What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-22 compared with 2022-02-23 · 272 added, 300 removed, 200 unchanged (74% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are a leading manufacturer and distributor of premium replacement parts

utilized in the maintenance, repair and service of vehicles in the automotive aftermarket industry .

In addition, we continue to increase our supplier capabilities with a complementary focus on specialized original

equipment parts for manufacturers across multiple industries such as agriculture, heavy duty, and construction equipment.

We believe that our extensive design and

engineering capabilities have afforded us opportunities to expand our product coverage in our aftermarket business and enter newer specialized markets that

require application-specific knowledge, such as those mentioned above.

We are organized into two operating segments.

Each segment is focused on different product categories and with providing our customers with full-line coverage of its products, a full suite of complementary services that are tailored to our

customers’ business needs, and with driving end-user demand for our products.

We sell our products primarily to automotive aftermarket retailers, program distribution groups, warehouse distributors, original equipment manufacturers and original

equipment service part operations in the United States, Canada, Europe, Asia, Mexico and other Latin American countries.

Overview of Financial Performance

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Loss from discontinued operations, net of income taxes

Net earnings attributable to

noncontrolling interest

Net earnings attributable to noncontrolling interest

Net earnings attributable to SMP

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Net earnings per common share

The post COVID-19 sales momentum we experienced in the second half of 2020 carried over into 2021 resulting in record net sales and earnings from continuing operations.

We experienced strong demand across all our product categories as well as

a more normalized seasonal trend consistent with years prior to 2020.

Net sales for 2021 were $1,298.8 million, an increase of $170.2 million, or 15.1% compared to net sales of $1,128.6 million in 2020, and an increase of $160.9 million, or 14.1%, compared to net sales of $1,137.9 million in 2019.

Consolidated net sales for 2022 were $1,371.8 million, an increase of $73 million, or 5.6% compared to net sales of $1,298.8 million in 2021, and an increase of $170.2 million, or 15.1%, compared to net sales of $1,128.6 million in 2020.

Consolidated net sales increased in both our Engine Management and Temperature Control Segments.

The increase in net sales in 2022 reflects the favorable impact of multiple factors including:

successful customer initiatives in the marketplace,

the phase-in of new business wins,

beneficial summer weather,

continued strong customer demand as evidenced by robust customer POS and fueled by the replenishment of customer inventory levels,

the partial impact of price increases in the fourth quarter of the year, which were implemented to pass through inflationary increases in raw materials, freight and labor costs, and

incremental net sales from our soot sensor, Trombetta and Stabil acquisitions.

The combination of the above factors more than offset the impact of lost revenue related to the decision of a large retail customer to pursue a private brand strategy in December 2020.

Gross margin as a percentage of net sales in 2021 was 29% as compared to 29.8% in 2020 and 29.2% in 2019.

Gross margins in the first half of 2021 were favorably impacted by greater fixed cost absorption due to higher production volumes as we

increased inventories to meet the strong customer demand.

The strong gross margins achieved in the first half of 2021 were offset by some compression in the second half of 2021 caused by several factors including lower fixed cost absorption due

to lower production levels than those achieved in the second half of 2020, inflationary cost increases in certain raw materials, labor and elevated transportation expense, and the higher mix of heavy duty parts sales from our recent acquisitions,

which have a different margin profile than our aftermarket business with lower gross margins but comparable operating margin.

While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost

initiatives coupled with our ability to pass through higher prices to our customers should help to offset much of this impact to our margins.

the price increases in both our segments, which were implemented to pass through inflationary increases in raw materials, distribution and labor costs,

incremental net sales in our Engine Management Segment from our soot sensor, Trombetta and Stabil acquisitions, and

continued strong customer demand in both our segments, and in particular in our Temperature Control Segment where the elevated customer demand we saw in 2021 held firm in 2022 fueled by record heat across the country and the

replenishment of customer inventory levels after very warm summer conditions in 2021.

Gross margins as a percentage of net sales in 2022 was 27.9% as compared to 29% in 2021 and 29.8% in 2020.

Although the gross margin percentage decreased in 2022, gross margin dollars increased in 2022 to $382.5 million compared to $376.9

million in 2021 and $336.7 in 2020.

The gross margin decrease as a percentage of sales in 2022 reflects the impact of lower fixed cost absorption due to lower and more normalized production, inflationary cost increases in raw materials, labor

and transportation, which were somewhat offset by increased pricing, the higher mix of non-aftermarket parts sales from recent acquisitions, which have a different profile than our aftermarket business with lower gross margins but comparable

operating margin, and higher freight and related expenses resulting from higher inventory levels.

While we anticipate continued margin pressure resulting from inflationary cost increases, we believe that our annual cost initiatives and our

ability to pass through higher prices to our customers, will help to mitigate the impact of the inflationary increases on our margins.

Operating margin as a percentage of net sales in 2022 was 7.6% as compared to 9.9% in 2021 and 9.6% in 2020.

Our operating margins in 2021 were favorably impacted by higher net sales.

Included in our operating margin were selling, general

and administrative expenses (“SG&A”) of $247.5 million, or 19.1% of net sales in 2021, $224.7 million, or 19.9% of net sales in 2020, and $234.7 million, or 20.6% of net sales in 2019.

The higher SG&A expenses in 2021 resulted

principally from elevated distribution costs associated with higher sales volumes as well as the impact of increased freight costs, higher employee compensation costs, and incremental expenses from our soot sensor, Trombetta and Stabil

acquisitions.

We anticipate that our future operating margins will be in line with the operating margins achieved in 2021 and 2020.

Overall, our financial results in 2021 were extremely strong.

We posting record net sales and earnings from continuing operations and achieving substantial new business wins with existing customers.

Our core automotive aftermarket business

remains strong and we have made major strides into new complementary markets with upside potential.

Recent Strategic Acquisitions

As part of our strategic plan for diversification and growth beyond our core automotive aftermarket business, and to further expand internationally with a focus on the European market, we completed three acquisitions in 2021.

The acquisitions

continue to increase our supplier capabilities with a complementary focus on specialized original equipment parts to manufacturers across multiple industries such as medium and heavy duty vehicles, construction and agricultural equipment, power

sports, and other sub-segments.

In addition to expanding beyond our core automotive aftermarket business, it also provided geographic expansion as we now have meaningful footprints to grow sales in Europe and Asia.

As we integrate these businesses, we will be able to take advantage of shared customer lists, product portfolios, manufacturing and engineering capabilities, and geographic reach.

Many of the products in the acquired businesses are either

power-train neutral, or are geared toward electric and alternative energy vehicles and, as such, not limited to applications on internal combustion engine (“ICE”), providing potential synergies and future sales growth opportunities in

non-internal combustion engine applications.

After these acquisitions, we estimate that approximately half of our product offering is power-train neutral, or suitable for electric, hybrid electric and/or alternative energy vehicles.

is a brief summary of the acquired businesses.

