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 44 Report of Independent Registered Public Accounting Firm—Internal Control Over Financial Reporting 45 Report of Independent Registered Public Accounting Firm—Consolidated Financial Statements 47 Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019 50 Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019 51 Consolidated Balance Sheets as of December 31, 2021 and 2020 52 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 53 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2021, 2020 and 2019 54 Notes to Consolidated Financial Statements 55 43 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, 2021. During 2021, the Company acquired Trumpet Holdings, Inc, (“Trombetta”) and Stabil Operative Group GmbH (“Stabil”), and have excluded from our assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, Trombetta’s and Stabil’s internal control over financial reporting associated with 13.8% of total assets and 3.5% of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021. 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, and after consideration of the aforementioned exclusion, we concluded that, as of December 31, 2021, 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, 2021 and has also audited the effectiveness of our internal control over financial reporting as of December 31, 2021. KPMG’s report appears on the following pages of this “Item 8. Financial Statements and Supplementary Data.” 44 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, 2021, 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, 2021, 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, 2021 and 2020, 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, 2021, and the related notes and financial statement Schedule II, Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated February 23, 2022 expressed an unqualified opinion on those consolidated financial statements. The Company acquired Trumpet Holdings, Inc. (“Trombetta”) and Stabil Operative Group GmbH, (“Stabil”) during 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, Trombetta and Stabil’s internal control over financial reporting associated with 13.8% of total assets and 3.5% of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Trombetta and Stabil. 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. 45 Index 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 23, 2022 46 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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2021, 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, 2021, 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 23, 2022 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. 47 Index Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate 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 critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 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, 2021, the accrued asbestos liability was $60.5 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 (1) the future claim filings assumption by developing an independent expectation and comparing it against the Company’s future claim filing assumption, and (2) 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. Fair value of acquisition date intangible assets As discussed in Note 2 in the consolidated financial statements, in May 2021, the Company acquired Trumpet Holdings, Inc., (“Trombetta) for a purchase price of $111.7 million. As a result of the transaction, the Company acquired certain intangible assets, including customer relationship intangible assets with an acquisition date fair value of $39.4 million. We identified the evaluation of the fair value of the acquisition date customer relationship intangible assets acquired in the Trombetta transaction as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate the key assumptions used to determine the acquisition-date fair value of the acquired customer relationship assets. The key assumptions developed by the Company included the following for which there was limited observable market information, and the calculated fair value of such assets was sensitive to possible changes to these key assumptions: • forecasted revenues attributable to existing customers • forecasted earnings before interest and taxes (EBIT) margins • customer attrition rate • discount rate. 48 Index 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 over the Company’s acquisition-date valuation process, including the controls over the development of the key assumptions listed above. We evaluated the Company’s forecasted revenues attributable to existing customers and EBIT margins by comparing these forecasted assumptions to historical information of Trombetta. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating (1) the estimated annual attrition rate by comparing it to historical data of the Company, and (2) the Company’s discount rate by comparing the rate against a discount rate range that was independently developed using publicly available market data for comparable companies. /s/ KPMG LLP We have served as the Company’s auditor since 2010. New York, New York February 23, 2022 49 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2021 2020 2019 (Dollars in thousands, except share and per share data) Net sales $ 1,298,816 $ 1,128,588 $ 1,137,913 Cost of sales 921,885 791,933 806,113 Gross profit 376,931 336,655 331,800 Selling, general and administrative expenses 247,547 224,670 234,715 Intangible asset impairment — 2,600 — Restructuring and integration expenses 392 464 2,585 Other income (expense), net 7 ( 26 ) ( 5 ) Operating income 128,999 108,895 94,495 Other non-operating income, net 3,494 812 2,587 Interest expense 2,028 2,328 5,286 Earnings from continuing operations before income taxes 130,465 107,379 91,796 Provision for income taxes 31,044 26,962 22,745 Earnings from continuing operations 99,421 80,417 69,051 Loss from discontinued operations, net of income tax benefit of $ 2,975 , $ 8,089 and $ 3,912 ( 8,467 ) ( 23,024 ) ( 11,134 ) Net earnings 90,954 57,393 57,917 Net earnings attributable to noncontrolling interest 68 — — Net earnings attributable to SMP (a) $ 90,886 $ 57,393 $ 57,917 Net earnings attributable to SMP Earnings from continuing operations $ 99,353 $ 80,417 $ 69,051 Discontinued operations ( 8,467 ) ( 23,024 ) ( 11,134 ) Total $ 90,886 $ 57,393 $ 57,917 Per share data attributable to SMP Net earnings per common share – Basic: Earnings from continuing operations $ 4.49 $ 3.59 $ 3.09 Discontinued operations ( 0.39 ) ( 1.02 ) ( 0.50 ) Net earnings per common share – Basic $ 4.10 $ 2.57 $ 2.59 Net earnings per common share – Diluted: Earnings from continuing operations $ 4.39 $ 3.52 $ 3.03 Discontinued operations ( 0.37 ) ( 1.01 ) ( 0.49 ) Net earnings per common share – Diluted $ 4.02 $ 2.51 $ 2.54 Dividend declared per share $ 1.00 $ 0.50 $ 0.92 Average number of common shares 22,147,479 22,374,123 22,378,414 Average number of common shares and dilutive common shares 22,616,456 22,825,885 22,818,451 (a) Throughout this Form 10-K, “SMP” refers to Standard Motor Products, Inc. and subsidiaries. See accompanying notes to consolidated financial statements. 50 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2021 2020 2019 (In thousands) Net earnings $ 90,954 $ 57,393 $ 57,917 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments ( 2,462 ) 2,929 1,024 Pension and postretirement plans ( 16 ) ( 16 ) ( 19 ) Total other comprehensive income (loss), net of tax ( 2,478 ) 2,913 1,005 Total comprehensive income 88,476 60,306 58,922 Comprehensive income (loss) attributable to noncontrolling interest, net of tax: Net earnings 68 — — Foreign currency translation adjustments 15 — — Comprehensive income (loss) attributable to noncontrolling interest, net of tax 83 — — Comprehensive income attributable to SMP $ 88,393 $ 60,306 $ 58,922 See accompanying notes to consolidated financial statements. 