STANDARD MOTOR PRODUCTS, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Management’s Report on Internal Control over Financial Reporting 46 Report of Independent Registered Public Accounting Firm—Internal Control Over Financial Reporting 47 Report of Independent Registered Public Accounting Firm—Consolidated Financial Statements 48 Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018 50 Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018 51 Consolidated Balance Sheets as of December 31, 2020 and 2019 52 Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 53 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018 54 Notes to Consolidated Financial Statements 55 45 Index MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING To the Stockholders of Standard Motor Products, Inc. and Subsidiaries: Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) of the Exchange Act). Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Because of these inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation, and may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control - Integrated Framework. Based on our assessment using those criteria, we concluded that, as of December 31, 2020, our internal control over financial reporting is effective. Our independent registered public accounting firm, KPMG LLP, has audited our consolidated financial statements as of and for the year ended December 31, 2020 and has also audited the effectiveness of our internal control over financial reporting as of December 31, 2020. KPMG’s report appears on the following pages of this “Item 8. Financial Statements and Supplementary Data.” 46 Index REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM – INTERNAL CONTROL OVER FINANCIAL REPORTING To the Stockholders and Board of Directors Standard Motor Products, Inc. and Subsidiaries: Opinion on Internal Control Over Financial Reporting We have audited Standard Motor Products, Inc.’s and Subsidiaries (the “Company”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement Schedule II, Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated February 24, 2021 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP New York, New York February 24, 2021 47 Index REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM – CONSOLIDATED FINANCIAL STATEMENTS To the Stockholders and Board of Directors Standard Motor Products, Inc. and Subsidiaries: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Standard Motor Products, Inc. and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes and financial statement Schedule II, Valuation and Qualifying Accounts (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 24, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 48 Index Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Asbestos Liability and Litigation As discussed in Notes 1 and 21 to the consolidated financial statements, the Company is involved in asbestos litigation and has a potential asbestos liability. As of December 31, 2020, the accrued asbestos liability was $60.7 million. The Company’s asbestos liability represents the low end of the actuarially determined range of the undiscounted liability for settlement payments and awards of asbestos-related damages, excluding legal costs and any potential recovery from insurance carriers. We identified the assessment of the asbestos liability recorded as a critical audit matter. This required subjective auditor judgment, due to the nature of the estimate and assumptions, including the applicability of those assumptions to the current facts and circumstances, as well as judgments about future events and uncertainties. Specialized skills were needed to evaluate the Company’s key assumptions. The key assumptions included future claim filings, closed with pay ratios, closed with pay lag patterns, settlement values, large claims, and ratios of allocated loss adjustment exposure (ALAE) to indemnity. Minor changes to these key assumptions could have had a significant effect on the Company’s assessment of the accrual for the asbestos liability. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the asbestos liability estimation process. This included controls related to the key assumptions and the claims data utilized in the process, and the potential need for an updated actuarial valuation. We evaluated the asbestos related legal cases settled during the year and the number of open cases as of year-end by reading letters received directly from the Company’s external and internal legal counsel. We tested a selection of claims data used in the actuarial model by comparing the selection items to underlying claims documentation. We involved an actuarial professional with specialized skills and knowledge, who assisted in: • evaluating the future claim filings assumption by developing an independent expectation and comparing it against the Company’s future claim filing assumption • evaluating the closed with pay ratios, closed with pay lag patterns, settlement values, large claims, and ratios of ALAE to indemnity by comparing them to the Company’s historical experience /s/ KPMG LLP We have served as the Company’s auditor since 2010. New York, New York February 24, 2021 49 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2020 2019 2018 (Dollars in thousands, except share and per share data) Net sales $ 1,128,588 $ 1,137,913 $ 1,092,051 Cost of sales 791,933 806,113 779,264 Gross profit 336,655 331,800 312,787 Selling, general and administrative expenses 224,670 234,715 231,336 Intangible asset impairment 2,600 — — Restructuring and integration expenses 464 2,585 4,510 Other income (expense), net ( 26 ) ( 5 ) 4,327 Operating income 108,895 94,495 81,268 Other non-operating income (expense), net 812 2,587 ( 411 ) Interest expense 2,328 5,286 4,026 Earnings from continuing operations before taxes 107,379 91,796 76,831 Provision for income taxes 26,962 22,745 19,977 Earnings from continuing operations 80,417 69,051 56,854 Loss from discontinued operations, net of income tax benefit of $ 8,089 , $ 3,912 and $ 4,866 ( 23,024 ) ( 11,134 ) ( 13,851 ) Net earnings $ 57,393 $ 57,917 $ 43,003 Net earnings per common share – Basic: Earnings from continuing operations $ 3.59 $ 3.09 $ 2.53 Discontinued operations ( 1.02 ) ( 0.50 ) ( 0.62 ) Net earnings per common share – Basic $ 2.57 $ 2.59 $ 1.91 Net earnings per common share – Diluted: Earnings from continuing operations $ 3.52 $ 3.03 $ 2.48 Discontinued operations ( 1.01 ) ( 0.49 ) ( 0.60 ) Net earnings per common share – Diluted $ 2.51 $ 2.54 $ 1.88 Dividends declared per share $ 0.50 $ 0.92 $ 0.84 Average number of common shares 22,374,123 22,378,414 22,456,480 Average number of common shares and dilutive common shares 22,825,885 22,818,451 22,931,723 See accompanying notes to consolidated financial statements. 50 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2020 2019 2018 (In thousands) Net earnings $ 57,393 $ 57,917 $ 43,003 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 2,929 1,024 ( 5,473 ) Pension and postretirement plans ( 16 ) ( 19 ) ( 12 ) Total other comprehensive income (loss), net of tax 2,913 1,005 ( 5,485 ) Comprehensive income $ 60,306 $ 58,922 $ 37,518 See accompanying notes to consolidated financial statements. 51 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2020 2019 (Dollars in thousands, except share data) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 19,488 $ 10,372 Accounts receivable, less allowances for discounts and doubtful accounts of $ 5,822 and $ 5,212 in 2020 and 2019, respectively 198,039 126,640 Inventories 345,502 368,221 Unreturned customer inventories 19,632 19,722 Prepaid expenses and other current assets 15,875 15,602 Total current assets 598,536 540,557 Property, plant and equipment, net 89,105 89,649 Operating lease right-of-use assets 29,958 36,020 Goodwill 77,837 77,802 Other intangibles, net 54,004 64,861 Deferred incomes taxes 44,770 37,272 Investments in unconsolidated affiliates 40,507 38,858 Other assets 21,823 18,835 Total assets $ 956,540 $ 903,854 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Notes payable $ 10,000 $ 52,460 Current portion of other debt 135 4,456 Accounts payable 100,018 92,535 Sundry payables and accrued expenses 47,078 38,819 Accrued customer returns 40,982 35,240 Accrued core liability 22,014 24,357 Accrued rebates 46,437 26,072 Payroll and commissions 35,938 26,649 Total current liabilities 302,602 300,588 Long-term debt 97 129 Noncurrent operating lease liabilities 22,450 28,376 Other accrued liabilities 25,929 20,837 Accrued asbestos liabilities 55,226 49,696 Total liabilities 406,304 399,626 Commitments and contingencies Stockholders’ equity: Common Stock - par value $ 2.00 per share: Authorized 30,000,000 shares, issued 23,936,036 shares 47,872 47,872 Capital in excess of par value 105,084 102,742 Retained earnings 463,612 417,437 Accumulated other comprehensive income ( 5,676 ) ( 8,589 ) Treasury stock - at cost ( 1,586,923 shares and 1,477,594 shares in 2020 and 2019, respectively) ( 60,656 ) ( 55,234 ) Total stockholders’ equity 550,236 504,228 Total liabilities and stockholders’ equity $ 956,540 $ 903,854 See accompanying notes to consolidated financial statements. 52 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2020 2019 2018 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 57,393 $ 57,917 $ 43,003 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 26,323 25,809 24,104 Amortization of deferred financing cost 228 225 333 Increase (decrease) to allowance for doubtful accounts 396 ( 295 ) 330 Increase to inventory reserves 5,962 4,858 3,978 Amortization of deferred gain on sale of buildings — — ( 218 ) Gain on sale of property, plant and equipment — — ( 3,997 ) Intangible asset impairment 2,600 — — Equity (income) loss from joint ventures ( 820 ) ( 2,865 ) 768 Employee Stock Ownership Plan allocation 2,301 2,519 2,557 Stock-based compensation 8,101 6,917 7,998 (Increase) decrease in deferred income taxes ( 8,334 ) 4,736 ( 10,046 ) Increase in tax valuation allowance 864 358 22 Loss on discontinued operations, net of tax 23,024 11,134 13,851 Change in assets and liabilities: (Increase) decrease in accounts receivable ( 71,933 ) 2,789 5,351 (Increase) decrease in inventories 17,984 ( 17,901 ) ( 30,199 ) (Increase) decrease in prepaid expenses and other current assets ( 370 ) ( 8,296 ) 4,926 Increase (decrease) in accounts payable 7,428 ( 1,950 ) 16,894 Increase (decrease) in sundry payables and accrued expenses 40,651 ( 2,957 ) ( 10,643 ) Net changes in other assets and liabilities ( 13,902 ) ( 6,070 ) 1,246 Net cash provided by operating activities 97,896 76,928 70,258 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of and investments in businesses — ( 43,490 ) ( 9,852 ) Net proceeds from sale of Grapevine, Texas facility — 4,801 — Capital expenditures ( 17,820 ) ( 16,185 ) ( 20,141 ) Other investing activities 21 62 107 Net cash used in investing activities ( 17,799 ) ( 54,812 ) ( 29,886 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under line-of-credit agreements ( 42,460 ) 8,771 ( 13,311 ) Net borrowings (repayments) of other debt and lease obligations ( 4,248 ) ( 911 ) 1,115 Purchase of treasury stock ( 13,482 ) ( 10,738 ) ( 14,886 ) Increase (decrease) in overdraft balances ( 108 ) 93 275 Payments of debt issuance costs — — ( 460 ) Dividends paid ( 11,218 ) ( 20,593 ) ( 18,854 ) Net cash used in financing activities ( 71,516 ) ( 23,378 ) ( 46,121 ) Effect of exchange rate changes on cash 535 496 ( 436 ) Net increase (decrease) in cash and cash equivalents 9,116 ( 766 ) ( 6,185 ) CASH AND CASH EQUIVALENTS at beginning of year 10,372 11,138 17,323 CASH AND CASH EQUIVALENTS at end of year $ 19,488 $ 10,372 $ 11,138 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 2,187 $ 5,030 $ 3,738 Income taxes $ 24,640 $ 22,267 $ 15,353 Noncash investing activity: Receivable related to net proceeds from sale of Grapevine, Texas facility $ — $ — $ 4,801 See accompanying notes to consolidated financial statements. 53 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Years Ended December 31, 2020, 2019 and 2018 Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total (In thousands) BALANCE AT DECEMBER 31, 2017 $ 47,872 $ 100,057 $ 357,153 $ ( 4,109 ) $ ( 47,319 ) $ 453,654 Cumulative effect adjustment — — ( 1,189 ) — — ( 1,189 ) Net earnings — — 43,003 — — 43,003 Other comprehensive loss, net of tax — — — ( 5,485 ) — ( 5,485 ) Cash dividends paid ($ 0.84 per share) — — ( 18,854 ) — — ( 18,854 ) Purchase of treasury stock — — — — ( 14,483 ) ( 14,483 ) Stock-based compensation — 1,648 — — 6,350 7,998 Employee Stock Ownership Plan — 765 — — 1,792 2,557 BALANCE AT DECEMBER 31, 2018 47,872 102,470 380,113 ( 9,594 ) ( 53,660 ) 467,201 Net earnings — — 57,917 — — 57,917 Other comprehensive income, net of tax — — — 1,005 — 1,005 Cash dividends paid ($ 0.92 per share) — — ( 20,593 ) — — ( 20,593 ) Purchase of treasury stock — — — — ( 10,738 ) ( 10,738 ) Stock-based compensation — ( 473 ) — — 7,390 6,917 Employee Stock Ownership Plan — 745 — — 1,774 2,519 BALANCE AT DECEMBER 31, 2019 47,872 102,742 417,437 ( 8,589 ) ( 55,234 ) 504,228 Net earnings — — 57,393 — — 57,393 Other comprehensive loss, net of tax — — — 2,913 — 2,913 Cash dividends paid ($ 0.50 per share) — — ( 11,218 ) — — ( 11,218 ) Purchase of treasury stock — — — — ( 13,482 ) ( 13,482 ) Stock-based compensation — 1,712 — — 6,389 8,101 Employee Stock Ownership Plan — 630 — — 1,671 2,301 BALANCE AT DECEMBER 31, 2020 $ 47,872 $ 105,084 $ 463,612 $ ( 5,676 ) $ ( 60,656 ) $ 550,236 See accompanying notes to consolidated financial statements. 