In March 2021, we acquired certain Soot Sensor product lines from Stoneridge, Inc.

for $2.9 million.

The product line assets acquired manufacture sensors used in the exhaust and emission systems of diesel engines.

The acquisition is an

excellent fit for our strategy of expansion into the heavy duty market.

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.

Trombetta has manufacturing facilities in Milwaukee, Wisconsin;

Sheboygan Falls,

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.”).

Trombetta is a worldwide leader in power switching and power management products and

has a long history of supplying high-quality products to a broad group of blue-chip customers across multiple commercial vehicle and off-highway channels, including heavy truck, construction, agricultural, electric vehicle and power sports

Few of Trombetta’s products are powertrain-related and thus unaffected by the shift from internal combustion engines.

We believe that the combination of Trombetta, along with our existing businesses will create a critical mass that can

be a powerful force for growth.

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 market, serving both commercial and light vehicle applications.

The acquired Stabil business is headquartered on the

outskirts of Stuttgart, Germany with facilities in Germany and Hungary.

The acquisition is an excellent fit for 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 customers.

For additional information on our recent acquisitions, see Note 2, “Business Acquisitions and Investments,” of the Notes to Consolidated Financial Statements in Item 8 of this Report.

Impact of the Coronavirus (“COVID-19”)

On an ongoing basis, we continue to monitor the impact, if any, of COVID-19 on the global economy, our industry, business, and the markets that we serve.

In response to the COVID-19 pandemic, in 2020, we established a committee, comprised of

our executive officers, to oversee the Company’s risk identification, management and mitigation strategies regarding the impact of the pandemic on our business and operations.

The committee continues to meet on a regular basis, monitoring events

related to the pandemic and any appropriate actions to be taken.

Among the issues that are actively being monitored by the committee are the general state of economic conditions, governmental measures in response to the pandemic, the spread of

the delta and omicron variants, and the enactment of policies and practices to ensure the health and safety of our employees, contractors and customers, as well as customer demand for our products and any potential disruptions in our supply

As related to the performance of our business, we were declared an essential business under national and regional shelter-in-place orders and, as such, our business operations continued throughout 2020.

After a downturn in net sales initially

in the second quarter of 2020, customer orders strengthened in the last half of the second quarter and continued throughout 2020, resulting in strong net sales for the year ended December 31, 2020.

The net sales momentum continued into 2021, as

we experienced strong demand for our products, and a seasonal trend that was more in line with years prior to 2020.

Although our business remains strong and we continue to monitor the impact of the pandemic, any uncertain future effect of the pandemic may have a material adverse effect on our business, financial condition and results of operations.

Included in our operating margin were selling, general and administrative expenses (“SG&A”) of $276.6 million, or 20.2% of net

sales in 2022, $247.5 million, or 19.1% of net sales in 2021, and $224.7 million, or 19.9% of net sales in 2020.

The higher SG&A expenses in 2022 is principally due to the impact of (1) higher interest rate related costs of $20.6 million

incurred in our supply chain financing arrangements, (2) the impact of the $7 million charge recorded in 2022 to reduce our outstanding accounts receivable balance from one of our customers that filed a petition for bankruptcy in January 2023 to

our estimated recovery amount, (3) incremental expenses of $7.2 million from our soot sensor, Trombetta and Stabil acquisitions, including amortization of intangible assets acquired, and (4) inflationary cost increases resulting in higher

distribution and freight costs.

SG&A expenses in 2022 were favorably impacted by the higher mix of non-aftermarket parts sales from recent acquisitions, which have a different profile than our aftermarket business with lower SG&A

expenses as a percentage of sales.

Overall, our core automotive aftermarket business demand remains strong, and we continue to make major strides into new complementary markets with upside potential.

New $500 Million Credit Facility

In June 2022, we entered into a new Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (the “Credit Agreement”).

The Credit Agreement provides for a $500 million credit facility comprised of a

$100 million term loan facility (the “term loan”) and a $400 million multi-currency revolving credit facility (the “revolving facility”).

Concurrently with our entry into the Credit Agreement, we also entered into a seven year interest rate swap

agreement with Wells Fargo Bank, N.A., Co-Syndication Agent and lender under the Credit Agreement on $100 million of borrowings under the Credit Agreement to manage exposure to interest rate changes.

The interest rate swap agreement matures in

Borrowings under the Credit Agreement were used to repay all outstanding borrowings under the existing 2015 Credit Agreement, and pay certain fees and expenses incurred in connection with the Credit Agreement, with future borrowings used for

other general corporate purposes of the Company and its subsidiaries.

The term loan amortizes in quarterly installments of 1.25% in each of the first four years, and quarterly installments of 2.5% in the fifth year of the Credit Agreement.

Credit Agreement matures on June 1, 2027.

The Company may request up to two one-year extensions of the maturity date.

Impact of Russia’s Invasion of the Ukraine

Russia’s invasion of the Ukraine, and the resultant sanctions imposed by the U.S.

and other governments, have created risks, uncertainties and disruptions impacting business continuity, liquidity and asset values not only in the Ukraine and

Russia, but in markets worldwide.

Significant price increases have occurred in gas and energy markets, as well as in other commodities.

Although we have no facilities or business operations in either the Ukraine or Russia, have historically had

only minor sales to customers in Russia, which we have subsequently discontinued, and have not experienced additional significant disruptions in the supply chain, the inherent risks and uncertainties surrounding the invasion are being closely

We have manufacturing and distribution facilities in Bialystok, Poland and Pecel, Hungary.

Our facility in Bialystok, Poland does not use natural gas in its production process, or for heating, and, as such, is not impacted by Russia’s

decision to halt the export of all natural gas to Poland and Bulgaria.

While we have not been impacted by the war to date, there can be no assurances that any escalation of the invasion will not have an adverse impact on our business, financial

condition and results of operations.

Impact of Global Supply Chain Disruption and Inflation

Disruptions in the global economy in 2020 and the lingering impacts into 2021 have impeded global supply chains, resulted in longer lead times and delays in procuring component parts and raw materials, and resulted in inflationary cost

increases in certain raw materials, labor and transportation.

In response to the global supply chain volatility and inflationary cost increases, we have taken, and continue to take, several actions to mitigate the impact by working closely with

our suppliers and customers to minimize any potential adverse impacts on our business, including implementing cost savings initiatives and the pass through of higher costs to our customers, which began in the fourth quarter of 2021.

that we have also benefited from our geographically diversified manufacturing footprint and our strategy to bring more product manufacturing in-house, especially with respect to product availability and fill rates.

We expect these inflationary

trends to continue for some time, and while we believe that we will be able to somewhat offset the impact, there can be no assurances that unforeseen future events in the global supply chain affecting the availability of materials and components,

and/or increasing commodity pricing, will not have a material adverse effect on our business, financial condition and results of operations.

