What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-08-02 · 331 added, 301 removed, 264 unchanged (71% of the section changed)

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relationships with our major customers and in the timing, size and continuation of our customers’ programs;

changes in our supply chain financing arrangements, such as changes in terms, termination of contracts and/or the impact of rising

interest rates;

changes in our supply chain financing arrangements, such as changes in terms, termination of contracts and/or the impact of rising interest

the ability of our customers to achieve their projected sales;

competitive product and pricing pressures;

increases in production or material costs, including procurement costs resulting from higher tariffs, and inflationary cost

increases in raw materials, labor and transportation, that cannot be recouped in product pricing;

increases in production or material costs, including procurement costs resulting from higher tariffs, and inflationary cost increases

in raw materials, labor and transportation, that cannot be recouped in product pricing;

the performance of the aftermarket, non-aftermarket, industrial equipment and original equipment markets;

changes in the product mix and

distribution channel mix;

changes in the product mix and distribution channel

economic and market conditions;

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our ability to achieve benefits from our cost savings initiatives;

product liability and environmental matters (including, without

limitation, those related to asbestos-related contingent liabilities and remediation costs at certain properties);

product liability and environmental matters (including, without limitation, those related to

asbestos-related contingent liabilities and remediation costs at certain properties);

the effects of a widespread public health crisis, including the coronavirus (COVID-19) pandemic;

the effects of disruptions in the

supply chain;

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

the effects of disruptions in the supply chain;

Russia’s invasion

of the Ukraine and resultant sanctions imposed by the U.S.

and other governments;

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climate-related risks, such as physical and transition risks;

other risks and uncertainties, such as those described under Risk Factors, Quantitative and Qualitative Disclosures About Market Risk and those detailed herein and from time to time in the filings of the Company with the SEC.

Forward-looking

statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

In addition, historical information

should not be considered as an indicator of future performance.

as well as other risks and uncertainties, such as

those described under Risk Factors, Quantitative and Qualitative Disclosures About Market Risk and those detailed herein and from time to time in the filings of the Company with the SEC.

Forward-looking statements are made only as of the date

hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

In addition, historical information should not be considered as an indicator of

future performance.

The following discussion should be read in conjunction with the unaudited consolidated financial statements, including the notes thereto, included elsewhere in this Report.

With over 100 years in business, we are a leader in the industries we serve and a trusted partner for all of our stakeholders.

We manufacture and distribute premium replacement parts for our customers in the automotive aftermarket, while

providing customized solutions for vehicle control and thermal management products in diversified end markets represented by our Engineered Solutions segment.

We are a global manufacturer with over 6,000 employees (inclusive of temporary and

joint venture employees) across nearly 39 manufacturing, distribution and engineering facilities and offices located in North America, Europe and Asia.

We sell our products primarily to automotive aftermarket retailers, warehouse distributors,

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

We manufacture and distribute premium replacement parts for our customers in the automotive aftermarket, and

custom-engineered solutions for vehicle control and thermal management products in diversified end markets represented by our Engineered Solutions segment.

We are a global manufacturer with over 6,000 employees (inclusive of temporary and joint

venture employees) across 40 manufacturing, distribution and engineering facilities and offices located in North America, Europe and Asia.

We sell our products primarily to automotive aftermarket retailers, warehouse distributors, original

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

Beginning on January 1, 2023, we reorganized our business into three operating segments – Engineered Solutions , Vehicle Control and Temperature Control .

Engineered Solutions is a new operating segment created by carving out all non-aftermarket business from our prior Engine Management and Temperature Control operating

segments, which will now solely reflect parts sales to aftermarket channels.

Our Engineered Solutions segment supplies custom-engineered solutions to vehicle and equipment manufacturers in highly diversified global end-markets such as commercial

and light vehicles, construction, agriculture, power sports and marine, and is expected to provide a platform for growth.

Segment offerings include product categories from both of our legacy operating segments, and offer a broad array of

conventional and future-oriented technologies, including those that are specific to vehicle electrification as well as those that are powertrain-neutral.

Engineered Solutions is a new operating segment created by carving out all non-aftermarket business from our prior Engine Management and Temperature Control operating segments,

which will now solely reflect parts sales to aftermarket channels.

Our Engineered Solutions segment supplies custom-engineered solutions to vehicle and equipment manufacturers in highly diversified global end-markets such as commercial and light

vehicles, construction, agriculture, power sports and marine, and is expected to provide a platform for growth.

Segment offerings include product categories from both of our legacy operating segments, and offer a broad array of conventional and

future-oriented technologies, including those that are specific to vehicle electrification as well as those that are powertrain-neutral.

Vehicle Control is the new name for our Engine Management operating segment.