54 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Principles of Consolidation Standard Motor Products, Inc. and subsidiaries (referred to hereinafter in these notes to the consolidated financial statements as “we,” “us,” “our” or the “Company”) is engaged in the manufacture and distribution of replacement parts for motor vehicles in the automotive aftermarket industry with a complementary focus on the heavy duty, industrial equipment and original equipment service markets. The consolidated financial statements include our accounts and all domestic and international companies in which we have more than a 50 % equity ownership, except in instances where the minority shareholder maintains substantive participating rights, in which case we follow the equity method of accounting. Investments in unconsolidated affiliates are accounted for on the equity method, as we do not have a controlling financial interest but have the ability to exercise significant influence. All significant inter-company items have been eliminated. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. We have made a number of estimates and assumptions in the preparation of these consolidated financial statements. We can give no assurances that actual results will not differ from those estimates. Although we do not believe that there is a reasonable likelihood that there will be a material change in the future estimates, or in the assumptions that we use in calculating the estimates, the uncertain future effects, if any, of the COVID -19 pandemic, and other unforeseen changes in the industry, or business, could materially impact the estimates, and may have a material adverse effect on our business, financial condition and results of operations. Some of the more significant estimates include allowances for doubtful accounts, cash discounts, valuation of inventory, valuation of long-lived assets, goodwill and other intangible assets, depreciation and amortization of long-lived assets, product liability exposures, asbestos, environmental and litigation matters, valuation of deferred tax assets, share based compensation and sales returns and other allowances. Reclassification Certain prior period amounts in the accompanying consolidated financial statements and related notes have been reclassified to conform to the 2020 presentation. Cash and Cash Equivalents We consider all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Allowance for Doubtful Accounts and Cash Discounts We do not generally require collateral for our trade accounts receivable. Accounts receivable have been reduced by an allowance for amounts that may become uncollectible in the future. These allowances are established based on a combination of write-off history, supportable forecasts, aging analysis, and specific account evaluations. When a receivable balance is known to be uncollectible, it is written off against the allowance for doubtful accounts. Cash discounts are provided based on an overall average experience rate applied to qualifying accounts receivable balances. 55 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Inventories Inventories are valued at the lower of cost and net realizable value. Cost is determined on the first-in first-out basis. Where appropriate, standard cost systems are utilized for purposes of determining cost; the standards are adjusted as necessary to ensure they approximate actual costs. Estimates of lower of cost and net realizable value of inventory are determined by comparing the actual cost of the product to the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation of the inventory. We also evaluate inventories on a regular basis to identify inventory on hand that may be obsolete or in excess of current and future projected market demand. For inventory deemed to be obsolete, we provide a reserve on the full value of the inventory. Inventory that is in excess of current and projected use is reduced by an allowance to a level that approximates our estimate of future demand. Future projected demand requires management judgment and is based upon (a) our review of historical trends and (b) our estimate of projected customer specific buying patterns and trends in the industry and markets in which we do business. Using rolling twelve month historical information, we estimate future demand on a continuous basis. As such, the historical volatility of such estimates has been minimal. We maintain provisions for inventory reserves of $ 49.4 million and $ 45.8 million as of December 31, 2020 and 2019 , respectively. We utilize cores (used parts) in our remanufacturing processes for air conditioning compressors, diesel injectors, and diesel pumps. The production of air conditioning compressors, diesel injectors, and diesel pumps involves the rebuilding of used cores, which we acquire either in outright purchases from used parts brokers, or from returns pursuant to an exchange program with customers. Under such exchange programs, at the time of sale of air conditioning compressors, diesel injectors, and diesel pumps, we estimate the core expected to be returned from the customer and record the estimated return as unreturned customer inventory. In addition, many of our customers can return inventory to us based upon customer warranty and overstock arrangements within customer specific limits. At the time products are sold, we accrue a liability for product warranties and overstock returns and record as unreturned customer inventory our estimate of anticipated customer returns. Estimates are based upon historical information on the nature, frequency and probability of the customer return. Unreturned core, warranty and overstock customer inventory is recorded at standard cost. Revision to these estimates is made when necessary, based upon changes in these factors. We regularly study trends of such claims. Property, Plant and Equipment Property, plant and equipment are recorded at historical cost and are depreciated using the straight-line method of depreciation over the estimated useful lives as follows: Estimated Life Buildings 25 to 33-1/2 years Building improvements 10 to 25 years Machinery and equipment 5 to 12 years Tools, dies and auxiliary equipment 3 to 8 years Furniture and fixtures 3 to 12 years Leasehold improvements are depreciated over the shorter of the estimated useful life or the term of the lease. Costs related to maintenance and repairs which do not prolong the assets useful lives are expensed as incurred. We assess our property, plant and equipment to be held and used for impairment when indicators are present that the carrying value may not be recoverable. 56 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Leases We determine if an arrangement is a lease at inception. For operating leases, we include and report operating lease right-of-use (“ROU”) assets, sundry payables and accrued expenses, and noncurrent operating lease liabilities on our consolidated balance sheet for leases with a term longer than twelve months. Finance leases are reported on our consolidated balance sheets in property, plant and equipment, current portion of other debt, and long-term debt. Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the total lease payments over the lease term. Our ROU assets represent the right to use an underlying leased asset over the existing lease term, and the corresponding lease liabilities represent our obligation to make lease payments arising from the lease agreement. As most of our leases do not provide for an implicit rate, we use our secured incremental borrowing rate based on the information available when determining the present value of our lease payments. Our lease terms may include options to terminate, or extend, our lease when it is reasonably certain that we will execute the option. Lease agreements may contain lease and non-lease components, which are generally accounted for separately. Operating lease expense is recognized on a straight-line basis over the lease term. Valuation of Long-Lived and Intangible Assets and Goodwill At acquisition, we estimate and record the fair value of purchased intangible assets, which primarily consist of customer relationships, trademarks and trade names, patents and non-compete agreements. The fair values of these intangible assets are estimated based on our assessment. Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill and certain other intangible assets having indefinite lives are not amortized to earnings, but instead are subject to periodic testing for impairment. Intangible assets determined to have definite lives are amortized over their remaining useful lives. We assess the impairment of long-lived assets, identifiable intangibles assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. With respect to goodwill and identifiable intangible assets having indefinite lives, we test for impairment on an annual basis or in interim periods if an event occurs or circumstances change that may indicate the fair value is below its carrying amount. Factors we consider important, which could trigger an impairment review, include the following: (a) significant underperformance relative to expected historical or projected future operating results; (b) significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and (c) significant negative industry or economic trends. We review the fair values using the discounted cash flows method and market multiples. When performing our evaluation of goodwill for impairment, if we conclude qualitatively that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then a quantitative impairment test would not be required. If we are unable to reach this conclusion, then we would perform a goodwill quantitative impairment test. In performing the quantitative test, the fair value of the reporting unit is compared to its carrying amount. A charge for impairment is recognized by the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. 57 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Identifiable intangible assets having indefinite lives are reviewed for impairment on an annual basis using a methodology similar with that used to evaluate goodwill. Intangible assets having definite lives and other long-lived assets are reviewed for impairment whenever events such as product discontinuance, plant closures, product dispositions or other changes in circumstances indicate that the carrying amount may not be recoverable. In reviewing intangible assets having definite lives and other long-lived assets for impairment, we compare the carrying value of such assets to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference between the assets fair value and their carrying value. There are inherent assumptions and estimates used in developing future cash flows requiring our judgment in applying these assumptions and estimates to the analysis of identifiable intangibles and long-lived asset impairment including projecting revenues, interest rates, tax rates and the cost of capital. Many of the factors used in assessing fair value are outside our control and it is reasonably likely that assumptions and estimates will change in future periods. These changes can result in future impairments. In the event our planning assumptions were modified resulting in impairment to our assets, we would be required to include an expense in our statement of operations, which could materially impact our business, financial condition and results of operations. Foreign Currency Translation Assets and liabilities of our foreign operations are translated into U.S. dollars at year-end exchange rates. Income statement accounts are translated using the average exchange rates prevailing during the year. The resulting translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) and remains there until the underlying foreign operation is liquidated or substantially disposed of. Foreign currency transaction gains or losses are recorded in the statement of operations under the caption “other non-operating income (expense), net.” Revenue Recognition We derive our revenue primarily from sales of replacement parts for motor vehicles from both our Engine Management and Temperature Control Segments. We recognize revenues when our performance obligation has been satisfied and the control of products has been transferred to a customer which typically occurs upon shipment. Revenue is measured as the amount of consideration we expect to receive in exchange for the transfer of goods or providing services. The amount of consideration we receive and revenue we recognize depends on the marketing incentives, product warranty and overstock returns we offer to our customers. For certain of our sales of remanufactured products, we also charge our customers a deposit for the return of a used core component which we can use in our future remanufacturing activities. Such deposit is not recognized as revenue at the time of the sale but rather carried as a core liability. At the same time, we estimate the core expected to be returned from the customer and record the estimated return as unreturned customer inventory. The liability is extinguished when a core is actually returned to us, or at period end when we estimate and recognize revenue for the core deposits not expected to be returned. We estimate and record provisions for cash discounts, quantity rebates, sales returns and warranties in the period the sale is recorded, based upon our prior experience and current trends. Significant management judgments and estimates must be made and used in estimating sales returns and allowances relating to revenue recognized in any accounting period. 