Impact of Changes in U.S.

Changes in U.S.

trade policy, particularly as it relates to China, as with much of our industry, have resulted in the assessment of increased tariffs on goods that we, as with much of our industry, import into the United States.

operating results in 2021 have been only slightly impacted by the tariff costs associated with Chinese sourced products (due to our diversified manufacturing and distribution footprint), we have taken, and continue to take, several actions to

mitigate the impact of the increased tariffs, including but not limited to, price increases to our customers.

We do not anticipate that the increased tariffs will have a significant impact on our future operating results.

Although we are

confident that we will be able to pass along the impact of the increased tariffs to our customers, there can be no assurances that we will be able to pass on the entire increased costs imposed by the tariffs.

Disruptions in the global economy have impeded global supply chains, resulted in longer lead times and delays in procuring component parts and raw materials, and resulted in inflationary cost increases in certain raw materials, labor and

transportation.

In response to the global supply chain volatility and inflationary cost increases, we have taken, and continue to take, several actions to mitigate the impact by working closely with our suppliers and customers to minimize any

potential adverse impacts on our business, including implementing cost savings initiatives and the pass through of higher costs to our customers in the form of price increases, and increasing inventory levels to minimize the obvious disruptions

from out-of-stock raw materials and components to ensure higher fill rates with our customers.

We believe that we have also benefited from our geographically diversified manufacturing footprint and our strategy to bring more product

manufacturing in-house, especially with respect to product availability and fill rates.

We expect these inflationary trends to continue for some time, and while we believe that we will be able to somewhat offset the impact, there can be no

assurances that unforeseen future events in the global supply chain affecting the availability of materials and components, and/or increasing commodity pricing, will not have an adverse effect on our business, financial condition and results of

Environmental, Social, & Governance (“ESG”)

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and our community engagement initiatives, to name a few.

We have made significant strides building awareness of the environmental impact of our operations, and challenging ourselves to

reduce our impact by reducing our consumption of energy and generation of waste, as well as enhancing our recycling efforts.

Additionally, we realize the intricate role our employees play to the overall success of our business.

Their health and happiness is important, and we

continue to look for ways to address their needs and the needs of their families.

For example, in 2021 we conducted several surveys on employee engagement, employee satisfaction, and diversity, equity and inclusion to gain a deeper understanding of our employees’ well-being so as to ensure that the company’s culture remains strong.

We have made significant strides with respect to our ESG initiatives, building awareness of the environmental impact of our operations, and challenging ourselves to reduce our impact by reducing our usage of energy and water, reducing our

generation of waste, increasing our recycling efforts and reducing our greenhouse gas emissions (“GHG”), with the ambition of achieving net-zero GHG emissions by 2050.

With each year, we intend to further our commitment to improving our

environmental stewardship and finding ways to give back to our communities.

Additional information on our ESG initiatives can be found under the heading, “Environmental, Social and Governance (ESG) and Human Capital,” in Part I, Item 1 of this

Report, and on our corporate website at ir.smpcorp.com under “Environmental & Social Responsibility” and at smpcares.smpcorp.com.

Information on our

corporate websites regarding our ESG initiatives are referenced for general information only and are not incorporated by reference in this Report.

Comparison of Results of Operations For Fiscal Years 2022 and 2021

Consolidated net sales for 2021 were $1,298.8 million, an increase of $170.2 million, or 15.1%, compared to $1,128.6 million in the

same period of 2020.

Consolidated net sales increased in both our Engine Management and Temperature Control Segments, with the majority of our net sales to customers located in the United States.

Consolidated net sales in 2020 were adversely impacted in the first half of 2020 by the COVID-19 pandemic, and were followed by strong net sales in the second half of 2020, as our business improved to pre-COVID-19 levels with our customers’

POS sales exceeding their comparable levels in prior periods.

Consolidated net sales for 2022 were $1,371.8 million, an increase of $73 million, or 5.6%, compared to $1,298.8 million in the same

period of 2021, with the majority of our net sales to customers located in the United States.

Consolidated net sales increased in both our Engine Management and Temperature Control Segments.

The following table summarizes consolidated net sales by segment and by major product group within each segment for the years ended December 31, 2022 and 2021 (in thousands):

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Engine Management’s net sales increased $37.3 million, or 4%, to $975.2 million for the year ended December 31, 2022.

Net sales in ignition, emission control, fuel and safety related system products for the year ended December 31, 2021

were $786.5 million, an increase of $94.8 million, or 13.7%, compared to $691.7 million in the same period of 2020.

Net sales in the wire and cable product group for the year ended December 31, 2021 were $151.4 million, an increase of $7.5

million, or 5.2%, compared to $144 million in the same period of 2020.

Engine Management’s increase in net sales for the year ended December 31, 2021 compared to the same period in 2020, reflects the impact of successful customer initiatives in

the marketplace, the phase-in of new business wins, continued strong customer demand as evidenced by robust customer POS, the partial impact of price increases in the fourth quarter of the year, which were implemented to pass through inflationary

increases in raw materials, freight and labor costs, and incremental net sales from our soot sensor, Trombetta and Stabil acquisitions, along with the favorable year-over-year impact of having lower net sales in the first part of 2020 due to the

general weakness in the economy caused by the COVID-19 pandemic.

The favorable net sales results achieved by Engine Management in 2021 more than offset the impact of the lower net sales from the decision, in December 2020, of a large retail

customer to pursue a private brand strategy.

Incremental net sales from our soot sensor, Trombetta and Stabil acquisitions of $54.3 million were included in the net sales of the ignition, emission control, fuel and safety related system product group from the date of acquisition through

December 31, 2021.

Compared to the year ended December 31, 2020, excluding the incremental net sales from the acquisitions, net sales in the ignition, emission control, fuel and safety related product group increased $40.5 million, or 5.9%, and

Engine Management net sales increased $48 million, or 5.7%.

Net sales in ignition, emission control, fuel and safety related system products for the year ended December 31, 2022 were

$824.7 million, an increase of $38.2 million, or 4.9%, compared to $786.5 million in the same period of 2021.

Net sales in the wire and cable product group for the year ended December 31, 2022 were $150.6 million, an decrease of $0.8 million, or

0.5%, compared to $151.4 million in the same period of 2021.

Engine Management’s increase in net sales for the year ended December 31, 2022 compared to the same period in 2021, reflects the impact of the positive contribution of incremental

sales from our soot sensor, Trombetta and Stabil acquisitions, strong customer demand, and price increases implemented in 2022, which were implemented to pass through inflationary increases in raw materials, distribution and labor costs.