It includes our core aftermarket business after carving out of all non-aftermarket business to

our Engineered Solutions operating segment.

The Vehicle Control segment includes sales from three new major product groups – (1) Ignition, Emissions & Fuel Delivery , which includes the traditional

internal combustion engine (ICE) dependent categories;

(2) Electrical & Safety , which includes powertrain neutral vehicle technologies such as electrical switches/relays, safety related products such

as anti-lock brake and vehicle speed sensors, tire pressure monitoring, park assist sensors, and advanced driver assistance components;

and (3) Wire Sets & Other , which includes spark plug wire sets

and other related products, and are product categories we have noted to be in secular decline based upon product life cycle.

It includes our core aftermarket business after carving out all non-aftermarket business, which

moved to our Engineered Solutions operating segment.

The Vehicle Control segment includes sales from three new major product groups – (1) Ignition, Emissions & Fuel Delivery , which includes the

traditional internal combustion engine (ICE) dependent categories;

(2) Electrical & Safety , which includes powertrain-neutral vehicle technologies such as electrical switches/relays, safety related

products such as anti-lock brake and vehicle speed sensors, tire pressure monitoring, park assist sensors, and advanced driver assistance components;

and (3) Wire Sets & Other , which includes spark plug

wire sets and other related products, and are product categories we have noted to be in secular decline based upon product life cycle.

Our Temperature Control operating segment remains substantially unchanged, as only a small portion of its business moved to Engineered Solutions, and this legacy aftermarket

business segment is poised to benefit from the broader adoption of air conditioning and other thermal systems.

Those systems will provide passenger comfort regardless of the vehicles’ powertrain, and are being developed to cool batteries and

other products used on electric vehicles.

Segment offerings include sales from thermal products in the aftermarket business under two major product groups – (1) AC System Components, which includes

compressors, connecting lines, heat exchangers, and expansion devices;

business segment is poised to benefit from the broader adoption of more complex air conditioning and other thermal systems.

These systems will provide passenger comfort regardless of the vehicles’ powertrain, and are being developed to cool

batteries and other products used on electric vehicles.

Segment offerings include sales from thermal products in the aftermarket business under two major product groups – (1) AC System Components, which

includes compressors, connecting lines, heat exchangers, and expansion devices;

and (2) Other Thermal Component s, which includes parts that provide engine, transmission, electric drive motor, and battery

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This discussion summarizes the significant factors affecting our results of operations and the financial condition of our

business during the three months ended June 30, 2023 and 2022.

business during the three months ended September 30, 2023 and 2022.

Three Months Ended

September 30,

(In thousands, except per share data)

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Loss from discontinued operations, net of income taxes

Net earnings (loss) attributable to noncontrolling interest

Net earnings attributable to noncontrolling interest

Net earnings attributable to SMP

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Net earnings per common share

Consolidated net sales for the three months ended June 30, 2023 were $353.1 million, a decrease of $6.3 million, or 1.8%, compared to net sales of $359.4 million in the same period in 2022.

Net sales decreased in our Vehicle Control and

Temperature Control operating segments, while net sales in our Engineered Solutions operating segment increased when compared to the comparable period in the prior year.

The decrease in net sales in our Vehicle Control segment primarily reflects the impact of lower sales to a customer that filed for bankruptcy in the first quarter of the year;

while Temperature Control’s net sales for the second quarter of

2023 reflects the impact of a rainy spring and early summer season across key markets, and thus impacted the timing of early season customer orders in 2023, which were lower than the strong customer orders of the second quarter of 2022 when sales

were up 6.4% and customers replenished their prior year inventory levels.

Net sales in our Engineered Solutions segment showed year-over-year improvement driven by increased pricing and new business wins, and we continue to be optimistic about

the long-term growth potential of the complementary markets served in our newly created Engineered Solutions operating segment.

Gross margins as a percentage of net sales increased to 28.7% in the second quarter of 2023 compared to 26.8% in the second quarter of 2022.

The gross margin percentages in both our Vehicle Control and Engineered Solutions segments increased

year-over-year, while the gross margin percentage decreased in our Temperature Control segment.

The overall consolidated gross margin percentage increase reflects the impact of increased pricing and operating performance, which more than offset

the lower fixed cost absorption due to lower production levels as we work down our inventory balances, the lower sales volumes in Temperature Control, the weakening of the U.S.

dollar on our international operations and the negative impact from

the different margin profile in Engineered Solutions.

Although all of our operating segments were negatively impacted by ongoing inflationary cost increases in certain raw materials, labor and transportation expenses, we anticipate that our

annual cost savings initiatives and ability to pass through higher prices to our customers should continue offset much of the impact on our gross margins.

