STANDARD MOTOR PRODUCTS INC

Previous wording

Vehicle Control is our core aftermarket business deriving its sales from three major product groups (1)Ignition, Emissions & Fuel Delivery, which includes the traditional internal combustion engine (ICE) dependent categories; (2)Electrical & Safety, which includes powertrain neutral vehicle technologies such as electrical switches/relays, safety related products such as anti-lock brake and vehicle speed sensors, tire pressure monitoring, park assist sensors, and advanced driver assistance components; and (3)Wire Sets & Other, which includes spark plug wire sets and other related products, and are product categories we have noted to be in secular decline based upon product life cycle.

Current wording

Our Vehicle Control operating segment services our core automotive aftermarket customers, deriving its sales from three major product groups:– (1)Ignition, Emissions & Fuel Delivery, which includes the traditional internal combustion engine (ICE) dependent categories; (2)Electrical & Safety, which includes powertrain neutral vehicle technologies such as electrical switches/relays, safety related products such as anti-lock brake and vehicle speed sensors, tire pressure monitoring, park assist sensors, and advanced driver assistance components; and (3)Wire Sets & Other, which includes spark plug wire sets and other related products, and are product categories we have noted to be in secular decline based upon product life cycle.

Previous wording

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

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 (2)Other Thermal Components, which includes parts that provide engine, transmission, electric drive motor, and battery temperature management.

Previous wording

Our Engineered Solutions segment supplies custom-engineered solutions to vehicle and equipment manufacturers in highly diversified global end-markets such as commercial and light vehicles, construction, agriculture, power sports and marine. Segment offerings include product categories that offer a broad array of conventional and future-oriented technologies, including those that are specific to vehicle electrification as well as those that are powertrain-neutral.

Current wording

Our Engineered Solutions operating segment supplies custom-engineered solutions to vehicle and equipment manufacturers in highly diversified global end-markets such as commercial and light vehicles, construction, agriculture, power sports and marine. Segment offerings include product categories that offer a broad array of conventional and future-oriented technologies, including those that are specific to vehicle electrification as well as those that are powertrain-neutral.

Previous wording

Operating margin as a percentage of net sales for the three months ended March 31, 2024 was 4.4% as compared to 6.3% for the same period in 2023. Included in our operating margin were selling, general and administrative expenses (“SG&A”) of $74.7 million, or 22.6% of net sales for the three months ended March 31, 2024 compared to $69.6 million, or 21.2% of net sales, for the same period in 2023. The $5.1 million increase in SG&A expenses in the first quarter of 2024 as compared to the first quarter of 2023 is principally due to (1) increased rent and redundancy expenses of approximately $1.1 million as we transition away from our Edwardsville, Kansas distribution center to our new facility in Shawnee, Kansas, (2) higher interest related costs of $1 million incurred in our supply chain financing arrangements, and (3) higher distribution and freight costs related to higher sales. Excluding the impact of the incremental distribution expansion costs and supply chain interest costs, SG&A expenses in the first quarter of 2024 were 21.9% of consolidated net sales, just slightly higher than the percentage in the comparable prior year period.

Current 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.

Previous wording

In May 2023, we signed a lease for a new distribution facility in Shawnee, Kansas with a lease commencement date of July 1, 2023. The new facility will expand our total distribution network square footage to meet our growing demands in the automotive aftermarket industry. The new 575,000 square foot facility will replace our current 363,000 square foot facility in Edwardsville, Kansas, and integrate state-of-the-art technologies to deliver improved logistics capabilities, operational efficiencies, as well as enhanced employee, customer and supplier experiences. The new facility is located just five miles away from our Edwardsville facility, enabling us to retain our existing workforce avoiding the additional costs of hiring and training. The facility will have a phased opening beginning in 2024 and be fully operational in early 2025. We will incur additional costs in 2024 and 2025 during the phase-in period while we operate the two facilities.