Incremental net sales from our soot sensor, Trombetta and Stabil acquisitions of $44.6 million were included in the net sales of the ignition, emission control, fuel and safety related system product group for the year ended December 31,

Compared to the year ended December 31, 2021, excluding the incremental net sales from the acquisitions, net sales in the ignition, emission control, fuel and safety related product group decreased $6.4 million, or 0.8%, and Engine

Management net sales decreased $7.3 million, or 0.8%.

Temperature Control’s net sales increased $33.9 million, or 9.7%, to $382.3 million for the year ended December 31, 2022.

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$141.7 million for the year ended December 31, 2021.

Temperature Control’s increase in net sales for the year ended December 31, 2021, when compared to the same period in 2020, reflects the impact of continued strong customer demand stemming

from the impact of very warm summer weather conditions and the replenishment of customer inventory levels, along with the favorable year-over-year impact of having lower net sales in the first part of 2020 due to the general weakness in the

economy caused by the COVID-19 pandemic.

Temperature Control’s increase in net sales for the year ended December 31, 2022, when compared to the same period in 2021, reflects the impact of continued strong customer demand, with the

elevated demand we saw in 2021 holding firm, fueled by record heat across the country in 2022 and the replenishment of customer inventory levels after very warm summer conditions in 2021, and the impact of price increases, which were implemented

to pass through inflationary increases in raw materials, distribution and labor costs.

Demand for our Temperature Control products may vary significantly with summer weather conditions and customer inventory levels.

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segment for the years ended December 31, 2022 and 2021, respectively (in thousands):

Engine Management

Temperature Control

Net sales (a)

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Segment net sales include intersegment sales in our Engine Management and Temperature Control segments.

Compared to 2020, gross margins at Engine Management decreased 1.6 percentage points from 30.1% to 28.5%, while gross margins at Temperature Control increased 0.6 percentage points from 26.7% to 27.3%.

Compared to 2021, gross margins at Engine Management decreased 1.5 percentage points from 28.5% to 27%, while gross margins at Temperature Control decreased 0.5 percentage points from 27.3% to 26.8%.

The gross margin percentage decrease in

Engine Management compared to the prior year reflects the impact of the lower gross margins achieved in the second half of 2021 compared to the second half of 2020, resulting from lower fixed cost absorption due to lower production levels than

those achieved in the second half of 2020, inflationary cost increases in raw materials, labor and transportation, which began in the second quarter of 2021, and a higher mix of heavy duty OE sales from recent acquisitions, which has a different

margin profile than our aftermarket business with lower gross margins but comparable operating margins.

Engine Management gross margins in the first half of 2021 were favorably impacted by higher year-over-year absorption due to higher

production volumes to build inventory levels, and the impact of year-over-year production variances carried over from the prior year.

The gross margin percentage increase in Temperature Control compared to the prior year reflects the favorable impact of higher year-over-year absorption due to higher production volumes, as well as overall higher sales volume, which more than

offset the unfavorable impact in the second half of 2021 of inflationary cost increases in certain raw materials, labor and transportation.

While we anticipate continued margin pressures at both Engine Management and Temperature Control

resulting from inflationary cost increases, we believe that our annual cost initiatives, and our ability to pass through higher prices to our customers, will help to offset the impact of the inflationary increases on our margins.

Engine Management compared to the prior year reflects the impact of lower fixed cost absorption due to lower and more normalized production, inflationary cost increases in raw materials, labor and transportation, which were somewhat offset by

increased pricing, the higher mix of non-aftermarket parts sales from recent acquisitions, which have a different profile than our aftermarket business with lower gross margins but comparable operating margin, and higher freight and related

expenses resulting from higher inventory levels.

The gross margin percentage decrease in Temperature Control compared to the prior year reflects the impact of inflationary cost increases in raw materials, labor and transportation, and higher freight and related expenses resulting from higher

inventory levels, which were somewhat offset by seasonal volume, customer mix and increased pricing.

While we anticipate continued margin pressures at both Engine Management and Temperature Control resulting from inflationary cost increases, we

believe that our annual cost initiatives, and our ability to pass through higher prices to our customers, will help to offset the impact of the inflationary increases on our margins.

Selling, General and Administrative Expenses.

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compared to $247.5 million, or 19.1% of consolidated net sales in 2021.

The $22.8 million increase in SG&A expenses as compared to 2020 is principally due to (1) higher distribution costs associated with higher sales volumes and the impact

of an increase in freight costs, (2) higher employee compensation costs, and (3) the impact of incremental expenses of $7.8 million from our soot sensor, Trombetta and Stabil acquisitions, including amortization of intangible assets acquired.

The lower year-over-year SG&A expense percentage of consolidated net sales reflects the impact of discretionary cost reduction measures implemented in 2020 and carried over into 2021, and higher year-over-year sales volumes.

Intangible Asset Impairment.

In December 2020, a large retail customer informed us of its decision to pursue a private brand strategy for its engine management product line.

result of this development, products sold under the BWD trademark were significantly reduced.

In connection with the decision, we recorded an impairment charge of $2.6 million in 2020.

The $29.1 million increase in SG&A expenses as compared to 2021 is principally due to the impact of (1) higher interest related costs of $20.6 million incurred in our

supply chain financing arrangements, (2) the impact of the $7 million charge recorded in 2022 to reduce our outstanding accounts receivable balance from one of our customers that filed a petition for bankruptcy in January 2023 to our estimated

recovery amount, (3) incremental expenses of $7.2 million from our soot sensor, Trombetta and Stabil acquisitions, including amortization of intangible assets acquired, and (4) inflationary cost increases resulting in higher distribution and

freight costs.

SG&A expenses in 2022 were favorably impacted by the higher mix of non-aftermarket parts sales from recent acquisitions, which have a different profile than our aftermarket business with lower SG&A expenses as a percentage

Restructuring and Integration Expenses.

Restructuring and integration expenses were $1.9 million in 2022 compared to restructuring and integration expenses of $0.4 million in 2021.

Restructuring and integration expenses incurred in 2021 relate to the relocation in our Engine Management Segment of certain inventory, machinery, and equipment acquired in our March 2021 soot sensor acquisition;

while restructuring and

integration expenses incurred in 2020 relate to (1) the increase in environmental cleanup costs for ongoing monitoring and remediation in connection with the prior closure of our manufacturing operations at our Long Island City, New York

location, and (2) costs related to the residual relocation activities in our Engine Management segment in connection with our integration of the Pollak business of Stoneridge, Inc., acquired in April 2019.

Restructuring and integration expenses incurred in 2022 of $1.9 million related to (1) severance costs of approximately $0.9 million in connection with a reduction in our sales force, (2) expenses of approximately $0.6 million consisting of

employee severance costs related to our product line relocations from our Independence, Kansas manufacturing facility in our Engine Management Segment and from our St.