58 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Product Warranty and Overstock Returns Many of our products carry a warranty ranging from a 90 -day limited warranty to a lifetime limited warranty, which generally covers defects in materials or workmanship and failure to meet industry published specifications and/or the result of installation error. In addition to warranty returns, we also permit our customers to return new, undamaged products to us within customer-specific limits (which are generally limited to a specified percentage of their annual purchases from us) in the event that they have overstocked their inventories. At the time products are sold, we accrue a liability for product warranties and overstock returns as a percentage of sales based upon estimates established using historical information on the nature, frequency and average cost of the claim and the probability of the customer return. At the same time, we record an estimate of anticipated customer returns as unreturned customer inventory. Significant judgments and estimates must be made and used in connection with establishing the sales returns and other allowances in any accounting period. Revision to these estimates is made when necessary, based upon changes in these factors. We regularly study trends of such claims. New Customer Acquisition Costs New customer acquisition costs refer to arrangements pursuant to which we incur change-over costs to induce a new customer to switch from a competitor’s brand. In addition, change-over costs include the costs related to removing the new customer’s inventory and replacing it with our inventory commonly referred to as a stock lift. New customer acquisition costs are recorded as a reduction to revenue when incurred. Selling, General and Administration Expenses Selling, general and administration expenses include shipping costs and advertising, which are expensed as incurred. Shipping and handling charges, as well as freight to customers, are included in distribution expenses as part of selling, general and administration expenses. Deferred Financing Costs Deferred financing costs represent costs incurred in conjunction with our debt financing activities. Deferred financing costs related to our revolving credit facility are capitalized and amortized over the life of the related financing arrangement. If the debt is retired early, the related unamortized deferred financing costs are written off in the period the debt is retired and are recorded in the statement of operations under the caption other non-operating income (expense), net. Accounting for Income Taxes Income taxes are calculated using the asset and liability method. Deferred tax assets and liabilities are determined based on the estimated future tax effects of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, as measured by the current enacted tax rates. We maintain valuation allowances when it is more likely than not that all or a portion of a deferred asset will not be realized. The valuation allowance is intended to provide for the uncertainty regarding the ultimate utilization of our U.S. foreign tax credit carryovers and foreign net operating loss carryovers. In determining whether a valuation allowance is warranted, we consider all positive and negative evidence and all sources of taxable income such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies to estimate if sufficient future taxable income will be generated to realize the deferred tax asset. The assessment of the adequacy of our valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates, or we adjust these estimates in future periods for current trends or expected changes in our estimating assumptions, we may need to modify the level of valuation allowance which could materially impact our business, financial condition and results of operations. 59 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The valuation allowance of $ 1.6 million as of December 31, 2020 is intended to provide for the uncertainty regarding the ultimate realization of our U.S. foreign tax credit carryovers and foreign net operating loss carryovers. Based on these considerations, we believe it is more likely than not that we will realize the benefit of the net deferred tax asset of $ 44.8 million as of December 31, 2020 , which is net of the remaining valuation allowance. Tax benefits are recognized for an uncertain tax position when, in management's judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances and when new information becomes available. Such adjustments are recognized entirely in the period in which they are identified. During the years ended December 31, 2020, 2019 and 2018 , we did not establish a liability for uncertain tax positions. Environmental Reserves We are subject to various U.S. Federal and state and local environmental laws and regulations and are involved in certain environmental remediation efforts. We estimate and accrue our liabilities resulting from such matters based upon a variety of factors including the assessments of environmental engineers and consultants who provide estimates of potential liabilities and remediation costs. Such estimates are not discounted to reflect the time value of money due to the uncertainty in estimating the timing of the expenditures, which may extend over several years. Potential recoveries from insurers or other third parties of environmental remediation liabilities are recognized independently from the recorded liability, and any asset related to the recovery will be recognized only when the realization of the claim for recovery is deemed probable. Asbestos Litigation In evaluating our potential asbestos-related liability, we use an actuarial study that is prepared by a leading actuarial firm with expertise in assessing asbestos-related liabilities. We evaluate the estimate of the range of undiscounted liability to determine which amount to accrue. Based on the information contained in the actuarial study and all other available information considered by us, we have concluded that no amount within the range was more likely than any other and, therefore, in assessing our asbestos liability we compare the low end of the range to our recorded liability to determine if an adjustment is required. Legal costs are expensed as incurred. Loss Contingencies We have loss contingencies, for such matters as legal claims and legal proceedings. Establishing loss reserves for these matters requires estimates, judgment of risk exposure and ultimate liability. We record provisions when the liability is considered probable and reasonably estimable. Significant judgment is required for both the determination of probability and the determination as to whether an exposure can be reasonably estimated. We maintain an ongoing monitoring and identification process to assess how the activities are progressing against the accrued estimated costs. As additional information becomes available, we reassess our potential liability related to these matters. Adjustments to the liabilities are recorded in the statement of operations in the period when additional information becomes available. Such revisions of the potential liabilities could have a material adverse effect on our business, financial condition or results of operations. 60 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Concentrations of Credit Risk Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash investments and accounts receivable. We place our cash investments with high quality financial institutions and limit the amount of credit exposure to any one institution. Although we are directly affected by developments in the vehicle parts industry, management does not believe significant credit risk exists. With respect to accounts receivable, such receivables are primarily from warehouse distributors and major retailers in the automotive aftermarket industry located in the U.S. We perform ongoing credit evaluations of our customers’ financial conditions. A significant portion of our net sales are concentrated from our five largest individual customers. The loss of one or more of these customers or, a significant reduction in purchases of our products from any one of them, could have a materially adverse impact on our business, financial condition and results of operations. For further information on net sales to our five largest customers and our concemtration our customer risk, see Note 19 , “Industry Segment and Geographic Data.” Foreign Cash Balances Substantially all of the cash and cash equivalents, including foreign cash balances, at December 31, 2020 and 2019 were uninsured. Foreign cash balances at December 31, 2020 and 2019 were $ 16.4 million and $ 8.5 million , respectively. Recently Issued Accounting Pronouncements Standards that were adopted Standard Description Date of adoption Effects on the financial statements or other significant matters ASU 2017-04 , Simplifying the Test for Goodwill Impairment This standard simplifies the accounting for goodwill impairment. ASU 2017-04 removes Step 2 of the test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. January 1, 2020 We applied the new standard in the fourth quarter of 2020 when we performed our annual impairment test of goodwill. In performing our impairment test, we concluded that the fair value for each of our reporting units exceeded its carrying value and, as such, the adoption of the new standard did not impact the manner in which we performed the 2020 goodwill quantitative impairment test. ASU 2016-13 , Financial Instruments – Credit Losses This standard creates a single model to measure impairment of financial assets, which includes trade accounts receivable. An estimate of expected credit losses on trade accounts receivable over their contractual life will be required to be recorded at inception, based on historical information, current conditions, and reasonable and supportable forecasts. January 1, 2020 The adoption of the standard did not have a material impact on the manner in which we estimate our allowance for doubtful accounts on trade accounts receivable, or on our consolidated financial statements. 61 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Standards that are not yet adopted as of December 31, 2020 The following table provides a brief description of recently issued accounting pronouncements that have not yet been adopted as of December 31, 2020 , and that could have an impact on our financial statements: Standard Description Date of adoption / Effective date Effects on the financial statements or other significant matters ASU 2019-12 , Income Taxes (Topic 740 ) : Simplifying the Accounting for Income Taxes This standard is intended to simplify the accounting for income taxes by removing certain ASC Topic 740 exceptions in performing intra-period tax allocations among income statement components, in calculating certain deferred tax liabilities related to outside basis differences, and in calculating income taxes in interim periods with year-to-date losses. In addition, this standard is also intended to improve consistency and add simplification by clarifying and amending the reporting of franchise taxes and other taxes partially based on income, the recognition of deferred income taxes related to the step-up in tax basis goodwill, and the reporting in interim periods of the recognition of the enactment of tax laws or rate changes. January 1, 2021, with early adoption permitted The new standard clarifies the accounting for income taxes in certain technical areas that will not impact all companies. We anticipate that the adoption of the technical clarifications in this standard will not materially impact our accounting for income taxes, our consolidated financial statements and related disclosures. The new standard can be applied on a prospective basis in certain instances and in other instances on a retrospective or modified retrospective basis. ASU 2020-04 , Reference Rate Reform (Topic 848 ) : Facilitation of the Effects of Reference Rate Reform on Financial Reporting This standard is intended to provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The new standard is applicable to contracts that reference LIBOR, or another reference rate, expected to be discontinued due to reference rate reform. Effective March 12, 2020 through December 31, 2022 The new standard may be applied as of the beginning of an interim period that includes March 12, 2020 through December 31, 2022 . As certain of our contracts reference LIBOR, including our revolving credit facility and supply chain financing arrangements, we are currently reviewing the optional guidance in the standard to determine its impact upon the discontinuance of LIBOR. At this time, we do not believe that the new guidance, nor the discontinuance of LIBOR, will have a material impact on our consolidated financial statements and related disclosures. 