase of $36.7 million, or 10.4%, compared to $353.1 million in the same period of 2023, with the majority of our net sales to customers located in the United States. Net sales increased in all our operating segments, when compared to the comparable period in the prior year.

Current wording

Sales. Consolidated net sales for the three months ended September 30, 2024 were$399.3 million, an increase of $12.9 million, or 3.3%, compared to $386.4 million in the same period of 2023, with the majority of our net sales to customers located in the United States. Net sales increased in all our operating segments, when compared to the comparable period in the prior year.

Previous wording

Vehicle Control’s net sales for the three months ended June 30, 2024 increased $4.9 million, or 2.7%, to $188.7 million compared to $183.8 million in the same period of 2023. Demand in the Vehicle Control aftermarket segment remains relatively stable across our major product groups.

Current wording

Vehicle Control’s net sales for the three months ended September 30, 2024 increased $9.9 million, or 5.2%, to $200.9 million compared to $190.9 million in the same period of 2023. Demand in the Vehicle Control aftermarket segment remains relatively stable across our major product groups.

Previous wording

Temperature Control’s net sales for the three months ended June 30, 2024 increased $27.4 million, or 28.2%, to $124.5 million compared to $97.1 million in the same period of 2023. Temperature Control’s net sales for the second quarter of 2024 reflects the impact of the timing of early season customer orders in 2024 as compared to the second quarter of 2023. The strong customer orders in the second quarter of 2024 reflects the impact of a warm start to the season, while the lower Temperature Control net sales in the second quarter of 2023 reflected the impact of a cooler start to the season across key markets. Overall, full year results at Temperature Control will be dependent upon summer weather conditions and customer inventory levels.

Current wording

Temperature Control’s net sales for the three months ended September 30, 2024 increased $2.3 million, or 1.9%, to $126 million compared to $123.6 million in the same period of 2023. Temperature Control’s net sales for the third quarter of 2024 reflects continued strong customer orders due to warmer seasonal weather compared to the same period in 2023. Overall, full year results at Temperature Control will be dependent upon ongoing weather conditions and customer inventory levels.

Previous wording

Engineered Solutions’ net sales for the three months ended June 30, 2024 increased $4.4 million, or 6.1%, to $76.6 million compared to $72.2 million in the same period of 2023. Overall, net sales in our Engineered Solutions operating segment showed year-over-year improvement driven by strong demand with successful results from our cross-selling efforts.

Current wording

Engineered Solutions’ net sales for the three months ended September 30, 2024 increased $0.6 million, or 0.8%, to $72.4 million compared to $71.8 million in the same period of 2023. Overall, net sales in our Engineered Solutions operating segment showed year-over-year improvement driven by business wins as well as successful cross-selling efforts.

Previous wording

Gross Margins. Gross margins, as a percentage of consolidated net sales, decreased very slightly to 28.6% in the second quarter of 2024, compared to 28.7% in the second quarter of 2023. The following table summarizes gross margins by segment for the three months ended June 30, 2024 and 2023, respectively (in thousands):

Current wording

Gross Margins. Gross margins, as a percentage of consolidated net sales, increased to 30.4% in the third quarter of 2024, compared to 29.7% in the third quarter of 2023. The following table summarizes gross margins by segment for the three months ended September 30, 2024 and 2023, respectively (in thousands):

Previous wording

Compared to the second quarter of 2023, gross margins at Vehicle Control decreased 0.9 percentage points from 32.7% to 31.8%, gross margins at Temperature Control increased 2.1 percentage points from 27.3% to 29.4%, and gross margins at Engineered Solutions decreased 0.9 percentage points from 20.3% to 19.4%.

Current wording

Compared to the third quarter of 2023, gross margin percentage at Vehicle Control and Temperature Control increased 0.8 percentage points from 31.9% to 32.7%, and 3.0 percentage points from 30.6% to 33.6%, respectively. Gross margin percentage at Engineered Solutions decreased 3.9 percentage points from 22.4% to 18.5%.