Current wording

In May 2023, we signed a lease for a new distribution facility in Shawnee, Kansas with a lease commencement date of July 1, 2023. The new facility will expand our total distribution network square footage to meet our growing demands in the automotive aftermarket industry. The new 575,000 square foot facility will replace our current 363,000 square foot facility in Edwardsville, Kansas, and integrate state-of-the-art technologies to deliver improved logistics capabilities, operational efficiencies, as well as enhanced employee, customer and supplier experiences. The new facility is located just five miles away from our Edwardsville facility, enabling us to retain our existing workforce avoiding the additional costs of hiring and training. The facility will have a phased opening that began in 2024 and will be fully operational in early 2025. We will incur additional costs in 2024 and 2025 during the phase-in period while we operate the two facilities.

Previous wording

Disruptions in global supply chains continue to persist, resulting in longer lead times, delays in procuring component parts and raw materials, and in inflationary cost increases in certain raw materials, labor and transportation. In response to the global supply chain volatility and lingering inflationary cost increases, we have taken, and continue to take, several actions to mitigate the impact by working closely with our suppliers and customers to minimize any potential adverse impacts on our business, including implementing cost savings initiatives and maintaining inventory at levels to minimize potential disruptions from out-of-stock raw materials and components to ensure higher fill rates with our customers. We believe that we have also benefited from our geographically diversified manufacturing footprint and our strategy to bring more product manufacturing in-house, especially with respect to product availability and fill rates. We expect these inflationary trends to continue for some time, and while we believe that we will be able to somewhat offset the impact, there can be no assurances that unforeseen future events in the global supply chain affecting the availability of materials and components, and/or increasing commodity pricing, will not have an adverse effect on our business, financial condition and results of operations.

Current wording

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.

Previous wording

With each year, we intend to further our commitment to sustainability initiatives, improving our environmental stewardship, finding ways to give back to our communities, and enhancing the diversity and inclusion of our workforce while offering opportunities for development. Information on our sustainability initiatives can be found in our most current sustainability report and on our corporate website atir.smpcorp.com under “Environmental & Social Responsibility” and atsmpcares.smpcorp.com. Information in our sustainability report and on our corporate websites regarding our sustainability initiatives are referenced for general information only and are not incorporated by reference in this Report.

Current wording

With each year, we intend to further our commitment to sustainability initiatives, improving our environmental stewardship, finding ways to give back to our communities, and enhancing the diversity and inclusion of our workforce while offering opportunities for development. Information on our sustainability initiatives can be found in our most current sustainability report and on our corporate website atir.smpcorp.com under “Sustainability” and atsmpcares.smpcorp.com. Information in our sustainability report and on our corporate websites regarding our sustainability initiatives are referenced for general information only and are not incorporated by reference in this Report.

Previous wording

Sales. Consolidated net sales for the three months ended March 31, 2024 were $331.4 million, an increase of $3.4 million, or 1%, compared to $328 million in the same period of 2023, with the majority of our net sales to customers located in the United States. Consolidated net sales increased in our Vehicle Control and Engineered Solutions operating segments, while consolidated net sales in our Temperature Control operating segment decreased when compared to the comparable period in the prior year.

Current 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.

Previous wording

Vehicle Control’s net sales for the three months ended March 31, 2024 increased $0.9 million, or 0.5%, to $185.5 million compared to compared to $184.6 million in the same period of 2023. Demand in the Vehicle Control aftermarket segment remains relatively stable and our net sales performance in the first quarter of 2024 is in line with our expected flat to low single digit annual sales growth in the automotive aftermarket.

Current 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.

Previous wording

Temperature Control’s net sales for the three months ended March 31, 2024 decreased $0.8 million, or 1.1%, to $71.6 million compared to $72.4 million in the same period of 2023. Temperature Control’s net sales for the first quarter of 2024 reflects the impact of the timing of pre-season customer orders in 2024, which were slightly lower than the strong customer orders in the first quarter of 2023. Overall, full year results at Temperature Control will be dependent upon summer weather conditions and customer inventory levels.