62 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. Business Acquisitions and Investments 2019 Business Acquisition and Investment Jiangsu Che Yijia New Energy Technology Co., Ltd. Equity Investment In August 2019, we acquired an approximate 29 % minority interest in Jiangsu Che Yijia New Energy Technology Co., Ltd. (“CYJ”) for approximately $ 5.1 million. Our investment in CYJ was funded through borrowings under our revolving credit facility with JPMorgan Chase Bank, N.A. CYJ is a manufacturer of air conditioning compressors for electric vehicles and is located in China. Our minority interest in CYJ is accounted for using the equity method of accounting. Pollak Business of Stoneridge, Inc. Acquisition In April 2019, we acquired certain assets and liabilities of the Pollak business of Stoneridge, Inc. for approximately $ 40 million, subject to post-closing adjustments. In May 2019, the post-closing adjustments were finalized at $ 1.6 million, reducing the purchase price to $ 38.4 million. The acquisition was funded through borrowings under our revolving credit facility with JPMorgan Chase Bank, N.A. Stoneridge’s Pollak business had manufacturing and distribution facilities in Canton, Massachusetts, El Paso, Texas, and Juarez, Mexico, and distributed a range of engine management products including sensors, switches, and connectors. The acquisition, reported as part of our Engine Management Segment, enhanced our growth opportunities in the OE/OES, heavy duty and commercial vehicle markets and added to our existing expertise in aftermarket distribution, product management and service. We have not acquired any of the Pollak facilities or employees, and have relocated all production to our existing facilities. The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed, based on their fair values (in thousands): Purchase Price $ 38,427 Assets acquired and liabilities assumed: Inventory $ 3,331 Property, plant and equipment, net 45 Intangible assets 24,650 Goodwill 10,401 Net assets acquired $ 38,427 Intangible assets acquired of $ 24.7 million consist of customer relationships related to the acquired OE/OES business of $ 17.2 million that will be amortized on a straight-line basis over the estimated useful life of 10 years; customer relationships related to the acquired aftermarket business of $ 7.2 million that will be amortized on a straight-line basis over the estimated useful life of 15 years; a trademark of $ 0.2 million that will be amortized on a straight-line basis over the estimated useful life of 10 years; and a non-compete agreement of $ 0.1 million that will be amortized on a straight-line basis over the estimated useful life of 5 years. Goodwill of $ 10.4 million was allocated to the Engine Management Segment and is deductible for income tax purposes. The goodwill reflects relationships, business specific knowledge and the replacement cost of an assembled workforce associated with personal reputations, as well as the value of expected synergies. Incremental net sales from the acquired Pollak business were $ 9.5 million for the three months ended March 31, 2020, and were included in our consolidated statements of operations for the year ended December 31, 2020 . 63 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. Restructuring and Integration Expense The aggregated liabilities included in “sundry payables and accrued expenses” and “other accrued liabilities” in the consolidated balance sheet relating to the restructuring and integration activities as of and for the years ended December 31, 2020 and 2019, consisted of the following (in thousands): Workforce Reduction Other Exit Costs Total Exit activity liability at December 31, 2018 $ 742 $ — $ 742 Restructuring and integration costs: Amounts provided for during 2019 (1) — 2,585 2,585 Cash payments ( 406 ) ( 1,688 ) ( 2,094 ) Reclassification of environmental liability (1) — ( 386 ) ( 386 ) Reclassification of inventory reserves — ( 511 ) ( 511 ) Exit activity liability at December 31, 2019 $ 336 $ — $ 336 Restructuring and integration costs: Amounts provided for during 2020 (1) — 464 464 Cash payments ( 157 ) ( 214 ) ( 371 ) Reclassification of environmental liability (1) — ( 250 ) ( 250 ) Exit activity liability at December 31, 2020 $ 179 $ — $ 179 (1) Included in restructuring and integration costs in 2020 and 2019 is a $ 0.3 million and $ 0.4 million increase, respectively, in environmental cleanup costs related to ongoing monitoring and remediation in connection with the prior closure of our manufacturing operations at our Long Island City, New York location. The environmental liability has been reclassed to accrued liabilities as of December 31, 2020 and 2019 , respectively . Restructuring Costs Plant Rationalization Program In February 2016, in connection with our ongoing efforts to improve operating efficiencies and reduce costs, we implemented a plant rationalization initiative. As part of the plant rationalization, all of our Grapevine, Texas production activities have been relocated to facilities in Greenville, South Carolina and Reynosa, Mexico; certain production activities at our Greenville, South Carolina facility were moved to our facility in Bialystok, Poland; certain service functions were relocated from Grapevine, Texas to our administrative offices in Lewisville, Texas; and our vacated Grapevine, Texas facility was sold in December 2018 at a net gain of $ 3.9 million. The net proceeds from the sale of the property of $ 4.8 million was received in January 2019 and was used to reduce borrowings under our revolving credit facility. The gain on the sale of the property is included in other income (expense), net in operating income on our consolidated statement of operations. The Plant Rationalization Program has been completed. Cash payments made of $ 111,000 during the year ended December 31, 2020, and the remaining aggregate liability related to the program as of December 31, 2020 of $ 65,000 consists of severance payments to former Temperature Control employees. 64 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Orlando Plant Rationalization Program In January 2017, to further our ongoing efforts to improve operating efficiencies and reduce costs, we implemented a plant rationalization initiative at our Orlando, Florida facility. As part of the initiative, all of our Orlando, Florida production activities were moved to our facility in Independence, Kansas; certain production activities at our Independence, Kansas facility were moved to our facility in Reynosa, Mexico; and our Orlando, Florida facility was closed. The Orlando Plant Rationalization Program has been completed. Cash payments made of $ 46,000 during the year ended December 31, 2020, and the remaining aggregate liability related to the program as of December 31, 2020 of $ 114,000 consists of severance payments to former Engine Management employees. Integration Costs Pollak Relocation In connection with our April 2019 acquisition of certain assets and liabilities of the Pollak business of Stoneridge, Inc., we incurred certain integration expenses in connection with the relocation of certain inventory, machinery, and equipment from Pollak’s distribution and manufacturing facilities in El Paso, Texas, Canton, Massachusetts, and Juarez, Mexico, to our existing facilities in Disputanta, Virginia, Reynosa, Mexico and Independence, Kansas. The Pollak Relocation has been completed. Integration expense recognized and cash payments made of $ 214,000 during the year ended December 31, 2020 related to residual relocation activities in our Engine Management segment. There is no remaining aggregate liability related to the Pollak Relocation as of December 31, 2020. 4. Sale of Receivables We are party to several supply chain financing arrangements, in which we may sell certain of our customers’ trade accounts receivable to such customers’ financial institutions. We sell our undivided interests in certain of these receivables at our discretion when we determine that the cost of these arrangements is less than the cost of servicing our receivables with existing debt. Under the terms of the agreements, we retain no rights or interest, have no obligations with respect to the sold receivables, and do not service the receivables after the sale . As such, these transactions are being accounted for as a sale. Pursuant to these agreements, we sold $ 695.1 million and $ 719 million of receivables for the years ended December 31, 2020 and 2019, respectively, which was reflected as a reduction of accounts receivable in the consolidated balance sheet at the time of sale. A charge in the amount of $ 12.2 million, $ 22 million and $ 24.4 million related to the sale of receivables is included in selling, general and administrative expenses in our consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018, respectively. To the extent that these arrangements are terminated, our financial condition, results of operations, cash flows and liquidity could be adversely affected by extended payment terms, delays or failures in collecting trade accounts receivables. The utility of the supply chain financing arrangements also depends upon the LIBOR rate, as it is a component of the discount rate applicable to each arrangement. If the LIBOR 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. 65 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Inventories December 31, 2020 December 31, 2019 (In thousands) Finished goods $ 225,523 $ 241,472 Work-in-process 10,711 11,138 Raw materials 109,268 115,611 Subtotal 345,502 368,221 Unreturned customer inventories 19,632 19,722 Total inventories $ 365,134 $ 387,943 6. Property, Plant and Equipment December 31, 2020 2019 (In thousands) Land, buildings and improvements $ 38,833 $ 38,299 Machinery and equipment 148,578 142,531 Tools, dies and auxiliary equipment 60,102 54,843 Furniture and fixtures 30,347 30,470 Leasehold improvements 11,948 11,711 Construction-in-progress 13,691 11,271 Total property, plant and equipment 303,499 289,125 Less accumulated depreciation 214,394 199,476 Total property, plant and equipment, net $ 89,105 $ 89,649 Depreciation expense was $ 17.8 million in 2020, $ 17.4 million in 2019 and $ 16.1 million in 2018. 7. Leases Quantitative Lease Disclosures We have operating and finance leases for our manufacturing facilities, warehouses, office space, automobiles, and certain equipment. Our leases have remaining lease terms of up to ten years , some of which may include one or more five-year renewal options. We have included the five-year renewal option for one of our leases in our operating lease payments as we concluded that it is reasonably certain that we will exercise the option. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Operating lease expense is recognized on a straight-line basis over the lease term. Finance leases are not material. 66 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following tables provide quantitative disclosures related to our operating leases (in thousands) : December 31, Balance Sheet Information 2020 2019 Assets Operating lease right-of-use assets $ 29,958 $ 36,020 Liabilities Sundry payables and accrued expenses $ 8,719 $ 8,739 Noncurrent operating lease liabilities 22,450 28,376 Total operating lease liabilities $ 31,169 $ 37,115 Weighted Average Remaining Lease Term Operating leases 5 Years 5.6 Years Weighted Average Discount Rate Operating leases 3.6 % 3.7 % Year Ended, December 31, Expense and Cash Flow Information 2020 2019 Lease Expense Operating lease expense (a) $ 9,203 $ 8,940 Supplemental Cash Flow Information Cash Paid for the amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 9,087 $ 8,758 Right-of-use assets obtained in exchange for new lease obligations: Operating leases $ 2,986 $ 4,663 (a) Excludes expenses of approximately $ 2.5 million and 2.4 million for the years ended December 31, 2020 and 2019, respectively, related to non-lease components such as maintenance, property taxes, etc., and operating lease expense for leases with an initial term of 12 months or less, which is not material. . Minimum Lease Payments At December 31, 2020, we are obligated to make minimum lease payments through 2028, under operating leases, which are as follows (in thousands): 2021 $ 8,945 2022 7,231 2023 5,819 2024 3,931 2025 2,960 Thereafter 5,551 Total lease payments $ 34,437 Less: Interest ( 3,268 ) Present value of lease liabilities $ 31,169 67 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. Goodwill and Other Intangible Assets Goodwill We assess the impairment of long ‑ lived and identifiable intangibles assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. With respect to goodwill, we test for impairment on an annual basis or in interim periods if an event occurs or circumstances change that may indicate the fair value of a reporting unit is below its carrying amount. We completed our annual impairment test of goodwill as of December 31, 2020. When performing our evaluation of goodwill for impairment, if we conclude qualitatively that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then a quantitative impairment test would not be required. If we are unable to reach this conclusion, then we would perform a goodwill quantitative impairment test. In performing the quantitative test, the fair value of the reporting unit is compared to its carrying amount. A charge for impairment is recognized by the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. In light of the recent loss of business in our Engine Management product line from a large retail customer, we elected to bypass the qualitative assessment at December 31, 2020 and have decided to perform a quantitative impairment test for goodwill at both the Engine Management and Temperature Control reporting units. The fair values of the Engine Management and Temperature Control reporting units were determined based upon the Income Approach, which estimates the fair value based on future discounted cash flows, and the Market Approach, which estimates the fair value based on market prices of comparable companies. We base our fair value estimates on projected financial information which we believe to be reasonable. We also considered our total market capitalization as of December 31, 2020. Our December 31, 2020 annual goodwill impairment analysis did not result in an impairment charge as it was determined that the fair values of our Engine Management and Temperature Control reporting units were in excess of their carrying amounts. While the fair values exceed the carrying amounts at the present time and we do not believe that impairments are probable, we will need to maintain the ongoing performance of the business at current projected levels in future periods to sustain their carrying values. Changes in the carrying values of goodwill by operating segment during the years ended December 31, 2020 and 2019 are as follows (in thousands): Engine Management Temperature Control Total Balance as of December 31, 2018: Goodwill $ 91,539 $ 14,270 $ 105,809 Accumulated impairment losses ( 38,488 ) — ( 38,488 ) $ 53,051 $ 14,270 $ 67,321 Activity in 2019 Acquisition of Pollak Business of Stoneridge, Inc. 10,401 — 10,401 Foreign currency exchange rate change 80 — 80 Balance as of December 31, 2019: Goodwill 102,020 14,270 116,290 Accumulated impairment losses ( 38,488 ) — ( 38,488 ) $ 63,532 $ 14,270 $ 77,802 Activity in 2020 Foreign currency exchange rate change 35 — 