51 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2021 2020 (Dollars in thousands, except share data) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 21,755 $ 19,488 Accounts receivable, less allowances for discounts and expected credit losses of $ 6,170 and $ 5,822 in 2021 and 2020 , respectively 180,604 198,039 Inventories 468,755 345,502 Unreturned customer inventories 22,268 19,632 Prepaid expenses and other current assets 17,823 15,875 Total current assets 711,205 598,536 Property, plant and equipment, net 102,786 89,105 Operating lease right-of-use assets 40,469 29,958 Goodwill 131,652 77,837 Other intangibles, net 106,234 54,004 Deferred incomes taxes 36,126 44,770 Investments in unconsolidated affiliates 44,087 40,507 Other assets 25,402 21,823 Total assets $ 1,197,961 $ 956,540 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Notes payable $ 125,298 $ 10,000 Current portion of other debt 3,117 135 Accounts payable 137,167 100,018 Sundry payables and accrued expenses 57,182 47,078 Accrued customer returns 42,412 40,982 Accrued core liability 23,663 22,014 Accrued rebates 42,472 46,437 Payroll and commissions 45,058 35,938 Total current liabilities 476,369 302,602 Long-term debt 21 97 Noncurrent operating lease liabilities 31,206 22,450 Other accrued liabilities 25,040 25,929 Accrued asbestos liabilities 52,698 55,226 Total liabilities 585,334 406,304 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 105,377 105,084 Retained earnings 532,319 463,612 Accumulated other comprehensive income ( 8,169 ) ( 5,676 ) Treasury stock - at cost ( 1,911,792 shares and 1,586,923 shares in 2021 and 2020 , respectively) ( 75,819 ) ( 60,656 ) Total SMP stockholders’ equity 601,580 550,236 Noncontrolling interest 11,047 — Total stockholders’ equity 612,627 550,236 Total liabilities and stockholders’ equity $ 1,197,961 $ 956,540 See accompanying notes to consolidated financial statements. 52 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2021 2020 2019 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 90,954 $ 57,393 $ 57,917 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 27,243 26,323 25,809 Amortization of deferred financing cost 228 228 225 Increase (decrease) to allowance for expected credit losses 451 396 ( 295 ) Increase (decrease) to inventory reserves ( 585 ) 5,962 4,858 Intangible asset impairment — 2,600 — Equity (income) from joint ventures ( 3,295 ) ( 820 ) ( 2,865 ) Employee Stock Ownership Plan allocation 2,513 2,301 2,519 Stock-based compensation 9,479 8,101 6,917 (Increase) decrease in deferred income taxes ( 1,801 ) ( 8,334 ) 4,736 Increase in tax valuation allowance 466 864 358 Loss on discontinued operations, net of tax 8,467 23,024 11,134 Change in assets and liabilities: (Increase) decrease in accounts receivable 28,464 ( 71,933 ) 2,789 (Increase) decrease in inventories ( 107,609 ) 17,984 ( 17,901 ) Increase in prepaid expenses and other current assets ( 843 ) ( 370 ) ( 8,296 ) Increase (decrease) in accounts payable 33,046 7,428 ( 1,950 ) Increase (decrease) in sundry payables and accrued expenses 13,430 40,651 ( 2,957 ) Net changes in other assets and liabilities ( 15,044 ) ( 13,902 ) ( 6,070 ) Net cash provided by operating activities 85,564 97,896 76,928 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of and investments in businesses, net of cash acquired ( 125,419 ) — ( 43,490 ) Net proceeds from sale of Grapevine, Texas facility — — 4,801 Capital expenditures ( 25,875 ) ( 17,820 ) ( 16,185 ) Other investing activities 45 21 62 Net cash used in investing activities ( 151,249 ) ( 17,799 ) ( 54,812 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under line-of-credit agreements 115,298 ( 42,460 ) 8,771 Net borrowings (repayments) of other debt and lease obligations 3,048 ( 4,248 ) ( 911 ) Purchase of treasury stock ( 26,862 ) ( 13,482 ) ( 10,738 ) Dividends paid ( 22,179 ) ( 11,218 ) ( 20,593 ) Increase (decrease) in overdraft balances 247 ( 108 ) 93 Dividends paid to noncontrolling interest ( 540 ) — — Net cash provided by (used in) financing activities 69,012 ( 71,516 ) ( 23,378 ) Effect of exchange rate changes on cash ( 1,060 ) 535 496 Net increase (decrease) in cash and cash equivalents 2,267 9,116 ( 766 ) CASH AND CASH EQUIVALENTS at beginning of year 19,488 10,372 11,138 CASH AND CASH EQUIVALENTS at end of year $ 21,755 $ 19,488 $ 10,372 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 1,721 $ 2,187 $ 5,030 Income taxes $ 26,323 $ 24,640 $ 22,267 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, 2021, 2020 and 2019 Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total SMP Non- controlling Interest Total (In thousands) BALANCE AT DECEMBER 31, 2018 $ 47,872 $ 102,470 $ 380,113 $ ( 9,594 ) $ ( 53,660 ) $ 467,201 $ — $ 467,201 Net earnings — — 57,917 — — 57,917 — 57,917 Other comprehensive loss, net of tax — — — 1,005 — 1,005 — 1,005 Cash dividends paid ($ 0.92 per share) — — ( 20,593 ) — — ( 20,593 ) — ( 20,593 ) Purchase of treasury stock — — — — ( 10,738 ) ( 10,738 ) — ( 10,738 ) Stock-based compensation — ( 473 ) — — 7,390 6,917 — 6,917 Employee Stock Ownership Plan — 745 — — 1,774 2,519 — 2,519 BALANCE AT DECEMBER 31, 2019 47,872 102,742 417,437 ( 8,589 ) ( 55,234 ) 504,228 — 504,228 Net earnings — — 57,393 — — 57,393 — 57,393 Other comprehensive income, net of tax — — — 2,913 — 2,913 — 2,913 Cash dividends paid ($ 0.50 per share) — — ( 11,218 ) — — ( 11,218 ) — ( 11,218 ) Purchase of treasury stock — — — — ( 13,482 ) ( 13,482 ) — ( 13,482 ) Stock-based compensation — 1,712 — — 6,389 8,101 — 8,101 Employee Stock Ownership Plan — 630 — — 1,671 2,301 — 2,301 BALANCE AT DECEMBER 31, 2020 47,872 105,084 463,612 ( 5,676 ) ( 60,656 ) 550,236 — 550,236 Noncontrolling interest in business acquired — — — — — — 11,504 11,504 Net earnings — — 90,886 — — 90,886 68 90,954 Other comprehensive loss, net of tax — — — ( 2,493 ) — ( 2,493 ) 15 ( 2,478 ) Cash dividends paid ($ 1.00 per share) — — ( 22,179 ) — — ( 22,179 ) — ( 22,179 ) Purchase of treasury stock — — — — ( 26,862 ) ( 26,862 ) — ( 26,862 ) Dividends paid to noncontrolling interest — — — — — — ( 540 ) ( 540 ) Stock-based compensation — 159 — — 9,320 9,479 — 9,479 Employee Stock Ownership Plan — 134 — — 2,379 2,513 — 2,513 BALANCE AT DECEMBER 31, 2021 $ 47,872 $ 105,377 $ 532,319 $ ( 8,169 ) $ ( 75,819 ) $ 601,580 $ 11,047 $ 612,627 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,” “SMP,” or the “Company”) is a leading automotive parts manufacturer and distributor of engine management and temperature control systems of 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. In instances where we have more than a 50 % equity ownership and the minority shareholder does not maintain substantive participating rights, our consolidated financial statements include the accounts of the company on a consolidated basis with its net income and equity reported at amounts attributable to both our equity position and that of the noncontrolling interest. Investments in unconsolidated affiliates are accounted for on the equity method, as we do not have a controlling financial interest but have the ability to exercise significant influence. All significant inter-company items have been eliminated . 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 2021 presentation. Cash and Cash Equivalents We consider all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. 55 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Allowance for Expected Credit Losses 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 expected credit losses. Cash discounts are provided based on an overall average experience rate applied to qualifying accounts receivable balances. 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. The historical volatility of such estimates has been minimal. We maintain provisions for inventory reserves of $ 46.2 million and $ 49.4 million as of December 31, 2021 and 2020, 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. 56 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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. 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, developed technology and intellectual property, and non-compete agreements. Intangible assets acquired through business combinations are subject to potential adjustments within the measurement period, which is up to one year from the acquisition date. Valuing intangible assets requires the use of significant estimates and assumptions. As related to valuing customer relationships, significant estimates and assumptions used include but are not limited to: (1) forecasted revenues attributable to existing customers; (2) forecasted earnings before interest and taxes (“EBIT”) margins; (3) customer attrition rates; and (4) the discount rate. 