Current 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.

Previous wording

Engineered Solutions’ net sales for the three months ended March 31, 2024 increased $3.3 million, or 4.5%, to $74.3 million compared to $71 million in the same period of 2023. Overall, net sales in our Engineered Solutions operating segment showed year-over-year improvement driven by strong demand and new business wins, and we continue to be optimistic about the long-term growth potential of the complementary markets served in our Engineered Solutions operating segment.

Current 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.

Previous wording

Gross Margins. Gross margins, as a percentage of consolidated net sales, decreased to 27% in the first quarter of 2024, compared to 27.8% in the first quarter of 2023. The following table summarizes gross margins by segment for the three months ended March 31, 2024 and 2023, respectively (in thousands):

Current 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):

Previous wording

Restructuring and Integration Expenses. Restructuring and integration expenses were $0.2 million in first three months of 2024 compared to $0.9 million in the same period of 2023. Restructuring and integration expenses incurred in the first three months of 2024 and 2023 relate to the Cost Reduction Initiative announced in the fourth quarter of 2022.

Current 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.

Previous wording

Operating Income. Operating income was $14.6 million, or 4.4% of consolidated net sales, in the first quarter of 2024 compared to $20.7 million, or 6.3% of consolidated net sales, in the first quarter of 2023. The year-over-year decrease in operating income of $6.1 million is primarily the result of lower gross margins as a percentage of net sales, and higher SG&A expenses, including the incremental distribution expansion costs, offset, in part, by higher net sales and lower restructuring and integration expenses.

Current 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.

Previous wording

Other Non-Operating Income, Net. Other non-operating income, net was $0.8 million in the first quarter of 2024, compared to other non-operating income, net of $0.2 million in the first quarter of 2023. The year-over-year increase in other non-operating income, net results from the increase in year-over-year equity income from our joint ventures. Equity income from our joint ventures increased in spite of the year-over-year decline in the equity income of Gwo Yng, reflecting the impact of our acquisition of an additional 15% equity interest in Gwo Yng in July 2023. Commencing on the date of our equity interest increase, the financial results of Gwo Yng were no longer accounted for under the equity method of accounting. Instead, Gwo Yng’s financial results are reported on a consolidated basis, resulting in lower joint venture equity income. As such, other non-operating income, net includes incremental equity income of Gwo Yng of $0.2 million in the first quarter of 2023.

Current 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.

Previous wording

Interest Expense. Interest expense decreased to $2.1 million in the first quarter of 2024 compared to $3.9 million in the same period of 2023. The year-over-year decrease in interest expense reflects the impact of lower average outstanding borrowings in the first quarter of 2024 when compared to the first quarter of 2023, and slightly lower year-over-year average interest rates on our credit facilities.

Current 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.

Previous wording

Income Tax Provision. The income tax provision in the first quarter of 2024 was $3.3 million at an effective tax rate of 25% compared to $4.4 million at an effective tax rate of 25.6% for the same period in 2023. The effective tax rate was essentially flat year-over-year.

Current 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.

Previous wording

Loss from Discontinued Operations. During the first quarter of 2024 and 2023, the loss from discontinued operations, net of tax was $1 million and $0.8 million, respectively. The loss from discontinued operations, net of tax, reflects legal and other administrative expenses associated with our asbestos-related liability. As discussed more fully in Note 18, “Commitments and Contingencies” in the notes to our consolidated financial statements (unaudited), we are responsible for certain future liabilities relating to alleged exposure to asbestos containing products.

Current 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.

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 $166,000 and $39,000 during the three months ended March 31, 2024 and March 31, 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 $344,000 and $50,000 during the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Compared to the first three months of 2023, gross margins at Vehicle Control remained flat at 31.7%, while gross margins at Temperature Control increased 1 percentage point from 26.5 % to 27.5%, and gross margins at Engineered Solutions decreased 4.5 percentage points from 19.2% to 14.7%.

Current 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%.