Previous wording

The gross margin percentage decrease in our Vehicle Control operating segment reflects the impact of the lingering inflationary increases in material and labor costs, which more than offset the positive impact of increased pricing and saving initiatives. The gross margin percentage increase in our Temperature Control operating segment reflects the impact of higher sales volumes, customer mix and the impact of cost control measures. Gross margins as a percentage of net sales in our Engineered Solutions operating segment decreased in the second quarter of 2024 when compared to the comparable period in 2023 driven primarily by inflationary cost increases. 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.

Current wording

While all segments benefited from favorable manufacturing cost absorption due to higher production levels, the gross margin percentage increase in our Vehicle Control operating segment also reflects the impact of increased pricing and saving initiatives, despite lingering inflationary increases in material and labor costs. The gross margin percentage increase in our Temperature Control operating segment also results from the impact of higher sales volumes, customer mix and the impact of cost control measures. Gross margins as a percentage of net sales in our Engineered Solutions operating segment decreased in the third quarter of 2024 when compared to the comparable period in 2023 driven primarily by inflationary cost increases. While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost savings initiatives should help to offset much of this impact to our gross margins.

Previous wording

Restructuring and Integration Expenses. Restructuring and integration expenses were $2.6 million for the three months ended June 30, 2024 compared to $0.3 million in the same period of 2023. Restructuring and integration expenses incurred in the second quarter of 2024 relate primarily to a voluntary retirement incentive program offered to eligible employees as part of our commitment to optimizing our cost structure and providing professional development opportunities to our employees. Expenses in the second quarter of 2024 of approximately $2.6 million related to the program consists of severance and other benefit enhancements.

Current wording

Restructuring and Integration Expenses. Restructuring and integration expenses were $3.0 million for the three months ended September 30, 2024 compared to $0.2 million in the same period of 2023. Restructuring and integration expenses incurred in the third quarter of 2024 relate primarily to the Separation Program announced in the second quarter of 2024 and expanded to encompass involuntary separations in the third quarter of 2024 as part of our commitment to optimizing our cost structure and providing professional development opportunities to our employees. Expenses in the third quarter of 2024 of approximately$3.0 million related to the program consists of severance and other benefit enhancements.

Previous wording

Restructuring and integration expenses of $0.3 million in the second quarter of 2023 relate to the Cost Reduction Initiative announced in the fourth quarter of 2024. We anticipate that the Cost Reduction Initiative will be substantially completed by the end of 2024.

Current wording

Restructuring and integration expenses of $0.2 million in the third quarter of 2023 relate to the Cost Reduction Initiative announced in the fourth quarter of 2023. We anticipate that the Cost Reduction Initiative will be substantially completed by the end of 2024.

Previous wording

Operating Income. Operating income was $25 million, or 6.4% of consolidated net sales, in the second quarter of 2024, compared to $27.2 million, or 7.7% of consolidated net sales, in the second quarter of 2023. The year-over-year decrease in operating income of $2.2 million is primarily the result of slightly lower gross margins as a percentage of net sales, higher selling, general and administrative expenses, including incremental distribution expansion costs and due diligence, legal and other professional fees related to our planned acquisition of Nissens Automotive, and higher restructuring and integration expenses, offset, in part, by the impact of higher net sales.

Current wording

Operating Income. Operating income was$37.1 million, or 9.3% of consolidated net sales, in the third quarter of 2024, compared to $34.8 million, or 9% of consolidated net sales, in the third quarter of 2023. The year-over-year increase in operating income of$2.3 million is primarily the result of higher net sales and gross margin percentage, offset, in part, by higher restructuring and integration expenses, and selling, general and administrative expenses.