Thomas, Canada manufacturing facility in our Temperature Control Segment to

our manufacturing facilities in Reynosa, Mexico, (3) relocation expenses of approximately $0.1 million in our Engine Management Segment of certain inventory, machinery, and equipment acquired in our 2021 soot sensor acquisition to our facilities

in Independence, Kansas and Bialystok, Poland, and (4) the $0.2 million increase in environmental cleanup costs for ongoing monitoring and remediation in connection with the prior closure of our manufacturing operations at our Long Island City,

New York location.

Restructuring and integration expenses incurred in 2021 of $0.4 million related to relocation in our Engine Management Segment of certain inventory, machinery, and equipment acquired in our 2021 soot sensor acquisition to our facilities in

Independence, Kansas and Bialystok, Poland.

The soot sensor product line relocation has been substantially completed.

Operating Income.

Operating income was $104.1 million, or 7.6%, of consolidated net sales in 2022, compared to $129 million, or 9.9%, of consolidated net sales in 2021.

year-over-year increase in operating income of $20.1 million is the result of the impact of higher consolidated net sales and the impact of the impairment charge in 2020 related to the BWD trademark, which more than offset the impact of lower

gross margins as a percentage of consolidated net sales and higher SG&A expenses.

Operating income of 9.9% of consolidated net sales achieved in 2021 is in line historical operating margin percentages achieved.

year-over-year decrease in operating income of $24.9 million is the result of higher SG&A expenses driven primarily by the increased interest rate costs incurred in our supply chain financing arrangements, and to a lesser extent by the impact

of lower gross margins as a percentage of consolidated net sales and higher restructuring and integration costs offset, in part, by higher consolidated net sales.

Other Non-Operating Income (Expense), Net.

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The year-over-year increase in other

non-operating income, net results primarily from the increase in year-over-year equity income from our joint ventures and the favorable impact of changes in foreign currency exchange rates.

During the first quarter of 2020, our joint ventures in

China experienced temporary shutdowns due to the impact of the COVID-19 pandemic, resulting in significantly lower equity income.

In March 2020, the joint ventures reopened and resumed manufacturing and distribution.

non-operating income, net results primarily from the favorable impact of changes in foreign currency exchange rates, and to a lesser extent the increase in year-over-year equity income from our joint ventures.

Interest Expense.

Interest expense decreased to $2 million in 2021, compared to $2.3 million in 2020.

The year-over-year decrease in interest expense reflects the impact of lower

year-over-year average interest rates on our revolving credit facility, which more than offset the impact of slightly higher average outstanding borrowings in 2021 when compared to 2020.

Interest expense increased to $10.6 million in 2022, compared to $2 million in 2021.

The year-over-year increase in interest expense reflects the impact of higher

average outstanding borrowings in 2022 when compared to 2021, and the impact of higher year-over-year average interest rates on our credit facilities.

Income Tax Provision .

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effective tax rate of 23.8% in 2021.

The lower effective tax rate in 2021 compared to 2020 results primarily from the increased year-over-year income tax benefit from the exercise of restricted stock, and changes in the mix of U.S.

The higher effective tax rate in 2022 compared to 2021 results primarily from the income tax provision impact related to the exercise of restricted stock.

Loss From Discontinued Operations.

Loss from discontinued operations, net of income tax, reflects information contained in the actuarial studies performed as of August 31, 2022 and

2020, and in December 2020 to reflect events that occurred in the fourth quarter of 2020, as well as other information available and considered by us, and legal expenses and other costs associated with our asbestos-related liability.

years ended December 31, 2021 and 2020, we recorded a net loss of $8.5 million and $23 million from discontinued operations, respectively.

The loss from discontinued operations for the year ended December 31, 2021 and 2020 includes a $5.3

million and $25.7 million pre-tax provision, respectively, to increase our indemnity liability in line with the 2021 and 2020 actuarial studies;

and legal expenses and other miscellaneous expenses, before taxes, of $6.1 million and $5.4 million

for 2021 and 2020, respectively.

As discussed more fully in Note 21 “Commitments and Contingencies” in the notes to our consolidated financial statements, we are responsible for certain future liabilities relating to alleged exposure to asbestos

containing products.

2021, as well as other information available and considered by us, and legal expenses and other costs associated with our asbestos-related liability.

During the years ended December 31, 2022 and 2021, we recorded a net loss of $17.7 million and

$8.5 million from discontinued operations, respectively.

The loss from discontinued operations for the year ended December 31, 2022 and 2021 includes an $18.5 million and $5.3 million pre-tax provision, respectively, to increase our indemnity

liability in line with the 2022 and 2021 actuarial studies;

and legal expenses and other miscellaneous expenses, before taxes, of $5.4 million and $6.1 million for 2022 and 2021, respectively.

As discussed more fully in Note 23 “Commitments and

Contingencies” of the Notes to Consolidated Financial Statements in Item 8 of this Report, we are responsible for certain future liabilities relating to alleged exposure to asbestos containing products.

Net Earnings Attributable to Noncontrolling Interest.

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joint venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”).

Net earnings attributable to the noncontrolling interest of $68,000 during the year ended December 31, 2021 represents 30% of the net earnings of

Trombetta Asia, Ltd.

from the date of acquisition through December 31, 2021.

Net earnings attributable to the noncontrolling interest of $84,000 and $68,000 during the years ended December 31, 2022 and 2021, respectively,

represents 30% of the net earnings of Trombetta Asia, Ltd.

Comparison of Results of Operations For Fiscal Years 2021 and 2020

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Operating Activities.

During 2021, cash provided by operating activities was $85.6 million compared to $97.9 million in 2020.

The decrease in cash provided by operating activities

resulted primarily from the increase in inventories compared to the decrease in inventories in the prior year, the smaller year-over-year increase in sundry payables and accrued expenses, and the larger year-over-year increase in prepaid expenses

and other current assets, partially offset by the increase in net earnings, the decrease in accounts receivable compared to the increase in accounts receivable in the prior year, and the larger year-over-year increase in accounts payable.

During 2022, cash used in operating activities was $27.5 million compared to cash provided by operating activities of $85.6 million in 2021.

The increase in

cash used in operating activities resulted primarily from the decrease in net earnings, the smaller year-over-year decrease in accounts receivable, the decrease in accounts payable compared to a year-over-year increase in accounts payable, the

larger year-over-year increase in prepaid expenses and other current assets, and the decrease in sundry payables and accrued expenses compared to a year-over-year increase in sundry payables and accrued expenses offset, in part, by the smaller

year-over-year increase in inventories.

Net earnings during 2022 were $55.4 million compared to $91 million in 2021.