Previous wording

The gross margin percentage in our Vehicle Control operating segment remained flat year-over-year reflecting the positive impact of pricing, operating performance and customer sales mix, offset by the lingering inflationary increases in material and labor costs; while the gross margin percentage increase in our Temperature Control operating segment reflects the impact of pricing and operating performance, as well as favorable customer sales mix. Gross margins as a percentage of net sales in our Engineered Solutions operating segment decreased in the first quarter of 2024 when compared to the comparable period in 2023 driven primarily by unfavorable customer sales mix and inflationary cost increases. All of our operating segments were negatively impacted by the lingering inflationary cost increases in certain raw materials, labor and transportation expenses. While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost savings initiatives coupled with customer pricing should help to offset this impact to our gross margins.

Current 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.

Previous wording

Operating Activities. During the first three months of 2024, cash used in operating activities was $45.7 million compared to $20.4 million in the same period of 2023. The increase in cash used in operating activities resulted primarily from the decrease in net earnings, the larger year-over-year increase in accounts receivable, the increase in inventories compared to a decrease in inventories in the prior year, and the decrease in accounts payable compared to an increase in accounts payable in the prior year, partially offset by the larger year-over-year decrease in prepaid expenses and other current assets, and the increase in sundry payables and accrued expenses compared to a decrease in sundry payables and accrued expenses in the prior year.

Current 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.

Previous wording

Net earnings during the first quarter of 2024 were $9 million compared to $12 million in the first quarter of 2023. During the first three months of 2024, (1) the increase in accounts receivable was $44 million compared to the year-over-year increase in accounts receivable of $42.6 million in 2023; (2) the increase in inventories was $14.7 million compared to the year-over-year decrease in inventories of $6.2 million in 2023; (3) the decrease in accounts payable was $9.3 million compared to the year-over-year increase in accounts payable of $4.8 million in 2023; (4) the decrease in prepaid expenses and other current assets was $1.6 million compared to the year-over-year decrease in prepaid expenses and other current assets of $1.2 million in 2023; and (5) the increase in sundry payables and accrued expenses was $4 million compared to the year-over-year decrease in sundry payables and accrued expenses of $10.7 million in 2023. During the year ended December 31, 2023, we generated significant operating cash flow by reducing our inventory to more normalized levels while actively managing our accounts receivable and accounts payable. We will continue to actively manage our working capital to maximize our operating cash flow, and now that global supply chains have stabilized, expect cash flows from operations to return to historical levels.

Current wording

During the year ended December 31, 2023, we generated significant operating cash flow by reducing our inventory to more normalized levels while actively managing our accounts receivable and accounts payable. We continue to actively manage our working capital to maximize our operating cash flow.

Previous wording

Investing Activities. Cash used in investing activities was $10.1 million in the first three months of 2024 compared to $4.4 million in the same period of 2023. Investing activities during the first three months of 2024 and 2023 consisted of capital expenditures of $10.1 million and $4.4 million, respectively. The year-over-year increase in capital expenditures relates to the implementation of upgraded automation equipment, racking and other equipment, as we invest in the start-up of our new distribution facility in Shawnee, Kansas.

Current wording

Investing Activities. Cash used in investing activities was $22.9 million in the first six months of 2024, compared to $9.4 million in the same period of 2023. Investing activities during the first six months of 2024 and 2023 primarily consisted of capital expenditures of $22.9 million and $9.5 million, respectively. The year-over-year increase in capital expenditures relates to the implementation of upgraded automation equipment, racking and other equipment, as we invest in the start-up of our new distribution facility in Shawnee, Kansas.

Previous wording

Financing Activities. Cash provided by financing activities was $50.4 million in the first three months of 2024 as compared to $27.3 million in the same period of 2023. During the first three months of 2024, (1) we increased borrowings under our Credit Agreement by $58.7 million; (2) paid dividends of $6.4 million; and (3) made cash payments for the repurchase of shares of our common stock of $2.2 million. Cash provided by borrowings under our Credit Agreement in the three months ended March 31, 2024 was used to fund our operating activities, investing activities, pay dividends, and repurchase shares of our common stock.