Previous wording

Other Non-Operating Income, Net. Other non-operating income, net was $2.2 million in the second quarter of 2024, compared to $0.8 million in the second quarter of 2023. The year-over-year increase in other non-operating income, net results from the increase in year-over-year equity income from our joint ventures and the favorable impact of changes in foreign currency exchange rates. Equity income from our joint ventures increased irrespective of the year-over-year decline in the equity income of Gwo Yng, reflecting the impact of our acquisition of an additional 15% equity interest in Gwo Yng in July 2023. Commencing on the date of our equity interest increase, the financial results of Gwo Yng were no longer accounted for under the equity method of accounting. Instead, Gwo Yng’s financial results are reported on a consolidated basis, resulting in lower joint venture equity income. As such, other non-operating income, net includes equity income of Gwo Yng of $0.4 million in the second quarter of 2023.

Current wording

Other Non-Operating Income, Net. Other non-operating income, net was$2.1 million in the third quarter of 2024, compared to $1.7 million in the third quarter of 2023. The year-over-year increase in other non-operating income, net primarily results from the favorable impact of changes in foreign currency exchange rates.

Previous wording

Interest Expense. Interest expense decreased to $2.8 million in the second quarter of 2024, compared to $3.3 million in the second quarter of 2023. The year-over-year decrease in interest expense reflects the impact of lower average outstanding borrowings in second quarter of 2024 when compared to the second quarter of 2023.

Current wording

Interest Expense. Interest expense decreased to $3.1 million in the third quarter of 2024, compared to $3.6 million in the third quarter of 2023. The year-over-year decrease in interest expense reflects the impact of lower average outstanding borrowings in the third quarter of 2024 when compared to the third quarter of 2023, partially offset by the write off of $1.3 million of unamortized financing costs related to the refinancing of our 2022 Credit Agreement.

Previous wording

Income Tax Provision. The income tax provision in the second quarter of 2024 was $6.1 million at an effective tax rate of 25.0% compared to $6.3 million at an effective tax rate of 25.5% for the same period in 2023. The effective tax rate was essentially flat year-over-year.

Current wording

Income Tax Provision. The income tax provision in the third quarter of 2024 was $9.3 million at an effective tax rate of 25.7% compared to $8 million at an effective tax rate of 24.3% for the same period in 2023. The increase in the effective tax rate is primarily due to higher earnings and taxes in foreign jurisdictions and taxes withheld on cash repatriated from foreign jurisdictions.

Previous wording

Loss from Discontinued Operations. During the second quarter of 2024 and 2023, the loss from discontinued operations, net of tax was $0.9 million and $9.2 million, respectively. 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, we recorded an $11 million pre-tax provision that arose from the May 11, 2023 court ruling in a breach of contract claim in connection with a legal proceeding with a third party. 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.

Current wording

Loss from Discontinued Operations. Loss from discontinued operations, net of income taxes, during the third quarter of 2024 and 2023 of $22.8 million and $18.2 million, respectively, reflects information contained in the actuarial studies performed as of August 31, 2024 and 2023, other information available and considered by us, and legal expenses associated with our asbestos related liability. The loss from discontinued operations for the third quarter of 2024 and 2023 primarily consists of a $29.3 million and $23.8 million pre-tax provision, respectively, to increase our indemnity liability in line with the August 31, 2024 and 2023 actuarial studies; 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.

Previous wording

Net Earnings Attributable to Noncontrolling Interest. Net earnings attributable to noncontrolling interest relates to the minority shareholders’ interest in our 70% owned joint venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”) and, in our 80% ownership in Gwo Yng, commencing in July 2023 upon the completion of our step acquisition. Net earnings attributable to the noncontrolling interest were $344,000 and $50,000 during the three months ended June 30, 2024 and 2023, respectively.

Current wording

Net Earnings Attributable to Noncontrolling Interest. Net earnings attributable to noncontrolling interest relates to the minority shareholders’ interest in our 70% owned joint venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”) and, in our 80% ownership in Gwo Yng, commencing in July 2023 upon the completion of our step acquisition. Net earnings attributable to the noncontrolling interest were $0.3 million and $0.1 million during the three months ended September 30, 2024 and 2023, respectively.