During 2021 (1) the decrease in accounts receivable was $28.5 million compared to the year-over-year increase in accounts receivable of $71.9 million in 2020;

the increase in inventories was $107.6 million compared to the year-over-year decrease in inventories of $18 million in 2020;

(3) the increase in accounts payable was $33 million compared to the year-over-year increase in accounts payable of $7.4

During 2022 (1) the decrease in accounts receivable was $6.9 million compared to the year-over-year decrease in accounts receivable of $28.5 million in 2021;

increase in inventories was $67.5 million compared to the year-over-year increase in inventories of $107.6 million in 2021;

(3) the decrease in accounts payable was $48.6 million compared to the year-over-year increase in accounts payable of $33

million in 2021;

(4) the increase in prepaid expenses and other current assets was $5.5 million compared to the year-over-year increase in prepaid expenses and other current assets of $0.8 million in 2021;

and (5) the increase in sundry payables

and (5) the decrease in sundry payables

and accrued expenses was $29.1 million compared to the year-over-year increase in sundry payables and accrued expenses of $13.4 million in 2021.

The decrease in accounts receivable during 2021 reflects the impact of $50 million of receivables

presented to financial institutions at December 31, 2020, pursuant to our supply chain financing arrangements, that were collected in 2021;

while the increase in inventories during 2021 reflects actions taken to meet continued strong customer

demand, to replenish stock levels, which were depleted after record sales in the last half of 2020, and to serve as a hedge against the global disruptions in the supply chain.

We continue to actively manage our working capital to maximize our

operating cash flow.

The increase in inventories during 2022 and 2021 reflects actions taken beginning in the fourth

quarter of 2021 to meet ongoing customer demand, the impact of materials inflation, and higher safety stocks of raw materials given the volatility in the supply chain.

The decrease in accounts payable in 2022 reflects the timing of payments to

vendors for inventory purchases made in the fourth quarter of 2021, as well as the timing of inventory purchases made in 2022, including the impact of a reduction in inventory purchases in the second half of the year;

while the decrease in sundry

payments in 2022 reflects the impact of lower employee compensation accruals.

We continue to actively manage our working capital to maximize our operating cash flow.

Investing Activities .

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Investing activities

during 2021 consisted of (1) the payment of $15.4 million, net of $0.9 million of cash acquired, for our acquisition of 100% of the capital stock of Stabil Operative Group GmbH, a German company, (“Stabil”);

(2) the payment of $107.1 million, net

of $4.6 million of cash acquired, for our acquisition of 100% of the capital stock of Trumpet Holdings, Inc., a Delaware corporation, (“Trombetta”);

(3) the payment of $2.9 million for our acquisition of certain assets of the soot sensor product

lines from Stoneridge, Inc.;

during 2022 consisted of (1) the cash payment of $1.7 million for our acquisition of 100% of the capital stock of Kade Trading GmbH, a German company, (“Kade”) , net of $1 million of cash acquired and the $0.5 million earn-out;

(2) the payment of

$0.2 million for our 3.55% increase in equity ownership in Foshan Che Yijia New Energy Technology Co., Ltd., (“CYJ”), a China-based joint venture that manufactures automotive electric air conditioning compressors;

and (3) capital expenditures of

Investing activities in 2021 consisted of (1) the payment of $15.4 million, net of $0.9 million of cash acquired, for our acquisition of 100% of the capital stock of Stabil Operative Group GmbH, a German company, (“Stabil”);

(2) the payment of

$107.1 million, net of $4.6 million of cash acquired, for our acquisition of 100% of the capital stock of Trumpet Holdings, Inc., a Delaware corporation, (“Trombetta”);

(3) the payment of $2.9 million for our acquisition of certain assets of the

soot sensor product lines from Stoneridge, Inc.;

and (4) capital expenditures of $25.9 million.

Investing activities in 2020 consisted of capital expenditures of $17.8 million.

Financing Activities .

Cash provided by financing activities was $69 million in 2021 compared to cash used in financing activities of $71.5

million in 2020.

During 2021, we (1) increased our borrowings under our revolving credit facility by $115.3 million;

(2) increased our borrowings under lease obligations and our Polish overdraft facility by $3 million;

(3) made cash payments for

the repurchase of shares of our common stock of $26.8 million;

Cash provided by financing activities was $55.5 million in 2022 compared to $69 million in 2021.

In June 2022, we

entered into a new credit agreement with JPMorgan Chase Bank, N.A., as agent.

The new credit agreement provides for a $500 million credit facility comprised of a $100 million term loan facility and a $400 million revolving credit facility.

Borrowings under the new credit facility were used to repay all outstanding borrowings under the then existing revolving credit facility, and certain fees and expenses incurred in connection with the refinancing.

During 2022, we (1) increased our borrowings under our revolving credit facilities by $114.2 million;

(2) reduced our borrowings under lease obligations and our Polish overdraft facility by $2.9 million;

(3) made cash payments of $2.1 million

for debt issuance costs in connection with our refinancing;

(4) made cash payments for the repurchase of shares of our common stock of $29.7 million;

and (5) paid dividends of $23.4 million.

Cash provided by operating activities, along with borrowings under our revolving credit agreement, lease obligations and Polish overdraft

facility were used to fund our investing activities, purchase shares of our common stock and pay dividends.

Cash used in financing activities was $71.5 million in 2020.

During 2020, we (1) reduced our borrowings under our revolving credit facility by $42.5 million;

(2) reduced our borrowings under lease obligations and our Polish overdraft facility

by $4.2 million;

Cash provided by borrowings under our credit

facilities were used to fund our operating activities, investing activities, reduce our borrowings under lease obligations and our Polish overdraft facility, pay debt issuance costs in connection with the refinancing, purchase shares of our

common stock and pay dividends.

Cash provided by financing activities was $69 million in 2021.

During 2021, we (1) increased our borrowings under our revolving credit facility by $115.3 million;

(2) increased our borrowings under lease obligations and our Polish overdraft

facility by $3 million;

(3) made cash payments for the repurchase of shares of our common stock of $26.8 million;

and (4) paid dividends of $22.2 million.

Cash provided by operating activities was used to pay down our revolving credit facility, our

lease obligations and Polish overdraft facility, and to fund our investing activities, purchase shares of our common stock and pay dividends.

Cash provided by operating activities, along with borrowings under our revolving credit

agreement, lease obligations and Polish overdraft facility were used to fund our investing activities, purchase shares of our common stock and pay dividends.

Dividends of $23.4 million and $22.2 million were paid in 2022 and 2021, respectively.

In January 2020, our Board of Directors voted to increase our quarterly dividend from $0.23 per share in 2019 to $0.25 per share in 2020.

In April 2020,

in response to the impact of the COVID-19 pandemic on our business, our Board of Directors approved to temporarily suspend our quarterly cash dividend payments and stock repurchases.

In September 2020, our Board of Directors approved to

reinstate our stock repurchase program;

and in October 2020, our Board of Directors approved the reinstatement of our quarterly cash dividend of $0.25 per share.

In February 2021, our Board of Directors voted to maintain our quarterly dividend

at $0.25 per share in 2021;

and in February 2022, our Board of Directors voted to increase our quarterly dividend from $0.25 per share in 2021 to $0.27 per share in 2022.