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 believe that the fair value of acquired identifiable net assets, including intangible assets, are based upon reasonable estimates and assumptions. 57 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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. 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. 59 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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. 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. The valuation allowance of $ 2.1 million as of December 31, 2021 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 $ 36.1 million as of December 31, 2021 , 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, 2021, 2020 and 2019 , 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. 60 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Asbestos Litigation In evaluating our potential asbestos-related liability, we have considered various factors including, among other things, an actuarial study of the asbestos related liabilities performed by an independent actuarial firm, our settlement amounts and whether there are any co-defendants, the jurisdiction in which lawsuits are filed, and the status and results of such claims. As is our accounting policy, we consider the advice of actuarial consultants with experience in assessing asbestos-related liabilities to estimate our potential claim liability; and perform an actuarial evaluation in the third quarter of each year and whenever events or changes in circumstances indicate that additional provisions may be necessary. The methodology used to project asbestos-related liabilities and costs in our actuarial study considered: (1) historical data available from publicly available studies; (2) an analysis of our recent claims history to estimate likely filing rates into the future; (3) an analysis of our currently pending claims; (4) an analysis of our settlements and awards of asbestos-related damages to date; and (5) an analysis of closed claims with pay ratios and lag patterns in order to develop average future settlement values. Based on the information contained in the actuarial study and all other available information considered by us, we have concluded that no amount within the range of settlement payments and awards of asbestos-related damages was more likely than any other and, therefore, in assessing our asbestos liability we compare the low end of the range to our recorded liability to determine if an adjustment is required. Future legal costs are expensed as incurred and reported in earnings (loss) from discontinued operations in the accompanying statement of operations. 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, which will reported in earnings (loss) from discontinued operations in the accompanying statement of operations. 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. 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. 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 three 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 three largest customers and our concentration 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, 2021 and 2020 were uninsured. Foreign cash balances at December 31, 2021 and 2020 were $ 16.8 million and $ 16.4 million , respectively. 61 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Recently Issued Accounting Pronouncements Standards that were adopted Standard Description Date of adoption 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 The adoption of the technical clarifications in the standard did not materially impact our accounting for income taxes, our consolidated financial statements and related disclosures. Standards that are not yet adopted as of December 31, 2021 The following table provides a brief description of recently issued accounting pronouncements that have not yet been adopted as of December 31, 2021 , 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 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 2021 Business Acquisitions Acquisition of Capital Stock of Stabil Operative Group GmbH (“Stabil”) In September 2021, we acquired 100 % of the capital stock of Stabil Operative Group GmbH, a German company (“Stabil”), for Euros 13.7 million, or $ 16.3 million, subject to certain post-closing adjustments. Stabil is a manufacturer and distributor of a variety of components, including electronic sensors, control units, and clamping devices to the European Original Equipment (“OE”) market, serving both commercial and light vehicle applications. The acquired Stabil business was paid for with cash funded by borrowings under our revolving credit facility with JPMorgan Chase Bank, N.A., as agent, and is headquartered on the outskirts of Stuttgart, Germany with facilities in Germany and Hungary. The acquisition, to be reported as part of our Engine Management Segment, aligns with our strategy of expansion beyond our core aftermarket business into complementary areas, and gives us exposure to a diversified group of blue chip European commercial and light vehicle OE customers. The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values, subject to final agreement of post-closing adjustments, which we do anticipate will be significant (in thousands): Purchase price $ 16,290 Assets acquired and liabilities assumed: Receivables $ 2,852 Inventory 5,126 Other current assets (1) 1,628 Property, plant and equipment, net 1,810 Operating lease right-of-use assets 4,971 Intangible assets 5,471 Goodwill 4,827 Current liabilities ( 4,190 ) Noncurrent operating lease liabilities ( 4,454 ) Deferred income taxes ( 1,751 ) Net assets acquired $ 16,290 (1) The other current assets balance includes $ 0.9 million of cash acquired. Intangible assets acquired of $ 5.5 million consist of customer relationships that will be amortized on a straight-line basis over the estimated useful life of 20 years . Goodwill of $4.8 million was allocated to the Engine Management Segment. The goodwill reflects relationships, business specific knowledge and the replacement cost of an assembled workforce associated with personal reputations. The intangible assets and goodwill are not deductible for tax purposes. Revenues from the acquired business included in our consolidated statement of operations from the acquisition date through December 31, 2021 were $ 7.2 million. Acquisition of Capital Stock of Trumpet Holdings, Inc. (“Trombetta”) In May 2021, we acquired 100 % of the capital stock of Trumpet Holdings, Inc., a Delaware corporation, (more commonly known as “Trombetta”), for $ 111.7 million, subject to certain post-closing adjustments. In December 2021, the post-closing adjustments were finalized at approximately $ 30,000 , thereby reducing the purchase price. Trombetta is a leading provider of power switching and power management products to Original Equipment (“OE”) customers in various markets. The acquired Trombetta business was paid for in cash funded by borrowings under our revolving credit facility with JPMorgan Chase Bank, N.A., as agent, and has manufacturing facilities in Milwaukee, Wisconsin; Sheboygan Falls, Wisconsin; Tijuana, Mexico, as well as a 70 % ownership in a joint venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”). The acquisition, to be reported as part of our Engine Management Segment, aligns with our strategy of expansion into the OE heavy duty market. 