Previous wording

Comparison of the Six Months Ended June 30, 2024 to the Six Months Ended June 30, 2023

Current wording

Comparison of the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023

Previous wording

Sales. Consolidated net sales for the six months ended June 30, 2024 were $721.2 million, an increase of $40.1 million, or 5.9%, compared to $681.1 million in the same period of 2023, with the majority of our net sales to customers in the United States. Net sales increased in all our operating segments when compared to the comparable period in the prior year.

Current wording

Sales. Consolidated net sales for the nine months ended September 30, 2024 were$1,120.5 million, an increase of$53.0 million, or 4.7%, compared to$1,067.5 million in the same period of 2023, with the majority of our net sales to customers in the United States. Net sales increased in all our operating segments when compared to the comparable period in the prior year.

Previous wording

The following table summarizes consolidated net sales by segment and by major product group within each segment for the six months ended June 30, 2024 and 2023 (in thousands):

Current wording

The following table summarizes consolidated net sales by segment and by major product group within each segment for the nine months ended September 30, 2024 and 2023 (in thousands):

Previous wording

Vehicle Control’s net sales for the six months ended June 30, 2024 increased $5.9 million, or 1.6%, to $374.3 million compared to $368.4 million in the same period of 2023. Demand in the Vehicle Control aftermarket segment remains relatively stable across our major product groups.

Current wording

Vehicle Control’s net sales for the nine months ended September 30, 2024 increased $15.8 million, or 2.8%, to $575.1 million compared to $559.3 million in the same period of 2023. Demand in the Vehicle Control aftermarket segment remains relatively stable across our major product groups.

Previous wording

Temperature Control’s net sales for the six months ended June 30, 2024 increased $26.6 million, or 15.7%, to $196.1 million compared to $169.5 million in the same period of 2023. Temperature Control’s net sales for the first six months of 2024 reflect the impact of the timing of pre and early season customer orders in 2024 as compared to the first six months of 2023, and the impact of strong second quarter 2024 net sales when compared to the comparable prior period. The strong net sales in the second quarter of 2024 reflects the impact of a warm start to the season compared to lower net sales in the second quarter of 2023 resulting from the impact of a cooler start to the season across all markets. Overall, full year results at Temperature Control will be dependent upon summer weather conditions and customer inventory levels.

Current wording

Temperature Control’s net sales for the nine months ended September 30, 2024 increased $29.0 million, or 9.9%, to $322.1 million compared to $293.1 million in the same period of 2023. Temperature Control’s net sales for the first nine months of 2024 reflect the impact of warmer seasonal weather conditions driving customer orders in 2024 as compared to the first nine months of 2023. Overall, full year results at Temperature Control will be dependent upon ongoing weather conditions and customer inventory levels.

Previous wording

Engineered Solutions’ net sales for the six months ended June 30, 2024 increased $7.6 million, or 5.3%, to $150.9 million compared to $143.3 million in the same period of 2023. Overall, net sales in our Engineered Solutions operating segment showed a year-over-year improvement driven by strong demand with successful results from our cross-selling efforts.

Current wording

Engineered Solutions’ net sales for the nine months ended September 30, 2024 increased $8.2 million, or 3.8%, to $223.3 million compared to $215.1 million in the same period of 2023. Overall, net sales in our Engineered Solutions operating segment showed a year-over-year improvement driven by business wins as well as successful cross-selling efforts.

Previous wording

Gross Margins. Gross margins, as a percentage of consolidated net sales, decreased to 27.9% in the first six months of 2024, compared to 28.3% during the same period in 2023. The following table summarizes gross margins by segment for the six months ended June 30, 2024 and 2023, respectively (in thousands):

Current wording

Gross Margins. Gross margins, as a percentage of consolidated net sales, of 28.8% in the first nine months of 2024 remained flat compared to the same period in 2023. The following table summarizes gross margins by segment for the nine months ended September 30, 2024 and 2023, respectively (in thousands):

Previous wording

Compared to the first six months of 2023, gross margins at Vehicle Control decreased 0.4 percentage points from 32.2% to 31.8%, gross margins at Temperature Control increased 1.8 percentage points from 26.9% to 28.7%, and gross margins at Engineered Solutions decreased 2.6 percentage points from 19.7% to 17.1%.