35 Balance as of December 31, 2020: Goodwill 102,055 14,270 116,325 Accumulated impairment losses ( 38,488 ) — ( 38,488 ) $ 63,567 $ 14,270 $ 77,837 68 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Acquired Intangible Assets Acquired identifiable intangible assets as of December 31, 2020 and 2019 consist of: December 31, 2020 2019 (In thousands) Customer relationships $ 111,701 $ 111,692 Trademarks and trade names 6,980 6,980 Non-compete agreements 3,272 3,276 Patents 723 723 Supply agreements 800 800 Leaseholds 160 160 Total acquired intangible assets 123,636 123,631 Less accumulated amortization (1) ( 70,221 ) ( 59,431 ) Net acquired intangible assets $ 53,415 $ 64,200 (1) Applies to all intangible assets, except for related trademarks and trade names totaling $ 2.6 million and $ 5.2 million as of December 31, 2020 and 2019, respectively, which have indefinite useful lives and, as such, are not being amortized. In December 2020, a large retail customer informed us of its decision to pursue a private brand strategy for its engine management product line. As a result of this development, we anticipate that revenues sold under the BWD trademark will be significantly reduced and uncertain beyond the first quarter of 2021. In connection with the decision, we recorded an impairment charge of $ 2.6 million in 2020. Total amortization expense for acquired intangible assets was $ 8.2 million for the year ended December 31, 2020, $ 8 million for the year ended December 31, 2019, and $ 7.6 million for the year ended December 31, 2018. Based on the current estimated useful lives assigned to our intangible assets, amortization expense is estimated to be $ 6.8 million for 2021, $ 5.2 million in 2022, $ 5 million in 2023, $ 4.9 million in 2024 and $ 28.9 million in the aggregate for the years 2025 through 2034. Other Intangible Assets Other intangible assets include computer software. Computer software as of December 31, 2020 and 2019 totaled $ 17 million and $ 16.9 million , respectively . Total accumulated computer software amortization as of December 31, 2020 and 2019 was $ 16.4 million and $ 16.2 million, respectively. Computer software is amortized over its estimated useful life of 3 to 10 years. Amortization expense for computer software was $ 0.3 million, $ 0.4 million and $ 0.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. Fully amortized computer software, no longer in use, of $ 0.2 million was written-off during the year ended December 31, 2020. 9. Investments in Unconsolidated Affiliates December 31, 2020 2019 (In thousands) Foshan GWOYNG SMP Vehicle Climate Control & Cooling Products Co. Ltd. $ 18,869 $ 18,099 Foshan FGD SMP Automotive Compressor Co. Ltd 15,036 13,633 Foshan Che Yijia New Energy Technology Co., Ltd. 4,174 4,883 Orange Electronic Co. Ltd 2,428 2,243 Total $ 40,507 $ 38,858 69 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Investment in Foshan Che Yijia New Energy Technology Co., Ltd. In August 2019, we acquired an approximate 29 % minority interest in Foshan Che Yijia New Energy Technology Co., Ltd. (“CYJ”) for approximately $ 5.1 million . Our investment in CYJ was funded through borrowings under our revolving credit facility with JPMorgan Chase, N.A. CYJ is a manufacturer of automotive electric air conditioning compressors and is located in China. Our minority interest in CYJ is accounted for using the equity method of accounting. We did not make any purchases from CYJ from the date of acquisition through December 31, 2020. Investment in Foshan FGD SMP Automotive Compressor Co. Ltd. In November 2017, we formed Foshan FGD SMP Automotive Compressor Co., Ltd., a 50/50 joint venture with Foshan Guangdong Automotive Air Conditioning Co., Ltd. (“FGD”), a China-based manufacturer of automotive belt driven air conditioning compressors. We acquired our 50 % interest in the joint venture for approximately $ 12.5 million. Payment for our acquired interest in the joint venture was made in installments with approximately $ 6.8 million paid in 2017 and the balance of $ 5.7 million paid in January 2018. We determined that due to a lack of a voting majority, and other qualitative factors, we do not control the operations of the joint venture and accordingly, our investment in the joint venture is accounted for under the equity method of accounting. During the years ended December 31, 2020 and 2019, we made purchases from the joint venture of approximately $ 17.4 million and $ 12.8 million, respectively. Investment in Foshan GWOYNG SMP Vehicle Climate Control & Cooling Products Co. Ltd. In April 2014, we formed Foshan GWOYNG SMP Vehicle Climate Control & Cooling Products Co. Ltd., a 50/50 joint venture with Gwo Yng Enterprise Co., Ltd. (“Gwo Yng”), a China-based manufacturer of automotive air conditioner accumulators, filter driers, hose assemblies and switches . We acquired our 50 % interest in the joint venture for $ 14 million. We determined, at that time, that due to a lack of a voting majority and other qualitative factors, we do not control the operations of the joint venture and accordingly, our investment in the joint venture was accounted for under the equity method of accounting. In March 2018, we acquired an additional 15 % equity interest in the joint venture for approximately $ 4.2 million, thereby increasing our equity interest in the joint venture to 65 %. The $ 4.2 million payment for our additional 15% investment was made in cash installments throughout 2018. Although we have increased our equity interest in the joint venture to 65%, the minority shareholder will maintain participating rights that will allow it to participate in certain significant financial and operating decisions that occur in the ordinary course of business. As a result of the existence of these substantive participating rights of the minority shareholder, we will continue to account for our investment in the joint venture under the equity method of accounting. During the years ended December 31, 2020 and 2019, we made purchases from the joint venture of approximately $ 12.4 million and $ 12.7 million, respectively. Investment in Orange Electronic Co. Ltd. In January 2013, we acquired an approximate 25 % minority interest in Orange Electronic Co., Ltd. (“Orange”) for $ 6.3 million. Orange is a manufacturer of tire pressure monitoring system sensors and is located in Taiwan. As of December 31, 2020, our minority interest in Orange of 19.4 % is accounted for using the equity method of accounting as we have the ability to exercise significant influence. During the fourth quarter of 2018, after a review of recent financial performance and near term prospects for Orange, we determined that the decline in quoted market prices below the carrying amount of our investment was other than temporary and, as such, recognized a noncash impairment charge of approximately $ 1.7 million, in the quarter. The impairment charge has been reported in our Engine Management Segment and is included in other non-operating income (expense), net in our consolidated statements of operations. Purchases from Orange during the years ended December 31, 2020 and 2019 were approximately $ 4.4 million and $ 3.5 million, respectively. 70 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. Other Assets December 31, 2020 2019 (In thousands) Deferred compensation $ 20,775 $ 17,519 Deferred financing costs, net 431 656 Other 617 660 Total other assets, net $ 21,823 $ 18,835 Deferred compensation consists of assets held in a nonqualified defined contribution pension plan as of December 31, 2020 and 2019, respectively. 11. Credit Facilities and Long-Term Debt Total debt outstanding is summarized as follows: December 31, 2020 2019 (In thousands) Revolving credit facilities $ 10,000 $ 52,460 Other (1) 232 4,585 Total debt $ 10,232 $ 57,045 Current maturities of debt $ 10,135 $ 56,916 Long-term debt 97 129 Total debt $ 10,232 $ 57,045 (1) Other includes borrowings under our Polish overdraft facility of Zloty 0.4 million (approximately $ 0.1 million) and Zloty 16.7 million (approximately $ 4.4 million) as of December 31, 2020 and 2019, respectively. Maturities of long-term debt are not material for the year ended December 31, 2020 and beyond. Revolving Credit Facility In December 2018, we amended our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, and a syndicate of lenders. The amended credit agreement provides for a senior secured revolving credit facility with a line of credit of up to $ 250 million (with an additional $ 50 million accordion feature) and extends the maturity date to December 2023 . The line of credit under the amended credit agreement also allows for a $ 10 million line of credit to Canada as part of the $250 million available for borrowing. Direct borrowings under the amended credit agreement bear interest at LIBOR plus a margin ranging from 1.25 % to 1.75 % based on our borrowing availability, or floating at the alternate base rate plus a margin ranging from 0.25 % to 0.75 % based on our borrowing availability, at our option. The amended credit agreement is guaranteed by certain of our subsidiaries and secured by certain of our assets. Borrowings under the amended credit agreement are secured by substantially all of our assets, including accounts receivable, inventory and certain fixed assets, and those of certain of our subsidiaries. Availability under the amended credit agreement is based on a formula of eligible accounts receivable, eligible drafts presented to the banks under our supply chain financing arrangements and eligible inventory. After taking into account outstanding borrowings under the amended credit agreement, there was an additional $ 237.1 million available for us to borrow pursuant to the formula at December 31, 2020. The loss of business of one or more of our key customers or, a significant reduction in purchases of our products from any one of them, could adversely impact availability under our revolving credit facility. 71 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Outstanding borrowings under the credit agreement, which are classified as current liabilities, were $ 10 million and $ 52.5 million at December 31, 2020 and 2019, respectively ; while letters of credit outstanding under the credit agreement were $ 2.8 million and $ 3.1 million at December 31, 2020 and 2019, respectively. Borrowings under the credit agreement have been classified as current liabilities based upon accounting rules and certain provisions in the agreement. At December 31, 2020, the weighted average interest rate on our amended credit agreement was 1.4 % , which consisted of $ 10 million in direct borrowings. At December 31, 2019, the weighted average interest rate on our amended credit agreement was 3.5 %, which consisted of $ 40 million in direct borrowings at 2.3 % and an alternative base rate loan of $ 12.5 million at 5 %. Our average daily alternative base rate loan balance was $ 1.5 million and $ 1.7 million during 2020 and 2019, respectively. At any time that our borrowing availability is less than the greater of either (a) $ 25 million, or 10 % of the commitments if fixed assets are not included in the borrowing base, or (b) $ 31.25 million, or 12.5 % of the commitments if fixed assets are included in the borrowing base, the terms of the amended credit agreement provide for, among other provisions, a financial covenant requiring us, on a consolidated basis, to maintain a fixed charge coverage ratio of 1 :1 at the end of each fiscal quarter (rolling four quarters). As of December 31, 2020, we were not subject to these covenants. The amended credit agreement permits us to pay cash dividends of $ 20 million and make stock repurchases of $ 20 million in any fiscal year subject to a minimum availability of $ 25 million. Provided specific conditions are met, the amended credit agreement also permits acquisitions, permissible debt financing, capital expenditures, and cash dividend payments and stock repurchases of greater than $ 20 million. Polish Overdraft Facility Our Polish subsidiary, SMP Poland sp. z.o.o., has entered into an overdraft facility with HSBC France (Spolka Akcyjna) Oddzial w Polsce, formerly HSBC Bank Polska S.A., for Zloty 30 million (approximately $ 8 million). The facility, as amended, expires in December 2021 . Borrowings under the overdraft facility will bear interest at a rate equal to WIBOR + 1.5 % and are guaranteed by Standard Motor Products, Inc., the ultimate parent company. At December 31, 2020 and 2019, borrowings under the overdraft facility were Zloty 0.4 million (approximately $ 0.1 million) and Zloty 16.7 million (approximately $ 4.4 million), respectively. Deferred Financing Costs We have deferred financing costs of approximately $ 0.7 million and $ 0.9 million as of December 31, 2020 and 2019, respectively. Deferred financing costs as of December 31, 2020 are related to our revolving credit facility. Scheduled amortization for future years, assuming no prepayments of principal is as follows: (In thousands) 2021 $ 225 2022 225 2023 206 Total amortization $ 656 72 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 12. Stockholders’ Equity We have authority to issue 500,000 shares of preferred stock, $ 20 par value, and our Board of Directors is vested with the authority to establish and designate any series of preferred, to fix the number of shares therein and the variations in relative rights as between each series. In December 1995, our Board of Directors established a new series of preferred shares designated as Series A Participating Preferred Stock. The number of shares constituting the Series A Preferred Stock is 30,000 . The Series A Preferred Stock is designed to participate in dividends, ranks senior to our common stock as to dividends and liquidation rights and has voting rights. Each share of the Series A Preferred Stock shall entitle the holder to one thousand votes on all matters submitted to a vote of the stockholders of the Company. No such shares were outstanding at December 31, 2020 and 2019. In May 2018, our Board of Directors authorized the purchase of up to $ 20 million of our common stock under a stock repurchase program. Under this program, during the year ended December 31, 2018 and 2019, we repurchased 201,484 and 221,748 shares of our common stock, respectively, at a total cost of $ 9.3 million and $ 10.7 million , respectively, thereby completing the 2018 Board of Directors authorization. In March 2020, our Board of Directors authorized the purchase of up to $ 20 million of our common stock under a stock repurchase program. Under this program, during the year ended December 31, 2020, we repurchased 323,867 shares of our common stock, at a total cost of $ 13.5 million. As of December 31, 2020, there was approximately $ 6.5 million available for future stock purchases under the program. In February 2021, our Board of Directors authorized the purchase of up to an additional $ 20 million of our common stock under a new stock repurchase program, thereby increasing the amount available for future stock purchases to approximately $ 26.5 million. Stock will be purchased under the programs from time to time, in the open market or through private transactions, as market conditions warrant . 