63 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values, subject to finalization of amounts related to deferred income taxes, which we do not anticipate will be significant (in thousands): Purchase price $ 111,711 Assets acquired and liabilities assumed: Receivables $ 9,173 Inventory 12,460 Other current assets (1) 5,193 Property, plant and equipment, net 4,939 Operating lease right-of-use assets 3,847 Intangible assets 54,700 Goodwill 49,250 Current liabilities ( 5,072 ) Noncurrent operating lease liabilities ( 3,065 ) Deferred income taxes ( 8,210 ) Subtotal 123,215 Fair value of acquired noncontrolling interest ( 11,504 ) Net assets acquired $ 111,711 (1) The other current assets balance includes $ 4.6 million of cash acquired. Intangible assets acquired of $ 54.7 million consist of customer relationships of $ 39.4 million that will be amortized on a straight-line basis over the estimated useful life of 20 years ; developed technology of $ 13.4 million that will be amortized on a straight-line basis over the estimated useful life of 15 years ; and a trade name of $ 1.9 million that will be amortized on a straight-line basis over the estimated useful life of 10 years . Goodwill of $ 49.3 million was allocated to the Engine Management Segment. The goodwill reflects relationships, business specific knowledge and the replacement cost of an assembled workforce associated with personal reputations. The intangible assets and goodwill are not deductible for tax purposes. Revenues from the acquired business included in our consolidated statement of operations from the acquisition date through December 31, 2021 were $ 37.8 million. Acquisition of Particulate Matter Sensor Business of Stoneridge, Inc. (“Soot Sensor”) In March 2021, we agreed to acquire certain Soot Sensor product lines from Stoneridge, Inc. The product lines to be acquired manufacture sensors used in the exhaust and emission systems of diesel engines. The product lines acquired were located in Stoneridge’s facilities in Lexington, Ohio and Tallinn, Estonia. We are not acquiring these facilities, nor any of Stoneridge’s employees, and will be relocating the production lines to our engine management plants in Independence, Kansas and Bialystok, Poland, respectively. The acquisition, to be reported as part of our Engine Management Segment, aligns with our strategy of expansion into the OE heavy duty market. Customer relationships to be acquired include Volvo, CNHi and Hino. The product lines located in Stoneridge’s facility in Lexington, Ohio were acquired in March 2021 for $ 2.1 million, while the product lines located in Stoneridge’s facility in Tallinn, Estonia were acquired in November 2021 for $ 0.8 million. The acquired product lines were paid for with cash funded by borrowings under our revolving credit facility with JPMorgan Chase Bank, N.A. The assets acquired include inventory, machinery & equipment and certain intangible assets. 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 $ 2,924 Assets acquired and liabilities assumed: Inventory $ 1,032 Machinery and equipment, net 1,137 Intangible assets 755 Net assets acquired $ 2,924 Intangible assets acquired of approximately $ 0.8 million consist of customer relationships that will be amortized on a straight-line basis over the estimated useful life of 10 years . Revenues from the acquired business included in our consolidated statement of operations from the acquisition date through December 31, 2021 were $ 9.3 million. 64 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, 2021 and 2020, consisted of the following (in thousands): Workforce Reduction Other Exit Costs Total 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 Restructuring and integration costs: Amounts provided for during 2021 — 392 392 Cash payments ( 100 ) ( 392 ) ( 492 ) Exit activity liability at December 31 , 2021 $ 79 $ — $ 79 (1) Included in restructuring and integration costs in 2020 is a $ 0.3 million increase 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. Integration Costs Particulate Matter Senso r (“Soot Sensor”) Product Line Relocation In connection with our acquisitions in March 2021 and November 2021 of certain soot sensor product lines from Stoneridge, Inc., we incurred certain integration expenses in connection with the relocation of certain inventory, machinery, and equip ment from Stoneridge’s facilities in Lexington, Ohio and Tallinn, Estonia to our existing facilities in Independence, Kansas and Bialystok, Poland, respectively. Integration expenses recognized and cash payments made of $ 392 ,000, during the year ended December 31, 2021, related to these relocation activities in our Engine Management segment. Total relocation expenses of approximately $ 600 ,000 are expected to be incurred related to the relocations. We anticipate that the soot sensor product line relocation will be completed by the end of the second quarter of 2022. 65 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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. Restructuring Costs Plant Rationalization Programs The 2016 Plant Rationalization Program, which included the shutdown and sale of our Grapevine, Texas facility, and the 2017 Orlando Rationalization Program, which included the shutdown of our Orlando, Florida facility, have been substantially completed. Cash payments made of $ 100 ,000 and $ 157 ,000 during the years ended December 31, 2021 and 2020, respectively, and the remaining aggregate liability related to the programs as of December 31, 2021 of $ 79 ,000 consists of severance payments to former employees terminated in connection with these programs. 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 $ 818.8 million and $ 695.1 million of receivables for the years ended December 31, 2021 and 2020, respectively. Receivables presented at financial institutions and not yet collected as of December 31, 2021 and December 31, 2020 were approximately $ 1.3 million and $ 50 million, respectively, and remained in our accounts receivable balance for those periods. All receivables sold were reflected as a reduction of accounts receivable in the consolidated balance sheet at the time of sale. A charge in the amount of $ 11.5 million, $ 12.2 million and $ 22 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, 2021, 2020 and 2019, 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. 66 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Inventories December 31, 2021 December 31, 2020 (In thousands) Finished goods $ 296,739 $ 225,523 Work-in-process 16,010 10,711 Raw materials 156,006 109,268 Subtotal 468,755 345,502 Unreturned customer inventories 22,268 19,632 Total inventories $ 491,023 $ 365,134 6. Property, Plant and Equipment December 31, 2021 2020 (In thousands) Land, buildings and improvements $ 40,882 $ 38,833 Machinery and equipment 159,967 148,578 Tools, dies and auxiliary equipment 63,944 60,102 Furniture and fixtures 30,688 30,347 Leasehold improvements 14,081 11,948 Construction-in-progress 21,012 13,691 Total property, plant and equipment 330,574 303,499 Less accumulated depreciation 227,788 214,394 Total property, plant and equipment, net $ 102,786 $ 89,105 Depreciation expense was $ 18.2 million in 2021, $ 17.8 million in 2020 and $ 17.4 million in 2019. 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. 67 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following tables provide quantitative disclosures related to our operating leases and includes all operating leases acquired in the Stabil and Trombetta acquisitions from the date of the acquisition (in thousands) : December 31, Balance Sheet Information 2021 2020 Assets Operating lease right-of-use assets $ 40,469 $ 29,958 Liabilities Sundry payables and accrued expenses $ 10,544 $ 8,719 Noncurrent operating lease liabilities 31,206 22,450 Total operating lease liabilities $ 41,750 $ 31,169 Weighted Average Remaining Lease Term Operating leases 5.3 Years 5 Years Weighted Average Discount Rate Operating leases 3 % 3.6 % Year Ended, December 31, Expense and Cash Flow Information 2021 2020 Lease Expense Operating lease expense (a) $ 10,051 $ 9,203 Supplemental Cash Flow Information Cash Paid for the amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 9,985 $ 9,087 Right-of-use assets obtained in exchange for new lease obligations: Operating leases (b) $ 20,975 $ 3,180 (a) Excludes expenses of approximately $ 2 million and $ 2.5 million for the years ended December 31, 2021 and 2020, 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. (b) Includes $ 8.8 million of right-of-use assets obtained in business acquisitions during the year ended December 31, 2021. Minimum Lease Payments At December 31, 2021, we are obligated to make minimum lease payments through 2031, under operating leases, which are as follows (in thousands): 2022 $ 10,707 2023 9,537 2024 7,165 2025 5,860 2026 5,109 Thereafter 6,562 Total lease payments $ 44,940 Less: Interest ( 3,190 ) Present value of lease liabilities $ 41,750 68 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, 2021. 