Current wording

Compared to the first nine months of 2023, gross margin percentage at Vehicle Control remained flat at 32.1%, gross margin percentage at Temperature Control increased 2.1 percentage points from 28.5% to 30.6%, and gross margin percentage at Engineered Solutions decreased 3 percentage points from 20.6% to 17.6%.

Previous wording

The gross margin percentage decrease in our Vehicle Control operating segment reflects the impact of the lingering inflationary increases in material and labor costs, which more than offset the positive impact of pricing and saving initiatives. The gross margin percentage increase in our Temperature Control operating segment reflects the impact of higher sales volumes, customer mix and the impact of cost control measures. Gross margins as a percentage of net sales in our Engineered Solutions operating segment decreased in the second quarter of 2024 when compared to the comparable period in 2023 driven primarily by unfavorable customer sales mix and inflationary cost increases. While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost savings initiatives coupled with our ability to pass through higher prices to our customers should help to offset much of this impact to our gross margins.

Current wording

While all segments benefited from favorable manufacturing cost absorption due to higher production levels, the gross margin percentage in our Vehicle Control operating segment also reflects the impact of the lingering inflationary increases in material and labor costs, which offset the positive impact of pricing and saving initiatives. The gross margin percentage increase in our Temperature Control operating segment also reflects the impact of higher sales volumes, customer mix and the impact of cost control measures. Gross margins as a percentage of net sales in our Engineered Solutions operating segment decreased in the third quarter of 2024 when compared to the comparable period in 2023 driven primarily by unfavorable customer sales mix and inflationary cost increases. While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost savings initiatives should help to offset much of this impact to our gross margin.

Previous wording

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $83.9 million, or 21.5% of consolidated net sales, in the second quarter of 2024, as compared to $73.8 million, or 20.9% of consolidated net sales, in the second quarter of 2023. The $10.1 million increase in selling, general and administrative expenses as compared to the second quarter of 2024 is principally due to (1) $2.4 million of due diligence, legal and other professional fees related to our planned acquisition of Nissens Automotive, (2) increased rent and incremental expenses of approximately $1.3 million as we transition away from our Edwardsville, Kansas distribution center to our new distribution facility in Shawnee, Kansas, (3) higher interest related costs of $0.9 million incurred in our supply chain financing arrangements, and (4) higher distribution and freight costs of $3.1 million related to higher sales.

Current wording

Selling, General and Administrative Expenses. Selling, general and administrative expenses were$239.8 million, or 21.4% of consolidated net sales, in the first nine months of 2024, as compared to $223.3 million, or 20.9% of consolidated net sales in the first nine months of 2023. The$16.6 million increase in selling, general and administrative expenses as compared to the first nine months of 2023 is principally due to (1) higher distribution and freight costs of $5.9 million related to higher sales, (2) increased rent and incremental expenses of approximately $3.5 million as we transition away from our Edwardsville, Kansas distribution center to our new distribution facility in Shawnee, Kansas, (3) $3.9 million higher general and administrative largely driven by higher accrued employee bonuses, (4) $2.4 million of due diligence, legal and other professional fees related to our planned acquisition of Nissens Automotive, and (5) higher interest related costs of $2.2 million incurred in our supply chain financing arrangements, (6) partially offset by $1.0 million of derivative gains from forward foreign exchange contracts executed during the third quarter to economically hedge the purchase price on the pending Nissens Automotive acquisition.

Previous wording

Restructuring and Integration Expenses. Restructuring and integration expenses were $2.8 million in the six months ended June 30, 2024 compared to $1.2 million in the comparable period of 2023. Restructuring and integration expenses incurred in the first six months of 2024 relate primarily to a voluntary retirement incentive program offered to eligible employees as part of our commitment to optimizing our cost structure and provide professional development opportunities to our employees. Expenses in the first six months of 2024 of approximately $2.6 million related to the program consists of severance and other benefit enhancements.