Quarterly dividends were paid at a rate of $0.27 in 2022 and $0.25 in 2021.

In February 2023, our Board of Directors voted to increase our quarterly

dividend from $0.27 per share in 2022 to $0.29 per share in 2023.

Comparison of Liquidity and Capital Resources For Fiscal Years 2021 and 2020

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Our primary sources of funds are ongoing net cash

flows from operating activities and availability under our secured revolving credit facility (as detailed below).

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 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, 2021.

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.

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.

In February 2022, our Polish subsidiary, SMP Poland sp.

z.o.o., amended its 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.

flows from operating activities and availability under our Credit Agreement (as detailed below).

In June 2022, we entered into a new Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (the “Credit Agreement”).

The Credit Agreement provides for a $500 million credit facility comprised of a

$100 million term loan facility (the “term loan”) and a $400 million multi-currency revolving credit facility available in U.S.

Dollars, Euros, Sterling, Swiss Francs, Canadian Dollars and other currencies as agreed to by the administrative agent

and the lenders (the “revolving facility”).

The Credit Agreement replaces and refinances the existing Credit Agreement, dated as of October 28, 2015, among the Company, SMP Motor Products Ltd.

and Trumpet Holdings, Inc., as borrowers, JPMorgan

Chase Bank, N.A., as administrative agent and lender, and the other lenders named therein (the “2015 Credit Agreement”).

Borrowings under the Credit Agreement were used to repay all outstanding borrowings under the 2015 Credit Agreement, and pay certain fees and expenses incurred in connection with the Credit Agreement, with future borrowings used for other

general corporate purposes of the Company and its subsidiaries.

The term loan amortizes in quarterly installments of 1.25% in each of the first four years, and quarterly installments of 2.5% in the fifth year of the Credit Agreement.

revolving facility has a $25 million sub-limit for the issuance of letters of credit and a $25 million sub-limit for the borrowing of swingline loans.

The maturity date is June 1, 2027.

The Company may request up to two one-year extensions of

the maturity date.

The Company may, upon the agreement of one or more of then existing lenders or of additional financial institutions not currently party to the Credit Agreement, increase the revolving facility commitments or obtain incremental term loans by an

aggregate amount not to exceed (x) the greater of (i) $168 million or (ii) 100% of consolidated EBITDA (as defined in the Credit Agreement) for the four fiscal quarters ended most recently before such date, plus (y) the amount of any voluntary

prepayment of term loans, plus (z) an unlimited amount so long as, immediately after giving effect thereto, the pro forma First Lien Net Leverage Ratio (as defined in the Credit Agreement) does not exceed 2.5 to 1.0.

Term loan and revolver facility borrowings in U.S.

Dollars bear interest, at the Company’s election, at a rate per annum equal to Term SOFR plus 0.10% plus an applicable margin, or an alternate base rate plus an applicable margin, where the

alternate base rate is the greater of the prime rate, the federal funds effective rate plus 0.50%, and one-month Term SOFR plus 0.10% plus 1.00%.

Term loan borrowings are being made at one-month Term SOFR.

The applicable margin for the term

benchmark borrowings ranges from 1.0% to 2.0%, and the applicable margin for alternate base rate borrowings ranges from 0% to 1.0%, in each case, based on the total net leverage ratio of the Company and its restricted subsidiaries.

may select interest periods of one, three or six months for Term SOFR borrowings.

Interest is payable at the end of the selected interest period, but no less frequently than quarterly.

The Company’s obligations under the Credit Agreement are guaranteed by its material domestic subsidiaries (each, a “Guarantor”), and secured by a first priority perfected security interest in substantially all of the existing and future

personal property of the Company and each Guarantor, subject to certain exceptions.

The collateral security described above also secures certain banking services obligations and interest rate swaps and currency or other hedging obligations of

the Company owing to any of the then existing lenders or any affiliates thereof.

Concurrently with the Company’s entry into the Credit Agreement, the Company also entered into a seven year interest rate swap agreement with Wells Fargo Bank,

N.A., Co-Syndication Agent and lender under the Credit Agreement, on $100 million of borrowings under the Credit Agreement.

The interest rate swap agreement matures in May 2029.

Outstanding borrowings at December 31, 2022 under the Credit Agreement were $239.5 million, consisting of current borrowings of $55 million and long-term debt of $184.5 million;

while outstanding borrowings at December 31, 2021 under the 2015

Credit Agreement were $125.3 million, consisting of current borrowings.

Letters of credit outstanding under the Credit Agreement were $2.4 million at December 31, 2022, and $2.6 million under the 2015 Credit Agreement at December 31, 2021.

Borrowings at December 31, 2021 under the 2015 Credit Agreement have been classified as current liabilities based upon accounting rules and certain provisions in the agreement.

At December 31, 2022, the weighted average interest rate under our Credit Agreement was 5.2%, which consisted of $237 million in borrowings at 5.2% under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100 million of

borrowings, and an alternative base rate borrowing of $2.5 million at 8%.

At December 31, 2021, the weighted average interest rate on our 2015 Credit Agreement was 1.4%, which consisted of $125 million in direct borrowings at 1.4% and

alternative base rate loan of $0.3 million at 3.5%.

During the year ended December 31, 2022, our average daily alternative base rate loan balance was $5.6 million, compared to a balance of $1.1 million for the year ended December 31, 2021.

The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other

payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets.

The Credit Agreement also contains customary events of default.

In October 2022, our Polish subsidiary, SMP Poland sp.

z.o.o., amended its overdraft facility with HSBC Continental Europe (Spolka Akcyjna) Oddzial w Polsce to provide for borrowings under the facility in Euros and U.S.

amended terms, the overdraft facility provides for borrowings of up to Zloty 30 million (approximately $6.8 million) if borrowings are solely in Zloty, or up to 85% of the Zloty 30 million limit (approximately $5.8 million) if borrowings are in

Euros and/or U.S.

The overdraft facility has an initial maturity date in December 2022, with automatic three-month renewals until June 2027, subject to cancellation by either party, at its sole discretion, at least 30 days prior to the

commencement of the three-month renewal period.

Borrowings under the amended overdraft facility will bear interest at a rate equal to (1) the one month Warsaw Interbank Offered Rate (“WIBOR”) + 1.5% for borrowings in Polish Zloty, (2) the one

month Euro Interbank Offered Rate (“EURIBOR”) + 1.5% for borrowings in Euros, and (3) the Mid-Point of the Fed Target Range + 1.75% for borrowings in U.S Dollars.

Borrowings under the overdraft facility are guaranteed by Standard Motor Products,

Inc., the ultimate parent company.

At December 31, 2021, borrowings under the overdraft facility were Zloty 12.3 million (approximately $3 million).