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. As of December 31, 2021, we performed a qualitative assessment of the likelihood of a goodwill impairment for both the Engine Management and Temperature Control reporting units. Based upon our qualitative assessment, we determined that it was not more likely than not that the fair value of the each of the Engine Management and Temperature Control reporting units was less than their respective carrying amounts. As such, we concluded that the quantitative impairment test would not be required, and that there would be no required goodwill impairment charge as of December 31, 2021 at each of the Engine Management and Temperature Control reporting units. While we concluded that we did not have a goodwill impairment charge as of December 31, 2021, and we do not believe that future impairments are probable, we will need to maintain the current ongoing performance levels at each of the Engine Management and Temperature Control reporting units in future periods to sustain their goodwill carrying values. Changes in the carrying values of goodwill by operating segment during the years ended December 31, 2021 and 2020 are as follows (in thousands): Engine Management Temperature Control Total 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 Activity in 2021 Acquisition of Trombetta 49,250 — 49,250 Acquisition of Stabil 4,827 — 4,827 Foreign currency exchange rate change ( 262 ) — ( 262 ) Balance as of December 31 , 2021 : Goodwill 155,870 14,270 170,140 Accumulated impairment losses ( 38,488 ) — ( 38,488 ) $ 117,382 $ 14,270 $ 131,652 69 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Acquired Intangible Assets Acquired identifiable intangible assets as of December 31, 2021 and 2020 consist of: December 31, 2021 2020 (In thousands) Customer relationships $ 157,020 $ 111,701 Patents, developed technology and intellectual property 14,123 723 Trademarks and trade names 8,880 6,980 Non-compete agreements 3,280 3,272 Supply agreements 800 800 Leaseholds 160 160 Total acquired intangible assets 184,263 123,636 Less accumulated amortization (1) ( 78,932 ) ( 70,221 ) Net acquired intangible assets $ 105,331 $ 53,415 (1) Applies to all intangible assets, except for a related trademark/trade name totaling $ 2.6 million, which has an indefinite useful life and, as such, is 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, revenues sold under the BWD trademark were significantly reduced. In connection with the decision, in 2020, we recorded an impairment charge of $ 2.6 million to write-off the BWD intangible asset trademark. Total amortization expense for acquired intangible assets was $ 8.7 million for the year ended December 31, 2021, $ 8.2 million for the year ended December 31, 2020, and $ 8 million for the year ended December 31, 2019. Based on the current estimated useful lives assigned to our intangible assets, amortization expense is estimated to be $ 8.5 million for 2022, $ 8.4 million in 2023, $ 8.2 million in 2024, $ 8.2 million in 2025 and $ 69.4 million in the aggregate for the years 2026 through 2041. For information related to identified intangible assets acquired in the Stabil, Trombetta, and Soot Sensor acquisitions, see Note 2, “Business Acquisitions and Investments,” of the notes to our consolidated financial statements. Other Intangible Assets Other intangible assets include computer software. Computer software as of December 31, 2021 and 2020 totaled $ 17.4 million and $ 17 million , respectively . Total accumulated computer software amortization as of December 31, 2021 and 2020 was $ 16.5 million and $ 16.4 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, $ 0.3 million and $ 0.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. Fully amortized computer software, no longer in use, of $ 0.2 million was written-off during each of the years ended December 31, 2021 and 2020. 9. Investments in Unconsolidated Affiliates December 31, 2021 2020 (In thousands) Foshan GWOYNG SMP Vehicle Climate Control & Cooling Products Co. Ltd. $ 20,692 $ 18,869 Foshan FGD SMP Automotive Compressor Co. Ltd 16,676 15,036 Foshan Che Yijia New Energy Technology Co., Ltd. 3,990 4,174 Orange Electronic Co. Ltd 2,729 2,428 Total $ 44,087 $ 40,507 70 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 . 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. In December 2021, Standard Motor Products (Hong Kong), Ltd., (“SMP HK”), a subsidiary of Standard Motor Products, Inc., entered into an unsecured loan agreement with CYJ. Under the terms of the loan agreement, CYJ shall have the right to borrow from SMP HK, as lender, up to an aggregate principal amount of $ 4 million, with interest calculated on the basis of simple interest of five percent ( 5 %) per annum and a maturity date of November 30, 2023 , subject to extension by SMP HK at its sole discretion. At December 31, 2021, there was no outstanding borrowings under the loan agreement. During the years ended December 31, 2021 and 2020, purchases we made from CYJ were not material. 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. 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, 2021 and 2020, we made purchases from the joint venture of approximately $ 32.2 million and $ 17.4 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 %. Although we increased our equity interest in the joint venture to 65 %, the minority shareholder maintained participating rights that allowed it to participate in certain significant financial and operating decisions that occur in the ordinary course of business. As a result of the existence of these substantive participating rights of the minority shareholder, we continued to account for our investment in the joint venture under the equity method of accounting. During the years ended December 31, 2021 and 2020, we made purchases from the joint venture of approximately $ 15.9 million and $ 12.4 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, 2021, 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 years ended December 31, 2021 and 2020, we made purchases from Orange of approximately $ 7.8 million and $ 4.4 million, respectively. 71 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. Other Assets December 31, 2021 2020 (In thousands) Deferred compensation $ 23,623 $ 20,775 Deferred financing costs, net 206 431 Other 1,573 617 Total other assets, net $ 25,402 $ 21,823 Deferred compensation consists of assets held in a nonqualified defined contribution pension plan as of December 31, 2021 and 2020, respectively. 11. Credit Facilities and Long-Term Debt Total debt outstanding is summarized as follows: December 31, 2021 2020 (In thousands) Revolving credit facilities $ 125,298 $ 10,000 Other (1) 3,138 232 Total debt $ 128,436 $ 10,232 Current maturities of debt $ 128,415 $ 10,135 Long-term debt 21 97 Total debt $ 128,436 $ 10,232 (1) Other includes borrowings under our Polish overdraft facility of Zloty 12.3 million (approximately $ 3 million) and Zloty 0.4 million (approximately $ 0.1 million) as of December 31, 2021 and 2020, respectively. Maturities of long-term debt are not material for the year ended December 31, 2021 and beyond. Revolving Credit Facility We have entered into an amended 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 $ 122.1 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. 72 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 $ 125.3 million and $ 10 million at December 31, 2021 and 2020, respectively ; while letters of credit outstanding under the credit agreement were $ 2.6 million and $ 2.8 million at December 31, 2021 and 2020, 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, 2021, the weighted average interest rate on our amended credit agreement was 1.4 % , which consisted of $ 125 million in direct borrowings at 1.4 % and an alternative base rate loan of $ 0.3 million at 3.5 %. 