Current wording

Restructuring and Integration Expenses. Restructuring and integration expenses were $5.8 million in the nine months ended September 30, 2024 compared to $1.4 million in the comparable period of 2023. Restructuring and integration expenses incurred in the first nine months of 2024 relate primarily to the Separation Program announced in the second quarter of 2024 and expanded to encompass involuntary separations in the third quarter of 2024 as part of our commitment to optimizing our cost structure and provide professional development opportunities to our employees. Expenses in the first nine months of 2024 of approximately$5.6 million related to the program consists of severance and other benefit enhancements.

Previous wording

Restructuring and integration expenses of $1.2 million in the six months ended June 30, 2023 relate to the Cost Reduction Initiative announced in the fourth quarter of 2024. We anticipate that the Cost Reduction Initiative will be substantially completed by the end of 2024.

Current wording

Restructuring and integration expenses of $1.4 million in the nine months ended September 30, 2023 relate to the Cost Reduction Initiative announced in the fourth quarter of 2023. We anticipate that the Cost Reduction Initiative will be substantially completed by the end of 2024.

Previous wording

Operating Income. Operating income was $39.6 million, or 5.5% of consolidated net sales, in the six months ended June 30, 2024, compared to $47.9 million, or 7% of consolidated net sales, in the six months ended June 30, 2023. The year-over-year decrease in operating income of $8.3 million is primarily the result of lower gross margins as a percentage of net sales, higher selling, general and administrative expenses, including the incremental distribution expansion costs and due diligence, legal and other professional fees related to our planned acquisition of Nissens Automotive, and higher restructuring and integration expenses, offset, in part, by the impact of higher net sales.

Current wording

Operating Income. Operating income was$76.7 million, or 6.8% of consolidated net sales, in the nine months ended September 30, 2024, compared to $82.7 million, or 7.7% of consolidated net sales, in the nine months ended September 30, 2023. The year-over-year decrease in operating income of$6.0 million is primarily the result of higher selling, general and administrative expenses, and higher restructuring and integration expenses, offset, in part, by the impact of higher net sales.

Previous wording

Other Non-Operating Income, Net. Other non-operating income, net was $3 million in the six months of 2024, compared to $1 million for the same period in 2023. The year-over-year increase in other non-operating income, net results from the increase in year-over-year equity income from our joint ventures and the favorable impact of changes in foreign currency exchange rates. Equity income from our joint ventures increased irrespective of the year-over-year decline in the equity income of Gwo Yng, reflecting the impact of our acquisition of an additional 15% equity interest in Gwo Yng in July 2023. Commencing on the date of our equity interest increase, the financial results of Gwo Yng were no longer accounted for under the equity method of accounting. Instead, Gwo Yng’s financial results are reported on a consolidated basis. As such, other non-operating income, net includes equity income of Gwo Yng of $0.6 million in the first six months of 2023.

Current wording

Other Non-Operating Income, Net. Other non-operating income, net was$5.1 million in the nine months of 2024, compared to $2.8 million for the same period in 2023. The year-over-year increase in other non-operating income, net results from the increase in year-over-year equity income from our joint ventures and the favorable impact of changes in foreign currency exchange rates. Equity income from our joint ventures increased irrespective of the year-over-year decline in the equity income of Gwo Yng, reflecting the impact of our acquisition of an additional 15% equity interest in Gwo Yng in July 2023. Commencing on the date of our equity interest increase, the financial results of Gwo Yng were no longer accounted for under the equity method of accounting. Instead, Gwo Yng’s financial results are reported on a consolidated basis. As such, other non-operating income, net includes equity income of Gwo Yng of $0.7 million in the first nine months of 2023.