Current wording

Financing Activities. Cash provided by financing activities was $28.5 million in the first six months of 2024 as compared to $29.1 million in the same period of 2023. During the first six months of 2024, we (1) increased our borrowings under our Credit Agreement by $52 million; (2) paid dividends to SMP shareholders of $12.7 million; and (3) made cash payments for the repurchase of shares of our common stock of $10.4 million. Cash provided by borrowings under our Credit Agreement in the six months ended June 30, 2024 was used to fund our operating activities, investing activities, pay dividends, and repurchase shares of our common stock.

Previous wording

During the first three months of 2023, (1) we increased borrowings under our Credit Agreement by $33.5 million; and (2) we paid dividends of $6.3 million. Cash provided by borrowings under our Credit Agreement in the three months ended March 31, 2023 was used to fund our operating activities, investing activities, and pay dividends.

Current wording

During the first six months of 2023, we (1) reduced our borrowings under our Credit Agreement by $16.5 million; and (2) paid dividends to SMP shareholders 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.

Previous wording

Dividends of $6.4 million and $6.3 million were paid in the three months ended March 31, 2024 and 2023, respectively. Quarterly dividends were paid at a rate of $0.29 in both 2024 and 2023.

Current wording

Quarterly dividends to SMP shareholders were paid at a rate of $0.29 in both 2024 and 2023.

Previous wording

Our primary cash requirements include working capital, capital expenditures, regular quarterly dividends, stock repurchases, principal and interest payments on indebtedness and acquisitions. Our primary sources of funds are ongoing net cash flows from operating activities and availability under our Credit Agreement (as detailed below).

Current wording

Our primary sources of funds are ongoing net cash flows from operating activities and availability under our Credit Agreement (as detailed below).

Previous wording

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

Current wording

In June 2022, the Company entered into a five-year Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (the “Credit Agreement”) which matures on June 1, 2027. The Credit Agreement provides for a $500 million credit facility comprised of a $100 million term loan facility (the “Term A-1 Loan”) and a $400 million multi-currency revolving credit facility available in U.S. dollars, euros, British pound sterling, Swiss francs, Canadian dollars and other currencies as agreed to by the administrative agent and the lenders (the “revolving facility”). The 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.

Previous wording

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.

Current wording

Borrowings under the Credit Agreement were used to repay all outstanding borrowings under the 2015 Credit Agreement, and are used for other general corporate purposes of the Company and its subsidiaries. The Term A-1 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. The Company may request up to two one-year extensions of the maturity date.

Previous wording

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.

Current wording

The Company may, upon the agreement of one or more then existing lenders or of additional lenders not currently party to the Credit Agreement, increase the revolving facility 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) any voluntary prepayment of term loans, plus (z) any amount that, after giving effect to the increase, the pro forma First Lien Net Leverage Ratio (as defined in the Credit Agreement) does not exceed 2.5 to 1.0.

Previous wording

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

Current wording

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 a margin, or an alternate base rate plus a 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 1.10%. The Term A-1 Loan was made at one-month Term SOFR. The margin for benchmark borrowings ranges from 1.0% to 2.0%, and the 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.

Previous wording

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.

Current wording

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. The Company entered into an interest rate swap agreement with Wells Fargo Bank, N.A., Co-Syndication Agent and lender concurrently with the Credit Agreement.

Previous wording

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

Current wording

Outstanding borrowings at June 30, 2024 under the Credit Agreement were $208 million, consisting of current borrowings of $5 million and long-term debt of $203 million; while outstanding borrowings at December 31, 2023 were $156 million, consisting of current borrowings of $5 million and long-term debt of $151 million. Letters of credit outstanding under the Credit Agreement were $2.3 million at both June 30, 2024 and December 31, 2023.