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. Our average daily alternative base rate loan balance was $ 1.1 million and $ 1.5 million during 2021 and 2020, 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, 2021, 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 In February 2022, our Polish subsidiary, SMP Poland sp. z.o.o., amended its an overdraft facility with HSBC Continental Europe (Spolka Akcyjna) Oddzial w Polsce, formerly HSBC France (Spolka Akcyjna) Oddzial w Polsce. The amended overdraft facility provides for borrowings of up to Zloty 30 million (approximately $ 8 million). Availability under the amended facility commences in March 2022 and ends in June 2022 , with automatic three-month renewals until June 2027, subject to cancellation by either party, at its sole discretion, at least 30 days prior to the commencement of the three-month renewal period. Borrowings under the 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, 2021 and 2020, borrowings under the overdraft facility were Zloty 12.3 million (approximately $ 3 million) and Zloty 0.4 million (approximately $ 0.1 million), respectively. Deferred Financing Costs We have deferred financing costs of approximately $ 0.4 million and $ 0.7 million as of December 31, 2021 and 2020, respectively. Deferred financing costs as of December 31, 2021 are related to our revolving credit facility. Scheduled amortization for future years, assuming no prepayments of principal is as follows: (In thousands) 2022 225 2023 206 Total amortization $ 431 73 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, 2021 and 2020. In March 2020, our Board of Directors authorized the purchase of up to $ 20 million of our common stock under a stock repurchase program. Stock repurchases under this program, during the years ended December 31, 2021 and 2020, were 150,273 and 323,867 shares of our common stock, respectively, at a total cost of $ 6.5 million and $ 13.5 million, respectively, thereby completing the 2020 Board of Directors authorization. In February 2021, our Board of Directors authorized the purchase of up to an additional $ 20 million of our common stock under a stock repurchase program. Stock repurchases under this program, during the year ended December 31, 2021, were 464,992 shares of our common stock at a total cost of $ 20 million, thereby completing the 2021 Board of Directors authorization. In October 2021, our Board of Directors authorized the purchase of up to an additional $ 30 million of our common stock under a stock repurchase program. Stock will be purchased under the program from time to time, in the open market or through private transactions, as market conditions warrant. Stock repurchases under this program, during the year ended December 31, 2021, were 7,000 shares of our common stock, at a total cost of $ 0.3 million. As of December 31, 2021, there was approximately $ 29.7 million available for future stock purchases under the program. During the period from January 1, 2022 through February 17, 2022, we have repurchased an additional 64,482 shares of our common stock at a total cost of $ 3.1 million, thereby reducing the availability under the program to $ 26.6 million. 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. In May 2021, our Board of Directors and Shareholders approved an amendment and restatement to the 2016 Omnibus Incentive Plan (the “Plan”). Under the 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 2,050,000 shares; and shares of restricted and performance-based stock to nonemployee directors of up to 350,000 shares. Shares issued under the Plan that are cancelled, forfeited or expire by their terms are eligible to be granted again under the 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. 74 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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 do 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 amended and restated 2016 Omnibus Incentive Plan, 2,050,000 shares are authorized to be issued. At December 31, 2021, under the plan, there were an aggregate of (a) 1,121,445 shares of restricted and performance-based stock grants issued, net of forfeitures, and (b) 928,555 shares of common stock available for future grants. For the year ended December 31, 2021, 211,815 restricted and performance-based shares were granted ( 159,565 restricted shares and 52,250 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 $9.1 million ($6.9 million, net of tax), $7.8 million ($5.8 million, net of tax) and $6.5 million ($4.9 million, net of tax), for the years ended December 31, 2021, 2020 and 2019, respectively. The unamortized compensation expense related to our restricted and performance-based shares was $ 16.6 million and $ 15.2 million at December 31, 2021 and 2020, respectively and is expected to be recognized over a weighted average period of 4.7 years and 0.4 years for employees and directors, respectively, as of December 31, 2021 and over a weighted average period of 4.6 years and 0.3 years for employees and directors, respectively, as of December 31, 2020. 75 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, 2021 and 2020: Shares Weighted Average Grant Date Fair Value per Share 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 Granted 211,815 38.51 Vested ( 227,682 ) 36.10 Forfeited ( 16,800 ) 39.39 Balance at December 31 , 2021 807,019 $ 34.92 (1) Due to the lack of achievement of performance targets, performance-based shares forfeited in the year ended December 31, 2020 were 50,250 shares. The weighted-average grant date fair value of restricted and performance-based shares outstanding as of December 31, 2021, 2020 and 2019 was $ 28.2 million (or $ 34.92 per share), $ 29.2 million (or $ 34.77 per share), and $ 30.1 million (or $ 35.26 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, 2021 $ 9,763 2020 9,457 2019 9,080 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 2021 and 2020, contributions of $ 0.5 million and $ 0.3 million were made related to calendar year 2020 and 2019, respectively. As of December 31, 2021, we have recorded an obligation of $ 0.8 million for 2021. 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 2021, we contributed to the trust an additional 61,800 shares from our treasury and released 61,800 shares from the trust leaving 200 shares remaining in the trust as of December 31, 2021. The provision for expense in connection with the ESOP was approximately $ 2.5 million in 2021, $ 2.3 million in 2020 and $ 2.5 million in 2019. 76 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, 2021 and 2020 and we recorded no expense related to the plan during the years ended December 31, 2021, 2020 and 2019. Postretirement Medical Benefits We provide certain medical and dental care benefits to 14 former U.S. union employees. The postretirement medical and dental benefit obligation for the former union employees as of December 31, 2021, and the net periodic benefit cost for our postretirement benefit plans for the years ended December 31, 2021, 2020 and 2019 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, 2021 2020 2019 (In thousands) Interest and dividend income $ 49 $ 109 $ 97 Equity income from joint ventures 3,295 820 2,865 Loss on foreign exchange ( 257 ) ( 350 ) ( 502 ) Other non-operating income, net 407 233 127 Total other non-operating income, net $ 3,494 $ 812 $ 2,587 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. 