Previous wording

Interest Expense. Interest expense decreased to $4.8 million in the six months of 2024, compared to $7.1 million for the same period in 2023. The year-over-year decrease in interest expense reflects the impact of lower average outstanding borrowings during the six months ended June 30, 2024 when compared to the comparable period of 2023.

Current wording

Interest Expense. Interest expense decreased to $8.0 million in the nine months of 2024, compared to $10.8 million for the same period in 2023. The year-over-year decrease in interest expense reflects the impact of lower average outstanding borrowings during the nine months ended September 30, 2024 when compared to the comparable period of 2023, partially offset by the write off of $1.3 million of unamortized financing costs related to the refinancing of our 2022 Credit Agreement.

Previous wording

Income Tax Provision. The income tax provision for the six months ended June 30, 2024 was $9.5 million at an effective tax rate of 25.0%, compared to $10.7 million at an effective tax rate of 25.5% for the same period in 2023. The effective tax rate was essentially flat year-over-year.

Current wording

Income Tax Provision. The income tax provision for the nine months ended September 30, 2024 was $18.7 million at an effective tax rate of 25.3%, compared to $18.7 million at an effective tax rate of 25% for the same period in 2023. The effective tax rate was essentially flat year-over-year.

Previous wording

Loss from Discontinued Operations. During the first six months of 2024 and 2023, the loss from discontinued operations, net of tax was $2 million and $10 million, respectively. 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, we recorded an $11 million pre-tax provision that arose from the May 11, 2023 court ruling in a breach of contract claim in connection with a legal proceeding with a third party. 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.

Current wording

Loss from Discontinued Operations. Loss from discontinued operations, net of income taxes, during the nine months ended September 30, 2024 and 2023 of $24.7 million and $28.2 million, respectively, reflects information contained in the actuarial studies performed as of August 31, 2024 and 2023, other information available and considered by us, and legal expenses associated with our asbestos related liability. The loss from discontinued operations for the nine months ended September 30, 2024 and 2023 primarily consists of a $29.3 million and $23.8 million pre-tax provision, respectively, to increase our indemnity liability in line with the August 31, 2024 and 2023 actuarial studies; 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.

Previous wording

Net Earnings Attributable to Noncontrolling Interest. Net earnings attributable to noncontrolling interest relates to the minority shareholders’ interest in our 70% owned joint venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”) and, in our 80% ownership in Gwo Yng, commencing in July 2023 upon the completion of our step acquisition. Net earnings attributable to the noncontrolling interest were $510,000 and $89,000 during the six months ended June 30, 2024 and 2023, respectively.

Current wording

Net Earnings Attributable to Noncontrolling Interest. Net earnings attributable to noncontrolling interest relates to the minority shareholders’ interest in our 70% owned joint venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”) and, in our 80% ownership in Gwo Yng, commencing in July 2023 upon the completion of our step acquisition. Net earnings attributable to the noncontrolling interest were $0.8 million and $0.2 million during the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Operating Activities. During the first six months of 2024, cash used in operating activities was $10.1 million compared to cash provided by operating activities of $39.4 million in the same period of 2023. The increase in cash used in operating activities resulted primarily from the larger year-over-year increase in accounts receivable of $81.1 million compared to an increase in accounts receivable of $48.3 million in the same period of 2023, and the increase in inventories of $3.6 million compared to a decrease in inventories of $30.9 million in the same period of 2023, offset, in part, by the larger year-over-year increase in sundry payables and accrued expenses of $30 million compared to an increase of $2.8 million in the same period of 2023 and by the increase in net earnings.

Current wording

The decrease in cash provided by operating activities resulted primarily from the lower year-over-year decrease in inventory of $2.9 million compared to $54.3 million in the same period of 2023, the larger increase in accounts receivable of $59.0 million compared to $38.9 million in the same period of 2023 due to higher net sales, and the lower year-over-year increase in accounts payable of $4.5 million compared to $15.9 million in the same period of 2023, partially offset by a larger increase in sundry receivables and accrued expenses of $45.5 million compared to $12.3 million in the same period of 2023.