There were no borrowings outstanding under the overdraft facility at December 31, 2022.

In order to reduce our accounts receivable balances and improve our cash flow, we are party to several supply chain financing arrangements, in which we may sell certain of our customers’ trade accounts receivable to such customers’ financial

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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, which was reflected as a reduction of accounts receivable in the consolidated balance sheet at

the time of sale.

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.

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.

Pursuant to these agreements, we sold $813.7 million and $818.8 million of receivables for the years ended December 31, 2022 and 2021, respectively.

Receivables presented at financial institutions and not yet collected as of December 31, 2021

were $1.3 million and remained in our receivable balance as of that date.

There were no receivables presented at financial institutions and not yet collected as of December 31, 2022.

All receivables sold were reflected as a reduction of accounts

receivable in the consolidated balance sheet at the time of sale.

A charge in the amount of $32 million, $11.5 million and $12.2 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, 2022, 2021 and 2020, 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.

The utility of the supply chain financing arrangements also depends upon a benchmark reference rate for the purpose of determining the discount rate applicable to each arrangement.

If the benchmark reference rate increases significantly, we may

be negatively impacted as we may not be able to pass these added costs on to our customers, which could have a material and adverse effect upon our financial condition, results of operations and cash flows.

In January 2023, one of our customers filed a petition for bankruptcy.

In connection with the bankruptcy filing, we evaluated our potential risk and exposure as related to our outstanding accounts receivable balance from the customer as of

December 31, 2022, and estimated our anticipated recovery.

As a result of our evaluation, we recorded a $7 million pre-tax charge during the year ended December 31, 2022 to reduce our accounts receivable balance to our estimated recovery.

$7 million pre-tax charge is included in selling, general and administrative expenses in our consolidated statement of operations.

We will continue to monitor the circumstances surrounding the bankruptcy in determining whether additional

provisions may be necessary.

In March 2020, our Board of Directors authorized the purchase of up to $20 million of our common stock under a stock repurchase program.

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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 programs from time to time, in the open market or

In October 2021, our Board of Directors authorized the purchase of up to $30 million of our common stock under a stock repurchase program.

Stock repurchases under this program, during the year ended December 31, 2022 and 2021 were 692,067 and

7,000 shares of our common stock, respectively, at a total cost of $29.7 million and $0.3 million, respectively, thereby completing the October 2021 Board of Directors authorization.

In July 2022, our Board of Directors authorized the purchase of up to an additional $30 million of our common stock under a new 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.

To date, there have been no repurchases of our common stock under the program.

Material Cash Commitments

Material cash commitments as of December 31, 2021 consist of required cash payments to service our outstanding borrowings of $125.3 million under our amended revolving credit agreement with JPMorgan Chase Bank, N.A., as agent, and the future

minimum cash requirements of $44.9 million through 2031 under operating leases.

Material cash commitments as of December 31, 2022 consist of required cash payments to service our outstanding borrowings of $239.5 million under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, the future minimum cash

requirements of $60.2 million through 2033 under operating leases, and future cash payments relating to our restructuring and integration activities of $4.9 million.

All of our other cash commitments as of December 31, 2022 are not material.

For additional information related to our material cash commitments, see Note 7,

“Leases,” and Note 11, “Credit Facilities and Long-Term Debt,” of the Notes to Consolidated Financial Statements in Item 8 of this Report.

We anticipate that our cash flow from operations, available cash and available borrowings under our revolving credit facility, inclusive of the utilization of the $50 million accordion feature in the facility, will be adequate to meet our

future liquidity needs for at least the next twelve months.

Significant assumptions underlie this belief, including, among other things, that we will be able to mitigate the future impact, if any, of the COVID-19 pandemic, disruptions in the

supply chain that may lead to a further increase in inventories to support our customers, and significant inflationary cost increases in raw materials, labor and transportation, and that there will be no material adverse developments in our

business, liquidity or capital requirements.

If material adverse developments were to occur in any of these areas, there can be no assurance that our business will generate sufficient cash flow from operations, or that future borrowings will be

available to us under our revolving credit facility in amounts sufficient to enable us to pay the principal and interest on our indebtedness, or to fund our other liquidity needs.

In addition, if we default on any of our indebtedness, or breach

any financial covenant in our revolving credit facility, our business could be adversely affected.

For additional information related to our material cash commitments, see Note 3, “Restructuring and Integration Expenses”, Note 7, “Leases,” and Note 11, “Credit Facilities and Long-Term Debt,” of the Notes to Consolidated Financial Statements in

Item 8 of this Report.

We anticipate that our cash flow from operations, available cash, and available borrowings under our Credit Agreement will be adequate to meet our future liquidity needs for at least the next twelve months.

Significant assumptions underlie

this belief, including, among other things, that we will be able to mitigate the future impact, if any, of disruptions in the supply chain caused by the COVID-19 pandemic, Russia’s invasion of the Ukraine and resultant sanctions imposed by the

and other governments, future increases in interest rates, and significant inflationary cost increases in raw materials, labor and transportation that we are unable to pass through our customers, macroeconomic uncertainty, and that there

will be no material adverse developments in our business, liquidity or capital requirements.

If material adverse developments were to occur in any of these areas, there can be no assurance that our business will generate sufficient cash flow

from operations, or that future borrowings will be available to us under our Credit Agreement in amounts sufficient to enable us to pay the principal and interest on our indebtedness, or to fund our other liquidity needs.

In addition, if we

default on any of our indebtedness, or breach any financial covenant in our Credit Agreement, our business could be adversely affected.

For further information regarding the risks in our business, refer to Item 1A, “Risk Factors,” of this Report.

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For a detailed discussion

on the application of these and other accounting policies, see Note 1 of the notes to our consolidated financial statements.

You should be aware that preparation of our consolidated annual and quarterly financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and

liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods.

on the application of these and other accounting policies, see Note 1, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Item 8 of this Report.

You should be aware that preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the

date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods.

We can give no assurances that actual results will not differ from those estimates.

Although we do

not believe that there is a reasonable likelihood that there will be a material change in the future estimates, or in the assumptions that we use in calculating the estimates, the uncertain future effects, if any, of the 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.

Although we do not believe that

there is a reasonable likelihood that there will be a material change in the future estimates, or in the assumptions that we use in calculating the estimates, the uncertain future effects, if any, of the disruptions in the supply chain caused by

the COVID-19 pandemic, Russia’s invasion of the Ukraine and resultant sanctions imposed by the U.S.

and other governments, future increases in interest rates, inflation, macroeconomic uncertainty, and other unforeseen changes in the industry, or

business, could materially impact the estimates, and may have a material adverse effect on our business, financial condition and results of operations.

Valuation of Long‑Lived and Intangible Assets and Goodwill

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What changed 10-K

Item 7. Management’s Discussion and Analysis