Previous wording

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

Current wording

At June 30, 2024, the weighted average interest rate under our Credit Agreement was 5.7%, which consisted of $208 million in borrowings under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100 million of borrowings. At December 31, 2023, the weighted average interest rate under our Credit Agreement was 5%, which consisted of $156 million in borrowings at 5% under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100 million of borrowings. During the six months ended June 30, 2024, our average daily alternative base rate loan balance was $1 million, compared to a balance of $0.2 million for the six months ended June 30, 2023 and a balance of $0.1 million for the year ended December 31, 2023.

Previous wording

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

Current wording

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

Previous wording

Pursuant to these agreements, we sold $170.8 million and $170.9 million of receivables during the three months ended March 31, 2024 and 2023, respectively. Receivables presented at financial institutions and not yet collected as of March 31, 2024 and December 31, 2023 were approximately $10.9 million and $4.5 million, respectively, and remained in our accounts receivable balance as of that date. All receivables sold were reflected as a reduction of accounts receivable in the consolidated balance sheet at the time of sale. A charge in the amount of $10 million and $9 million related to the sale of receivables is included in selling, general and administrative expense in our consolidated statements of operations for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Pursuant to these agreements, we sold $230.1 million and $400.9 million of receivables during the three and six months ended June 30, 2024, respectively, and $211.6 million and $382.5 million for the comparable periods in 2023. Receivables presented at financial institutions and not yet collected as of June 30, 2024 and December 31, 2023 were approximately $14.4 million and $4.5 million, respectively, and remained in our accounts receivable balance as of that date. All receivables sold were reflected as a reduction of accounts receivable in the consolidated balance sheet at the time of sale. A charge in the amount of $13.4 million and $23.4 million related to the sale of receivables was included in selling, general and administrative expense in our consolidated statements of operations for the three and six months ended June 30, 2024, respectively, and $12.4 million and $21.5 million for the comparable periods in 2023.

Previous wording

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.

Current wording

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.

Previous wording

In July 2022, our Board of Directors authorized the purchase of up to $30 million of our common stock under a stock repurchase program. Stock will be purchased from time to time in the open market, or through private transactions, as market conditions warrant. Under this program, during the three months ended March 31, 2024, we repurchased 79,922 shares of our common stock at a total cost of $2.6 million. As of March 31, 2024, there was approximately $27.4 million available for future stock purchases under the program. From the end of the first quarter through April 29, 2024, we repurchased an additional 106,440 shares of our common stock under the program at a total cost of $3.5 million, thereby reducing the amount available for future repurchases under the Board of Directors authorization to $23.9 million.

Current wording

In July 2022, our Board of Directors authorized the purchase of up to $30 million of our common stock under a stock repurchase program. Stock will be purchased from time to time in the open market, or through private transactions, as market conditions warrant. Under this program, during the three and six months ended June 30, 2024, we repurchased 241,307 and 321,229 shares of our common stock at a total cost of $7.8 million and $10.4 million, respectively. As of June 30, 2024, there was approximately $19.6 million available for future stock purchases under the program. From the end of the second quarter through July 30, 2024, there have been no additional repurchases of our common stock under the program.

Previous wording

Material cash commitments as of March 31, 2024 consist of required cash payments to service our outstanding borrowings of $214.7 million under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent and the future minimum cash requirements of $134.7 million through 2034 under operating leases. All of our other cash commitments as of March 31, 2024 are not material. For additional information related to our material cash commitments, see Note 8, “Leases,” and Note 9, “Credit Facilities and Long-Term Debt,” in the notes to our consolidated financial statements (unaudited).

Current wording

Material cash commitments as of June 30, 2024 consist of required cash payments to service our outstanding borrowings of $208 million under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, the future minimum cash requirements of $130.8 million through 2034 under operating leases, and expected future cash payments relating to our restructuring activities of $6.3 million with approximately $2.6 million paid in the remainder of 2024, approximately $3.3 million in 2025 and approximately $0.4 million thereafter. All of our other cash commitments as of June 30, 2024 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).