77 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, 2021 2020 2019 Current: Domestic $ 26,528 $ 30,368 $ 14,632 Foreign 5,851 4,064 3,019 Total current 32,379 34,432 17,651 Deferred: Domestic ( 1,161 ) ( 7,418 ) 4,677 Foreign ( 174 ) ( 52 ) 417 Total deferred ( 1,335 ) ( 7,470 ) 5,094 Total income tax provision $ 31,044 $ 26,962 $ 22,745 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, 2021 2020 2019 U.S. Federal income tax rate of 21 % $ 27,398 $ 22,550 $ 19,277 Increase (decrease) in tax rate resulting from: State and local income taxes, net of federal income tax benefit 4,579 3,781 3,328 Income tax (tax benefit) attributable to foreign income ( 122 ) 330 191 Other non-deductible items, net ( 1,277 ) ( 563 ) ( 409 ) Change in valuation allowance 466 864 358 Provision for income taxes $ 31,044 $ 26,962 $ 22,745 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, 2021 2020 Deferred tax assets: Inventories $ 12,181 $ 12,773 Allowance for customer returns 14,185 13,804 Postretirement benefits 33 42 Allowance for expected credit losses 1,450 1,412 Accrued salaries and benefits 15,585 12,984 Tax credit and NOL carryforwards 5,702 1,451 Accrued asbestos liabilities 15,463 15,372 Other 190 170 64,789 58,008 Valuation allowance ( 2,087 ) ( 1,621 ) Total deferred tax assets 62,702 56,387 Deferred tax liabilities: Intangible assets acquired, net of amortization 13,450 — Depreciation 7,589 7,710 Other 5,537 3,907 Total deferred tax liabilities 26,576 11,617 Net deferred tax assets $ 36,126 $ 44,770 78 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 $ 2.1 million as of December 31, 2021 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 $ 36.1 million as of December 31, 2021, which is net of the remaining valuation allowance. At December 31, 2021, we have foreign tax credit carryforwards of approximately $ 1.9 million that will expire in varying amounts by 2030 . 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, 2021, 2020 and 2019, we did no t establish a liability for uncertain tax positions. 79 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) We are subject to taxation in the U.S. and various state, local and foreign jurisdictions. As of December 31, 2021, the Company is no longer subject to U.S. Federal tax examinations for years before 2018. We remain subject to examination by state and local tax authorities for tax years 2017 through 2020 . 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 ( 2017 onward), Hong Kong ( 2016 onward), China ( 2017 onward) Mexico ( 2017 onward), Poland ( 2016 onward), and Hungary ( 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 earnings attributable to SMP divided by weighted average common shares outstanding during the period. “Diluted” earnings per common share equals net earnings attributable to SMP 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. The following are reconciliations of the net earnings attributable to SMP and the shares used in calculating basic and dilutive net earnings per common share attributable to SMP (in thousands, except per share data): Year Ended December 31, 2021 2020 2019 Net Earnings Attributable to SMP - Earnings from continuing operations $ 99,353 $ 80,417 $ 69,051 Loss from discontinued operations ( 8,467 ) ( 23,024 ) ( 11,134 ) Net earnings attributable to SMP $ 90,886 $ 57,393 $ 57,917 Basic Net Earnings Per Common Share Attributable to SMP - Earnings from continuing operations per common share $ 4.49 $ 3.59 $ 3.09 Loss from discontinued operations per common share ( 0.39 ) ( 1.02 ) ( 0.50 ) Net earnings per common share attributable to SMP $ 4.10 $ 2.57 $ 2.59 Weighted average common shares outstanding 22,147 22,374 22,378 Diluted Net Earnings Per Common Share Attributable to SMP - Earnings from continuing operations per common share $ 4.39 $ 3.52 $ 3.03 Loss from discontinued operations per common share ( 0.37 ) ( 1.01 ) ( 0.49 ) Net earnings per common share attributable to SMP $ 4.02 $ 2.51 $ 2.54 Weighted average common shares outstanding 22,147 22,374 22,378 Plus incremental shares from assumed conversions: Dilutive effect of restricted stock and performance-based stock 469 452 440 Weighted average common shares outstanding – Diluted 22,616 22,826 22,818 80 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The shares listed below were not included in the computation of diluted net earnings per common share attributable to SMP because to do so would have been anti-dilutive for the periods presented or because they were excluded under the treasury method (in thousands): 2021 2020 2019 Restricted and performance shares 269 268 255 19. Industry Segment and Geographic Data We have two major reportable operating segments, each of which focuses on a specific line of automotive parts in the automotive aftermarket with a complementary focus on the heavy duty, industrial equipment and original equipment service markets. 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. 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, 2021 2020 2019 Net sales (a): Engine Management $ 937,936 $ 835,685 $ 849,161 Temperature Control 348,423 281,954 278,355 Other 12,457 10,949 10,397 Total net sales $ 1,298,816 $ 1,128,588 $ 1,137,913 Intersegment sales (a) : Engine Management $ 23,599 $ 15,952 $ 19,569 Temperature Control 9,024 6,162 6,545 Other ( 32,623 ) ( 22,114 ) ( 26,114 ) Total intersegment sales $ — $ — $ — Depreciation and Amortization: Engine Management $ 21,881 $ 20,417 $ 19,463 Temperature Control 3,626 4,035 4,568 Other 1,736 1,871 1,778 Total depreciation and amortization $ 27,243 $ 26,323 $ 25,809 Operating income (loss) : Engine Management $ 117,367 $ 111,217 $ 103,808 Temperature Control 36,997 21,296 13,667 Other ( 25,365 ) ( 23,618 ) ( 22,980 ) Total operating income $ 128,999 $ 108,895 $ 94,495 Investment in unconsolidated affiliates: Engine Management $ 2,729 $ 2,428 $ 2,243 Temperature Control 41,358 38,079 36,615 Other — — — Total investment in unconsolidated affiliates $ 44,087 $ 40,507 $ 38,858 Capital expenditures : Engine Management $ 21,922 $ 13,496 $ 12,593 Temperature Control 2,586 1,988 2,273 Other 1,367 2,336 1,319 Total capital expenditures $ 25,875 $ 17,820 $ 16,185 Total assets : Engine Management $ 845,767 $ 618,210 $ 594,953 Temperature Control 257,114 230,111 216,591 Other 95,080 108,219 92,310 Total assets $ 1,197,961 $ 956,540 $ 903,854 (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. 81 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, 2021 2020 2019 (In thousands) Operating income $ 128,999 $ 108,895 $ 94,495 Other non-operating income, net 3,494 812 2,587 Interest expense 2,028 2,328 5,286 Earnings from continuing operations before income taxes 130,465 107,379 91,796 Provision for income taxes 31,044 26,962 22,745 Earnings from continuing operations 99,421 80,417 69,051 Discontinued operations, net of tax ( 8,467 ) ( 23,024 ) ( 11,134 ) Net earnings $ 90,954 $ 57,393 $ 57,917 December 31, 2021 2020 2019 Long-lived assets (a) : (In thousands) United States $ 315,983 $ 241,053 $ 253,384 Asia 80,175 40,621 38,942 Europe 37,892 16,504 17,004 Mexico 12,119 10,586 12,036 Canada 4,461 4,470 4,659 Total long-lived assets $ 450,630 $ 313,234 $ 326,025 (a) Long-lived assets are attributed to countries based upon the location of the assets. 82 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Our three largest individual customers accounted for approximately 57 % of our consolidated net sales in 2021. During 2021, O’Reilly, NAPA and AutoZone accounted for 26 %, 17 % and 14 % 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, such as the decision, announced in December 2020, of a large retail customer to pursue a private brand strategy for its engine management product line, could have a materially adverse impact on our business, financial condition and results of operations. In addition, any consolidation among our key customers may further increase our customer concentration risk. For the disaggregation of our net sales from customers by geographic area, major product group and major sales channels for each of our segments, see Note 20, “Net Sales.” 