13. Stock-Based Compensation Plans Our stock-based compensation program is a broad-based program designed to attract and retain employees while also aligning employees’ interests with the interests of our shareholders. In addition, members of our Board of Directors participate in our stock-based compensation program in connection with their service on our board. In May 2016, our Board of Directors and Shareholders approved the 2016 Omnibus Incentive Plan. The 2016 Omnibus Incentive Plan supersedes the 2006 Omnibus Incentive Plan, which terminated in May 2016. The 2016 Omnibus Incentive Plan is the only remaining plan available to provide stock-based incentive compensation to our employees, directors and other eligible persons. Under the 2016 Omnibus Incentive Plan, which terminates in May 2026, we are authorized to issue, among other things, shares of restricted and performance-based stock to eligible employees and restricted stock to directors of up to 1,100,000 shares. Shares issued under the plan that are cancelled, forfeited or expire by their terms are eligible to be granted again under the 2016 Omnibus Incentive Plan. Awards previously granted under the 2006 Omnibus Incentive Plan are not affected by the plan’s termination, while shares not yet granted under the plan are not available for future issuance. We account for our stock-based compensation plans in accordance with the provisions of ASC 718, Stock Compensation , which requires that a company measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The service period is the period of time that the grantee must provide services to us before the stock-based compensation is fully vested. The grant-date fair value of the award is recognized as an expense on a straight-line basis over the requisite service periods in our consolidated statements of operations. Forfeitures are estimated at the time of grant based on historical trends in order to estimate the amount of share-based awards that will ultimately vest. We monitor actual forfeitures for any subsequent adjustment to forfeiture rates. 73 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Stock-based compensation expense under our existing plans was $ 7.8 million ($ 5.8 million, net of tax), $ 6.5 million ($ 4.9 million, net of tax), and $ 7.4 million ($ 5.5 million, net of tax) for the years ended December 31, 2020, 2019 and 2018 , respectively. Restricted Stock and Performance Share Grants We currently grant shares of restricted stock to eligible employees and our independent directors and performance-based stock to eligible employees. We grant eligible employees two types of restricted stock (standard restricted shares and long-term retention restricted shares). Standard restricted shares granted to employees become fully vested no earlier than three years after the date of grant. Long-term retention restricted shares granted to selected executives vest at a 25 % rate on or within approximately two months of an executive reaching the ages of 60 and 63, and become fully vested on or within approximately two months of an executive reaching the age of 65. Restricted shares granted to directors become fully vested upon the first anniversary of the date of grant. Performance-based shares issued to eligible employees are subject to a three-year measuring period and the achievement of performance targets and, depending upon the achievement of such performance targets, they may become vested no earlier than three years after the date of grant. Each period we evaluate the probability of achieving the applicable targets, and we adjust our accrual accordingly. Restricted shares (other than long-term retention restricted shares) and performance shares issued to certain key executives and directors are subject to a one or two year holding period upon the lapse of the vesting period. Forfeitures on stock grants are estimated at 5 % for employees and 0 % for executives and directors based upon our evaluation of historical and expected future turnover. Prior to the time a restricted share becomes fully vested or a performance share is issued, the awardees cannot transfer, pledge, hypothecate or encumber such shares. Prior to the time a restricted share is fully vested, the awardees have all other rights of a stockholder, including the right to vote (but not receive dividends during the vesting period). Prior to the time a performance share is issued, the awardees shall have no rights as a stockholder. All shares and rights are subject to forfeiture if certain employment conditions are not met. Under the 2016 Omnibus Incentive Plan, 1,100,000 shares are authorized to be issued. At December 31, 2020, under the plan, there were an aggregate of (a) 926,271 shares of restricted and performance-based stock grants issued, net of forfeitures, and (b) 173,729 shares of common stock available for future grants. For the year ended December 31, 2020, 208,200 restricted and performance-based shares were granted ( 153,200 restricted shares and 55,000 performance-based shares). In determining the grant date fair value, the stock price on the date of grant, as quoted on the New York Stock Exchange, was reduced by the present value of dividends expected to be paid on the shares issued and outstanding during the requisite service period, discounted at a risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the restriction or vesting period at the grant date. In addition, a further discount for the lack of marketability reduced the fair value of grants issued to certain key executives and directors subject to the one or two year post vesting holding period. Assumptions used in calculating the discount for the lack of marketability include an estimate of stock volatility, risk-free interest rate, and a dividend yield. As related to restricted and performance stock shares, we recorded compensation expense of $ 7.8 million ($ 5.8 million, net of tax), $ 6.5 million ($ 4.9 million, net of tax) and $ 7.4 million ($ 5.5 million, net of tax), for the years ended December 31, 2020, 2019 and 2018, respectively. The unamortized compensation expense related to our restricted and performance-based shares was $ 15.2 million and $ 15.9 million at December 31, 2020 and 2019, respectively and is expected to be recognized over a weighted average period of 4.6 years and 0.3 years for employees and directors, respectively, as of December 31, 2020 and 2019. 74 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Our restricted and performance-based share activity was as follows for the years ended December 31, 2020 and 2019: Shares Weighted Average Grant Date Fair Value per Share Balance at December 31, 2018 870,041 $ 34.59 Granted 204,650 42.05 Vested ( 188,693 ) 38.08 Forfeited (1) ( 33,458 ) 43.32 Balance at December 31, 2019 852,540 $ 35.26 Granted 208,200 38.21 Vested ( 161,054 ) 39.23 Forfeited (1) ( 60,000 ) 42.25 Balance at December 31, 2020 839,686 $ 34.77 ( 1 ) Due to the lack of achievement of performance targets, performance-based shares forfeited in the years ended December 31, 2020 and 2019 were 50,250 shares and 20,508 shares, respectively. The weighted-average grant date fair value of restricted and performance-based shares outstanding as of December 31, 2020, 2019 and 2018 was $ 29.2 million (or $ 34.77 per share), $ 30.1 million (or $ 35.26 per share), and $ 30.1 million (or $ 34.59 per share), respectively. 14. Employee Benefits Defined Contribution Plans We maintain various defined contribution plans, which include profit sharing, and provide retirement benefits for substantially all of our employees. Matching obligations, in connection with the plans which are funded in cash and typically contributed to the plans in March of the following year, are as follows (in thousands): U.S. Defined Contribution Year ended December 31, 2020 $ 9,457 2019 9,080 2018 8,928 We maintain a defined contribution Supplemental Executive Retirement Plan for key employees. Under the plan, these employees may elect to defer a portion of their compensation and, in addition, we may at our discretion make contributions to the plan on behalf of the employees. In March 2019, contributions of $ 0.3 million were made related to calendar year 2018. In March 2020, contributions of $ 0.3 million were made related to calendar year 2019. We have recorded an obligation of $ 0.6 million for 2020. We also have an Employee Stock Ownership Plan and Trust (“ESOP”) for employees who are not covered by a collective bargaining agreement. In connection therewith, we maintain an employee benefits trust to which we contribute shares of treasury stock. We are authorized to instruct the trustees to distribute such shares toward the satisfaction of our future obligations under the plan. The shares held in trust are not considered outstanding for purposes of calculating earnings per share until they are committed to be released. The trustees will vote the shares in accordance with its fiduciary duties. During 2020, we contributed to the trust an additional 44,700 shares from our treasury and released 44,700 shares from the trust leaving 200 shares remaining in the trust as of December 31, 2020. The provision for expense in connection with the ESOP was approximately $ 2.3 million in 2020, $ 2.5 million in 2019 and $ 2.6 million in 2018. 75 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Defined Benefit Pension Plan We maintain a defined benefit unfunded Supplemental Executive Retirement Plan (“SERP”). The SERP, as amended, is a defined benefit plan pursuant to which we will pay supplemental pension benefits to certain key employees upon the attainment of a contractual participant’s payment date based upon the employees’ years of service and compensation. As there are no current participants in the SERP, there was no benefit obligation outstanding related to the plan as of December 31, 2020 and 2019 and we recorded no expense related to the plan during the years ended December 31, 2020, 2019 and 2018. Postretirement Medical Benefits We provide certain medical and dental care benefits to 16 former U.S. union employees. The postretirement medical and dental benefit obligation for the former union employees as of December 31, 2020, and the net periodic benefit cost for our postretirement benefit plans for the years ended December 31, 2020, 2019 and 2018 were not material. 15. Other Non-Operating Income (Expense), Net The components of other non-operating income (expense), net are as follows: Year Ended December 31, 2020 2019 2018 (In thousands) Interest and dividend income $ 109 $ 97 $ 80 Equity income (loss) from joint ventures (1) 820 2,865 ( 768 ) Gain (loss) on foreign exchange ( 350 ) ( 502 ) ( 120 ) Postretirement plan net periodic benefit credit (cost) 27 25 262 Other non-operating income, net 206 102 135 Total other non-operating income (expense), net $ 812 $ 2,587 $ ( 411 ) (1) Year ended December 31, 2018 includes a noncash impairment charge of approximately $ 1.7 million related to our minority interest investment in Orange Electronic Co., Ltd. See Note 9, “Investments in Unconsolidated Affiliates” for additional information. 16. Fair Value Measurements The carrying value of our financial instruments consisting of cash and cash equivalents, deferred compensation, and short term borrowings approximate their fair value. In each instance, fair value is determined after considering Level 1 inputs under the three-level fair value hierarchy. For fair value purposes, the carrying value of cash and cash equivalents approximates fair value due to the short maturity of those investments. The fair value of the assets held by the deferred compensation plan are based on the quoted market prices of the underlying funds which are held in registered investment companies. The carrying value of our revolving credit facilities, classified as short term borrowings, equals fair market value because the interest rate reflects current market rates. 