20. Net Sales Disaggregation of Net Sales We disaggregate our net sales from 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, 2021, 2020 and 2019 (in thousands): Year Ended December 31, 2021 (a) Engine Management Temperature Control Other (b) Total Geographic Area: United States $ 804,398 $ 329,980 $ — $ 1,134,378 Canada 33,590 16,513 12,457 62,560 Asia 40,668 348 — 41,016 Mexico 25,288 358 — 25,646 Europe 27,293 390 — 27,683 Other foreign 6,699 834 — 7,533 Total $ 937,936 $ 348,423 $ 12,457 $ 1,298,816 Major Product Group: Ignition, emission control, fuel and safety related system products $ 786,514 $ — $ 8,956 $ 795,470 Wire and cable 151,422 — ( 275 ) 151,147 Compressors — 206,697 1,434 208,131 Other climate control parts — 141,726 2,342 144,068 Total $ 937,936 $ 348,423 $ 12,457 $ 1,298,816 Major Sales Channel: Aftermarket $ 692,895 $ 317,427 $ 12,457 $ 1,022,779 OE/OES 218,338 28,922 — 247,260 Export 26,703 2,074 — 28,777 Total $ 937,936 $ 348,423 $ 12,457 $ 1,298,816 83 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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 Asia 35,079 165 — 35,244 Mexico 19,336 271 — 19,607 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 $ 674,744 $ 255,716 $ 10,949 $ 941,409 OE/OES 142,072 25,070 — 167,142 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 Asia 24,838 130 — 24,968 Mexico 19,330 705 — 20,035 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 $ 697,722 $ 248,420 $ 10,397 $ 956,539 OE/OES 129,815 27,915 — 157,730 Export 21,624 2,020 — 23,644 Total $ 849,161 $ 278,355 $ 10,397 $ 1,137,913 (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. Intersegment wire and cable sales for the year ended December 31, 2021 exceeded third party sales from our Canadian business unit. 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. 84 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Major Product Group The Engine Management segment of the Company principally generates revenue from the sale of automotive engine parts in the automotive aftermarket 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 parts in the automotive aftermarket 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. 21. Commitments and Contingencies Total rent expense for the three years ended December 31, 2021 was as follows (in thousands): Total Real Estate Other 2021 (1) $ 12,065 $ 9,500 $ 2,565 2020 (1) 11,669 8,290 3,379 2019 11,382 7,909 3,473 (1) In cludes expenses of approximately $ 2 million and $ 2.5 million for the years ended December 31, 2021 and 2020, 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, 2021 and 2020, we have accrued $ 17.5 million and $ 17.7 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 2021, 2020 and 2019 were $ 91.9 million, $ 87.1 million and $ 99.3 million, respectively. The following table provides the changes in our product warranties: December 31, 2021 2020 (In thousands) Balance, beginning of period $ 17,663 $ 17,175 Liabilities accrued for current year sales 91,908 87,116 Settlements of warranty claims ( 92,108 ) ( 86,628 ) Balance, end of period $ 17,463 $ 17,663 85 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Letters of Credit At December 31, 2021, we had outstanding letters of credit with certain vendors aggregating approximately $ 2.6 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. 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, 2021, 1,554 cases were outstanding for which we may be responsible for any related liabilities. Since inception in September 2001 through December 31, 2021, the amounts paid for settled claims and awards of asbestos-related damages, including interest, were approximately $ 53.8 million. We do not have insurance coverage for the indemnity and defense costs associated with the claims we face. In evaluating our potential asbestos-related liability, we have considered various factors including, among other things, an actuarial study of the asbestos related liabilities performed by an independent actuarial firm, our settlement amounts and whether there are any co-defendants, the jurisdiction in which lawsuits are filed, and the status and results of such claims. As is our accounting policy, we consider the advice of actuarial consultants with experience in assessing asbestos-related liabilities to estimate our potential claim liability; and perform an actuarial evaluation in the third quarter of each year and whenever events or changes in circumstances indicate that additional provisions may be necessary. The methodology used to project asbestos-related liabilities and costs in our actuarial study considered: (1) historical data available from publicly available studies; (2) an analysis of our recent claims history to estimate likely filing rates into the future; (3) an analysis of our currently pending claims; (4) an analysis of our settlements and awards of asbestos-related damages to date; and (5) an analysis of closed claims with pay ratios and lag patterns in order to develop average future settlement values. Based on the information contained in the actuarial study and all other available information considered by us, we have concluded that no amount within the range of settlement payments and awards of asbestos-related damages was more likely than any other and, therefore, in assessing our asbestos liability we compare the low end of the range to our recorded liability to determine if an adjustment is required. In accordance with our policy to perform an annual actuarial evaluation in the third quarter of each year, an actuarial study was performed as of August 31, 2021 . The results of the August 31, 2021 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 $ 60.9 million to $ 100.2 million for the period through 2065 . The change from the updated prior year study, which was in December of 2020, was a $ 2.1 million decrease for the low end of the range and a $ 1.1 million increase for the high end of the range. The change in the estimated undiscounted liability from the updated prior year study at both the low end and high end of the range reflects our actual experience, our historical data and certain assumptions with respect to events that may occur in the future. 86 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Based upon the results of the August 31, 2021 actuarial study, in September 2021 we increased our asbestos liability to $ 60.9 million , the low end of the range, and recorded an incremental pre-tax provision of $ 5.3 million in earnings (loss) from discontinued operations in the accompanying statement of operations. Future legal costs, which are expensed as incurred and reported in earnings (loss) from discontinued operations in the accompanying statement of operations, are estimated, according to the August 31, 2021 study, to range from $ 49.4 million to $ 99.3 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 $ 8.8 million , $ 16.4 million and $ 7.6 million for the years ended December 31, 2021, 2020 and 2019 , 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. 87 Index ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures . We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Report. This evaluation also included consideration of our internal controls and procedures for the preparation of our financial statements as required under Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report. (b) Management’s Report on Internal Control Over Financial Reporting . Pursuant to Section 404 of the Sarbanes-Oxley Act, as part of this Report we have furnished a report regarding our internal control over financial reporting as of December 31, 2021. During 2021, we acquired Trumpet Holdings, Inc, (“Trombetta”) and Stabil Operative Group GmbH (“Stabil”), and have excluded from our assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, Trombetta’s and Stabil’s internal control over financial reporting associated with 13.8% of total assets and 3.5% of total revenues included in the consolidated financial statements of the Company as of and for year ended December 31, 2021. The report is under the caption “Management’s Report on Internal Control Over Financial Reporting” in “Item 8. Financial Statements and Supplementary Data,” which report in included herein. (c) Attestation Report of Independent Registered Public Accounting Firm . KPMG LLP, our independent registered public accounting firm, has issued an opinion as to the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. The opinion is under the caption “Report of Independent Registered Public Accounting Firm−Internal Control Over Financial Reporting” in “Item 8. Financial Statements and Supplementary Data” for this attestation report, which is included herein. (d) Changes in Internal Control Over Financial Reporting . During the quarter ended December 31, 2021 and subsequent to that date, we have not made changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 88 Index