76 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. Income Taxes The income tax provision (benefit) consists of the following (in thousands): Year Ended December 31, 2020 2019 2018 Current: Domestic $ 30,368 $ 14,632 $ 26,821 Foreign 4,064 3,019 3,180 Total current 34,432 17,651 30,001 Deferred: Domestic ( 7,418 ) 4,677 ( 10,132 ) Foreign ( 52 ) 417 108 Total deferred ( 7,470 ) 5,094 ( 10,024 ) Total income tax provision $ 26,962 $ 22,745 $ 19,977 Reconciliations between taxes at the U.S. Federal income tax rate and taxes at our effective income tax rate on earnings from continuing operations before income taxes are as follows (in thousands): Year Ended December 31, 2020 2019 2018 U.S. Federal income tax rate of 21 % $ 22,550 $ 19,277 $ 16,135 Increase (decrease) in tax rate resulting from: State and local income taxes, net of federal income tax benefit 3,781 3,328 2,781 Income tax (tax benefits) attributable to foreign income 330 191 1,598 Other non-deductible items, net ( 563 ) ( 409 ) ( 559 ) Change in valuation allowance 864 358 22 Provision for income taxes $ 26,962 $ 22,745 $ 19,977 The following is a summary of the components of the net deferred tax assets and liabilities recognized in the accompanying consolidated balance sheets (in thousands): December 31, 2020 2019 Deferred tax assets: Inventories $ 12,773 $ 12,077 Allowance for customer returns 13,804 11,969 Postretirement benefits 42 50 Allowance for doubtful accounts 1,412 1,262 Accrued salaries and benefits 12,984 9,826 Tax credit carryforwards 1,451 609 Accrued asbestos liabilities 15,372 13,132 Other 170 148 58,008 49,073 Valuation allowance ( 1,621 ) ( 757 ) Total deferred tax assets 56,387 48,316 Deferred tax liabilities: Depreciation 7,710 7,706 Other 3,907 3,338 Total deferred tax liabilities 11,617 11,044 Net deferred tax assets $ 44,770 $ 37,272 77 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) In assessing the realizability of the deferred tax assets, we consider whether it is more likely than not that some portion or the entire deferred tax asset will be realized. Ultimately, the realization of the deferred tax asset is dependent upon the generation of sufficient taxable income in those periods in which temporary differences become deductible and/or net operating loss carryforwards can be utilized. We consider the level of historical taxable income, scheduled reversal of temporary differences, carryback and carryforward periods, tax planning strategies and projected future taxable income in determining whether a valuation allowance is warranted. We also consider cumulative losses in recent years as well as the impact of one-time events in assessing our pre-tax earnings. Assumptions regarding future taxable income require significant judgment. Our assumptions are consistent with estimates and plans used to manage our business. The valuation allowance of $ 1.6 million as of December 31, 2020 is intended to provide for uncertainty regarding the ultimate realization of our U.S. foreign tax credit carryovers and foreign net operating loss carryovers. Based on these considerations, we believe it is more likely than not that we would realize the benefit of the net deferred tax asset of $ 44.8 million as of December 31, 2020, which is net of the remaining valuation allowance. At December 31, 2020, we have foreign tax credit carryforwards of approximately $ 1.5 million that will expire in varying amounts by 2028 . As related to the taxation of our foreign subsidiaries, we aggregate our foreign earnings and profits, and utilize allowable deductions and available foreign tax credits in computing our U.S. tax. Notwithstanding the U.S. taxation of these amounts, we intend to continue to invest most or all of these earnings indefinitely outside of the U.S., and do not expect to incur any significant additional taxes related to such amounts. In accordance with generally accepted accounting practices, we recognize in our financial statements only those tax positions that meet the more-likely-than-not recognition threshold. We establish tax reserves for uncertain tax positions that do not meet this threshold. During the years ended December 31, 2020, 2019 and 2018, we did no t establish a liability for uncertain tax positions. We are subject to taxation in the U.S. and various state, local and foreign jurisdictions. As of December 31, 2020, the Company is no longer subject to U.S. Federal tax examinations for years before 2017. We remain subject to examination by state and local tax authorities for tax years 2016 through 2019 . Foreign jurisdictions have statutes of limitations generally ranging from 2 to 6 years. Years still open to examination by foreign tax authorities in major jurisdictions include Canada ( 2016 onward), Hong Kong ( 2015 onward), Mexico ( 2016 onward) and Poland ( 2015 onward). We do not presently anticipate that our unrecognized tax benefits will significantly increase or decrease over the next 12 months; however, actual developments in this area could differ from those currently expected. 18. Earnings Per Share We present two calculations of earnings per common share. “Basic” earnings per common share equals net income divided by weighted average common shares outstanding during the period. “Diluted” earnings per common share equals net income divided by the sum of weighted average common shares outstanding during the period plus potentially dilutive common shares. Potentially dilutive common shares that are anti-dilutive are excluded from net earnings per common share. 78 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following are reconciliations of the earnings available to common stockholders and the shares used in calculating basic and dilutive net earnings per common share (in thousands, except per share data): Year Ended December 31, 2020 2019 2018 Basic Net Earnings Per Common Share: Earnings from continuing operations $ 80,417 $ 69,051 $ 56,854 Loss from discontinued operations ( 23,024 ) ( 11,134 ) ( 13,851 ) Net earnings available to common stockholders $ 57,393 $ 57,917 $ 43,003 Weighted average common shares outstanding 22,374 22,378 22,456 Earnings from continuing operations per common share $ 3.59 $ 3.09 $ 2.53 Loss from discontinued operations per common share ( 1.02 ) ( 0.50 ) ( 0.62 ) Basic net earnings per common share $ 2.57 $ 2.59 $ 1.91 Diluted Net Earnings Per Common Share: Earnings from continuing operations $ 80,417 $ 69,051 $ 56,854 Loss from discontinued operations ( 23,024 ) ( 11,134 ) ( 13,851 ) Net earnings available to common stockholders $ 57,393 $ 57,917 $ 43,003 Weighted average common shares outstanding 22,374 22,378 22,456 Plus incremental shares from assumed conversions: Dilutive effect of restricted stock and performance-based stock 452 440 476 Weighted average common shares outstanding – Diluted 22,826 22,818 22,932 Earnings from continuing operations per common share $ 3.52 $ 3.03 $ 2.48 Loss from discontinued operations per common share ( 1.01 ) ( 0.49 ) ( 0.60 ) Diluted net earnings per common share $ 2.51 $ 2.54 $ 1.88 The shares listed below were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented or because they were excluded under the treasury method (in thousands): 2020 2019 2018 Restricted and performance shares 268 255 249 19. Industry Segment and Geographic Data We have two major reportable operating segments, each of which focuses on a specific line of replacement parts. Our Engine Management Segment manufactures and remanufactures ignition and emission parts, ignition wires, battery cables, fuel system parts and sensors for vehicle systems. Our Temperature Control Segment manufactures and remanufactures air conditioning compressors, air conditioning and heating parts, engine cooling system parts, power window accessories and windshield washer system parts. 79 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The accounting policies of each segment are the same as those described in the summary of significant accounting policies (see Note 1). The following tables contain financial information for each reportable segment (in thousands): Year Ended December 31, 2020 2019 2018 Net sales (a): Engine Management $ 835,685 $ 849,161 $ 803,487 Temperature Control 281,954 278,355 278,456 Other 10,949 10,397 10,108 Total net sales $ 1,128,588 $ 1,137,913 $ 1,092,051 Intersegment sales (a) : Engine Management $ 15,952 $ 19,569 $ 23,367 Temperature Control 6,162 6,545 8,160 Other ( 22,114 ) ( 26,114 ) ( 31,527 ) Total intersegment sales $ — $ — $ — Depreciation and Amortization: Engine Management $ 20,417 $ 19,463 $ 17,858 Temperature Control 4,035 4,568 4,704 Other 1,871 1,778 1,542 Total depreciation and amortization $ 26,323 $ 25,809 $ 24,104 Operating income (loss) : Engine Management $ 111,217 $ 103,808 $ 84,844 Temperature Control 21,296 13,667 14,586 Other ( 23,618 ) ( 22,980 ) ( 18,162 ) Total operating income $ 108,895 $ 94,495 $ 81,268 Investment in unconsolidated affiliates: Engine Management $ 2,428 $ 2,243 $ 2,158 Temperature Control 38,079 36,615 30,311 Other — — — Total investment in unconsolidated affiliates $ 40,507 $ 38,858 $ 32,469 Capital expenditures : Engine Management $ 13,496 $ 12,593 $ 11,435 Temperature Control 1,988 2,273 7,245 Other 2,336 1,319 1,461 Total capital expenditures $ 17,820 $ 16,185 $ 20,141 Total assets : Engine Management $ 618,210 $ 594,953 $ 532,092 Temperature Control 230,111 216,591 202,411 Other 108,219 92,310 84,613 Total assets $ 956,540 $ 903,854 $ 819,116 (a) Segment net sales include intersegment sales in our Engine Management and Temperature Control segments. Other consists of the elimination of intersegment sales from our Engine Management and Temperature Control segments, as well as items pertaining to our Canadian business unit that does not meet the criteria of a reportable operating segment and our corporate headquarters function. 80 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Reconciliation of segment operating income to net earnings: Year Ended December 31, 2020 2019 2018 (In thousands) Operating income $ 108,895 $ 94,495 $ 81,268 Other non-operating income (expense), net 812 2,587 ( 411 ) Interest expense 2,328 5,286 4,026 Earnings from continuing operations before taxes 107,379 91,796 76,831 Income tax expense 26,962 22,745 19,977 Earnings from continuing operations 80,417 69,051 56,854 Discontinued operations, net of tax ( 23,024 ) ( 11,134 ) ( 13,851 ) Net earnings $ 57,393 $ 57,917 $ 43,003 December 31, 2020 2019 2018 Long-lived assets (a) : (In thousands) United States $ 241,053 $ 253,384 $ 198,494 Canada 4,470 4,659 2,718 Mexico 10,586 12,036 4,012 Asia 40,621 38,942 32,470 Europe 16,504 17,004 16,880 Total long-lived assets $ 313,234 $ 326,025 $ 254,574 (a) Long-lived assets are attributed to countries based upon the location of the assets. Our five largest individual customers accounted for approximately 68 % of our consolidated net sales in 2020, approximately 69 % of our consolidated net sales in 2019 and approximately 70 % of our consolidated net sales in 2018. During 2020, O’Reilly, NAPA, Advance and AutoZone accounted for 26 %, 15 %, 14 % and 11 % of our consolidated net sales, respectively. Net sales from each of the customers were reported in both our Engine Management and Temperature Control Segments. The loss of one or more of these customers or, a significant reduction in purchases of our products from any one of them, could have a materially adverse impact on our business, financial condition and results of operations. In December 2020, a large retail customer informed us of its decision to pursue a private brand strategy for its engine management product line. This customer has historically purchased $ 140 million of engine management products annually from us. We anticipate that sales to this customer will continue through the first quarter of 2021. In light of this development, we plan to take the necessary steps to reduce costs. For the disaggregation of our net sales from contracts with customers by geographic area, major product group and major sales channels for each of our segments, see Note 20, “Net Sales.” 81 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 20. Net Sales Disaggregation of Net Sales We disaggregate our net sales from contracts with customers by geographic area, major product group, and major sales channels for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our net sales are affected by economic factors. The following tables provide disaggregation of net sales information for the years ended December 31, 2020, 2019 and 2018 (in thousands): Year Ended December 31, 2020 (a) Engine Management Temperature Control Other (b) Total Geographic Area: United States $ 738,521 $ 268,680 $ — $ 1,007,201 Canada 25,842 11,679 10,949 48,470 Mexico 19,336 271 — 19,607 Asia 35,079 165 — 35,244 Europe 12,255 351 — 12,606 Other foreign 4,652 808 — 5,460 Total $ 835,685 $ 281,954 $ 10,949 $ 1,128,588 Major Product Group: Ignition, emission control, fuel and safety related system products $ 691,722 $ — $ 8,172 $ 699,894 Wire and cable 143,963 — 159 144,122 Compressors — 163,071 812 163,883 Other climate control parts — 118,883 1,806 120,689 Total $ 835,685 $ 281,954 $ 10,949 $ 1,128,588 Major Sales Channel: Aftermarket $ 682,874 $ 255,716 $ 10,949 $ 949,539 OE/OES 133,942 25,070 — 159,012 Export 18,869 1,168 — 20,037 Total $ 835,685 $ 281,954 $ 10,949 $ 1,128,588 Year Ended December 31, 2019 (a) Engine Management Temperature Control Other (b) Total Geographic Area: United States $ 760,134 $ 263,769 $ — $ 1,023,903 Canada 27,439 12,322 10,397 50,158 Mexico 19,330 705 — 20,035 Asia 24,838 130 — 24,968 Europe 13,341 534 — 13,875 Other foreign 4,079 895 — 4,974 Total $ 849,161 $ 278,355 $ 10,397 $ 1,137,913 Major Product Group: Ignition, emission control, fuel and safety related system products $ 705,994 $ — $ 6,381 $ 712,375 Wire and cable 143,167 — 477 143,644 Compressors — 160,485 1,338 161,823 Other climate control parts — 117,870 2,201 120,071 Total $ 849,161 $ 278,355 $ 10,397 $ 1,137,913 Major Sales Channel: Aftermarket $ 702,872 $ 248,420 $ 10,397 $ 961,689 OE/OES 124,665 27,915 — 152,580 Export 21,624 2,020 — 23,644 Total $ 849,161 $ 278,355 $ 10,397 $ 1,137,913 82 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Year Ended December 31, 2018 (a) Engine Management Temperature Control Other (b) Total Geographic Area: United States $ 714,402 $ 261,628 $ — $ 976,030 Canada 33,475 13,877 10,108 57,460 Mexico 19,397 817 — 20,214 Asia 17,869 279 — 18,148 Europe 13,054 630 — 13,684 Other foreign 5,290 1,225 — 6,515 Total $ 803,487 $ 278,456 $ 10,108 $ 1,092,051 Major Product Group: Ignition, emission control, fuel and safety related system products $ 648,270 $ — $ 5,829 $ 654,099 Wire and cable 155,217 — 454 155,671 Compressors — 148,416 1,853 150,269 Other climate control parts — 130,040 1,972 132,012 Total $ 803,487 $ 278,456 $ 10,108 $ 1,092,051 Major Sales Channel: Aftermarket $ 684,242 $ 246,112 $ 10,108 $ 940,462 OE/OES 97,205 30,275 — 127,480 Export 22,040 2,069 — 24,109 Total $ 803,487 $ 278,456 $ 10,108 $ 1,092,051 (a) Segment net sales include intersegment sales in our Engine Management and Temperature Control segments . (b) Other consists of the elimination of intersegment sales from our Engine Management and Temperature Control segments as well as sales from our Canadian business unit that does not meet the criteria of a reportable operating segment. Geographic Area We sell our line of products primarily in the United States, with additional sales in Canada, Mexico, Europe, Asia and Latin America. Sales are attributed to countries based upon the location of the customer. Our sales are substantially denominated in U.S. dollars. Major Product Group The Engine Management segment of the Company principally generates revenue from the sale of automotive engine replacement parts including ignition, emission control, fuel and safety related system products, and wire and cable parts. The Temperature Control segment of the Company principally generates revenue from the sale of automotive temperature control systems replacement parts including air conditioning compressors and other climate control parts. Major Sales Channel In the aftermarket channel, we sell our products to warehouse distributors and retailers. Our customers buy directly from us and sell directly to jobber stores, professional technicians and to “do-it-yourselfers” who perform automotive repairs on their personal vehicles. In the Original Equipment (“OE”) and Original Equipment Service (“OES”) channel, we sell our products to original equipment manufacturers who redistribute our products within their distribution network, independent dealerships and service dealer technicians. Lastly, in the Export channel, our domestic entities sell to customers outside the United States. 83 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 21. Commitments and Contingencies Total rent expense for the three years ended December 31, 2020 was as follows (in thousands): Total Real Estate Other 2020 (1) $ 11,669 $ 8,290 $ 3,379 2019 (1) 11,382 7,909 3,473 2018 12,605 9,272 3,333 (1) In cludes expenses of approximately $ 2.5 million and $ 2.4 million for the years ended December 31, 2020 and 2019 , respectively, related to non-lease components such as maintenance, property taxes, etc., and operating lease expense for leases with an initial term of 12 months or less, which is no t material. For our operating lease minimal rental payments that we are obligated to make, see Note 7, “Leases.” Warranties We generally warrant our products against certain manufacturing and other defects. These product warranties are provided for specific periods of time depending on the nature of the product. As of December 31, 2020 and 2019, we have accrued $ 17.7 million and $ 17.2 million, respectively, for estimated product warranty claims included in accrued customer returns. The accrued product warranty costs are based primarily on historical experience of actual warranty claims. Warranty expense for each of the years 2020, 2019 and 2018 were $ 87.1 million, $ 99.3 million and $ 85.9 million, respectively. The following table provides the changes in our product warranties: December 31, 2020 2019 (In thousands) Balance, beginning of period $ 17,175 $ 16,663 Liabilities accrued for current year sales 87,116 99,304 Settlements of warranty claims ( 86,628 ) ( 98,792 ) Balance, end of period $ 17,663 $ 17,175 Letters of Credit At December 31, 2020, we had outstanding letters of credit with certain vendors aggregating approximately $ 2.8 million. These letters of credit are being maintained as security for reimbursements to insurance companies and as security to the landlord of our administrative offices in Long Island City, New York. The contract amount of the letters of credit is a reasonable estimate of their value as the value for each is fixed over the life of the commitment. 84 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Change of Control Arrangements We have a change in control arrangement with one key officer. In the event of a change of control (as defined in the agreement), the executive will receive severance payments and certain other benefits as provided in his agreement. Asbestos I n 1986 , we acquired a brake business, which we subsequently sold in March 1998 and which is accounted for as a discontinued operation in the accompanying statement of operations. When we originally acquired this brake business, we assumed future liabilities relating to any alleged exposure to asbestos-containing products manufactured by the seller of the acquired brake business. In accordance with the related purchase agreement, we agreed to assume the liabilities for all new claims filed on or after September 2001 . Our ultimate exposure will depend upon the number of claims filed against us on or after September 2001 , and the amounts paid for settlements, awards of asbestos-related damages, and defense of such claims. At December 31, 2020 , approximately 1,560 cases were outstanding for which we may be responsible for any related liabilities. Since inception in September 2001 through December 31, 2020 , the amounts paid for settled claims and awards of asbestos-related damages, including interest, were approximately $ 48.3 million. We do not have insurance coverage for the indemnity and defense costs associated with the claims we face. In evaluating our potential asbestos-related liability, we have considered various factors including, among other things, an actuarial study of the asbestos related liabilities performed by an independent actuarial firm, our settlement amounts and whether there are any co-defendants, the jurisdiction in which lawsuits are filed, and the status and results of such claims. As is our accounting policy, we consider the advice of actuarial consultants with experience in assessing asbestos-related liabilities to estimate our potential claim liability; and perform an actuarial evaluation in the third quarter of each year and whenever events or changes in circumstances indicate that additional provisions may be necessary. The methodology used to project asbestos-related liabilities and costs in our actuarial study considered: (1) historical data available from publicly available studies; (2) an analysis of our recent claims history to estimate likely filing rates into the future; (3) an analysis of our currently pending claims; (4) an analysis of our settlements and awards of asbestos-related damages to date; and (5) an analysis of closed with pay ratios and lag patterns in order to develop average future settlement values. Based on the information contained in the actuarial study and all other available information considered by us, we have concluded that no amount within the range of settlement payments and awards of asbestos-related damages was more likely than any other and, therefore, in assessing our asbestos liability we compare the low end of the range to our recorded liability to determine if an adjustment is required. In accordance with our policy to perform an annual actuarial evaluation in the third quarter of each year, and whenever events or changes in circumstances indicate that additional provisions may be necessary, an actuarial study was performed as of August 31, 2020 . The results of the August 31, 2020 study included an estimate of our undiscounted liability for settlement payments and awards of asbestos-related damages, excluding legal costs and any potential recovery from insurance carriers, ranging from $ 58.1 million to $ 99.3 million for the period through 2065 . Based upon the results of the August 31, 2020 actuarial study, in September 2020 we increased our asbestos liability to $ 58.1 million , the low end of the range, and recorded an incremental pre-tax provision of $ 8.7 million in earnings (loss) from discontinued operations in the accompanying statement of operations. 85 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) As related to our potential asbestos-related liability as of August 31, 2020 , we were found liable for $ 7.6 million in compensatory damages as a defendant in a 2018 asbestos liability case in California. We actively pursued our right of appeal, and during the fourth quarter of 2020 , received notice that we lost the appeal. The judgment against us was for the $ 7.6 million in compensatory damages plus interest at a rate of ten percent ( 10 % ) per annum. During the fourth quarter of 2020 , we paid the compensatory damages and accrued interest. Based upon the reduction to our asbestos-related liability resulting from the payment made in the California asbestos case and fourth quarter 2020 cash settlements, in December 2020 our actuarial firm performed an updated actuarial study. The results of the updated study included an estimate of our undiscounted liability for settlement payments and awards of asbestos-related damages, excluding legal costs and any potential recovery from insurance carriers, ranging from $ 63 million to $ 99.1 million for the period through 2065 . Based upon the results of the updated actuarial study and in accordance with our practice, we increased our asbestos liability as of November 2020 to $ 63 million , the low end of the range, and recorded an additional incremental pre-tax provision of $ 17 million in earnings (loss) from discontinued operations. Future legal costs, which are expensed as incurred and reported in earnings (loss) from discontinued operations in the accompanying statement of operations, are estimated, according to the updated study, to range from $ 48.7 million to $ 95.4 million for the period through 2065 . Total operating cash outflows related to discontinued operations, which include settlements, awards of asbestos-related damages and legal costs, net of taxes, were $ 16.4 million , $ 7.6 million and $ 5.1 million for the years ended December 31, 2020, 2019 and 2018 , respectively. We plan to perform an annual actuarial evaluation during the third quarter of each year for the foreseeable future and whenever events or changes in circumstances indicate that additional provisions may be necessary. Given the uncertainties associated with projecting such matters into the future and other factors outside our control, we can give no assurance that additional provisions will not be required. We will continue to monitor events and changes in circumstances surrounding these potential liabilities in determining whether to perform additional actuarial evaluations and whether additional provisions may be necessary. At the present time, however, we do not believe that any additional provisions would be reasonably likely to have a material adverse effect on our liquidity or consolidated financial position. Other Litigation We are currently involved in various other legal claims and legal proceedings (some of which may involve substantial amounts), including claims related to commercial disputes, product liability, employment, and environmental. Although these legal claims and legal proceedings are subject to inherent uncertainties, based on our understanding and evaluation of the relevant facts and circumstances, we believe that the ultimate outcome of these matters will not, either individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations . We may at any time determine that settling any of these matters is in our best interests, which settlement may include substantial payments. Although we cannot currently predict the specific amount of any liability that may ultimately arise with respect to any of these matters, we will record provisions when the liability is considered probable and reasonably estimable. Significant judgment is required in both the determination of probability and the determination as to whether an exposure can be reasonably estimated. As additional information becomes available, we reassess our potential liability related to these matters. Such revisions of the potential liabilities could have a material adverse effect on our business, financial condition or results of operations. 86 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 22. Quarterly Financial Data (Unaudited) 2020 Quarter Ended Dec. 31 Sept. 30 June 30 Mar. 31 (In thousands, except per share amounts) Net sales $ 282,738 $ 343,609 $ 247,939 $ 254,302 Gross profit 94,154 107,748 64,358 70,395 Earnings from continuing operations 22,742 36,212 11,842 9,621 Loss from discontinued operations, net of taxes ( 13,568 ) ( 7,587 ) ( 875 ) ( 994 ) Net earnings $ 9,174 $ 28,625 $ 10,967 $ 8,627 Net earnings from continuing operations per common share: Basic $ 1.02 $ 1.62 $ 0.53 $ 0.43 Diluted $ 1.00 $ 1.59 $ 0.52 $ 0.42 Net earnings per common share: Basic $ 0.41 $ 1.28 $ 0.49 $ 0.38 Diluted $ 0.40 $ 1.26 $ 0.48 $ 0.38 2019 Quarter Ended Dec. 31 Sept. 30 June 30 Mar. 31 (In thousands, except per share amounts) Net sales $ 241,252 $ 307,723 $ 305,172 $ 283,766 Gross profit 72,844 92,088 88,905 77,963 Earnings from continuing operations 12,738 22,654 20,555 13,104 Loss from discontinued operations, net of taxes ( 1,220 ) ( 7,903 ) ( 1,123 ) ( 888 ) Net earnings $ 11,518 $ 14,751 $ 19,432 $ 12,216 Net earnings from continuing operations per common share: Basic $ 0.57 $ 1.01 $ 0.92 $ 0.58 Diluted $ 0.56 $ 1.00 $ 0.90 $ 0.57 Net earnings per common share: Basic $ 0.51 $ 0.66 $ 0.87 $ 0.54 Diluted $ 0.50 $ 0.65 $ 0.85 $ 0.53 87 Index ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.