Operating margin as a percentage of net sales for the three months ended June 30, 2023 was essentially flat at 7.7% as compared to 7.8% for the same period in 2022.

Consolidated net sales for the three months ended September 30, 2023 were $386.4 million, an increase of $5 million, or 1.3%, compared to net sales of $381.4 million in the same period in 2022.

Net sales increased in our Temperature Control and

Engineered Solutions operating segments, while net sales in our Vehicle Control operating segment decreased when compared to the comparable period in the prior year.

Vehicle Control’s net sales for the three months ended September 30, 2023 decreased $6.8 million, or 3.4%, to $190.9 million;

while Temperature Control’s net sales increased $6.2 million, or 5.3%, to $123.6 million.

The decrease in net sales in

our Vehicle Control segment reflects the impact of lower sales to a customer that filed for bankruptcy in the first quarter of 2023, as well as the negative impact in 2023 of customer pipeline orders in the third quarter of 2022 that did not recur

in the third quarter of 2023.

Net sales in our Temperature Control segment increased in the third quarter of 2023 as compared to the comparable period in 2022 reflecting the impact of the timing of customer orders.

Customer orders in the first

half of 2023 were lower than orders in the same period of 2022, resulting from lower customer demand caused by a rainy spring and cool early summer temperatures across key markets.

As summer temperatures increased, customer demand increased

significantly in the third quarter of 2023 resulting in strong third quarter 2023 sales.

Net sales in our Engineered Solutions segment for the three months ended September 30, 2023 increased $5.5 million, or 8.4%, to $71.8 million.

The year-over-year improvement reflects the impact of strong demand and new business wins, and we

continue to be optimistic about the long-term growth potential of the complementary markets served in our newly created Engineered Solutions operating segment.

Gross margins as a percentage of net sales increased to 29.7% in the third quarter of 2023 compared to 28% in the third quarter of 2022.

The gross margin percentages increased year-over-year in each of our Vehicle Control, Temperature Control

and Engineered Solutions operating segments.

Overall, the consolidated gross margin percentage increase reflects the impact of increased pricing, improved operating performance, higher sales volumes in Temperature Control, and favorable sales mix

in Engineered Solutions, which more than offset the lower fixed cost absorption due to lower production levels as we work down our inventory balances, and the weakening of the U.S.

dollar on our international operations.

Although all of our

operating segments were negatively impacted by ongoing inflationary cost increases in certain raw materials, labor and transportation expenses, we anticipate that our annual cost savings initiatives and ability to pass through higher prices to our

customers should continue to offset much of the impact on our gross margins.

Operating margin as a percentage of net sales for the three months ended September 30, 2023 increased slightly to 9% when compared to 8.8% for the same period in 2022.

Included in our operating margin were selling, general and administrative

expenses (“SG&A”) of $73.8 million, or 20.9% of net sales for the three months ended June 30, 2023 compared to $68.5 million, or 19% of net sales, for the same period in 2022.

The $5.3 million increase in SG&A expenses in the second

quarter of 2023 as compared to the second quarter of 2022 is principally due to higher interest rate related costs of $4.8 million incurred in our supply chain financing arrangements.

expenses (“SG&A”) of $79.8 million, or 20.6% of net sales for the three months ended September 30, 2023 compared to $73.2 million, or 19.2% of net sales, for the same period in 2022.

The $6.6 million increase in SG&A expenses in the third

quarter of 2023 as compared to the third quarter of 2022 is principally due to higher interest rate related costs of $4 million incurred in our supply chain financing arrangements.

Excluding the impact of the incremental interest rate costs

incurred in our supply chain financing arrangements, SG&A expenses in the second quarter of 2023 were 19.6% of consolidated net sales, slightly higher than the percentage in the comparable prior year period.

Overall, we remain optimistic for the balance of the year.

Our sales team continues to explore new sales opportunities, we remain optimistic about the long-term potential growth opportunities in our Engineered Solutions segment, our cost

savings programs remain on track and we are confident that our focus on cash flow will result in generating significant operating cash flow for the balance of 2023.

incurred in our supply chain financing arrangements, SG&A expenses in the third quarter of 2023 were 19.6% of consolidated net sales, slightly higher than the percentage in the comparable prior year period.

Overall, our core automotive aftermarket business remains strong, and we continue to be optimistic about the long-term growth potential of the complementary markets served in our Engineered Solutions operating segment.

New Distribution Facility in Shawnee, Kansas

In May 2023, we signed a lease for a new distribution facility in Shawnee, Kansas with a lease commencement date of July 1, 2023.

The new facility will expand our total distribution network square footage to meet our growing demands in the

automotive aftermarket industry.

The new 575,000 square foot facility will replace our current 363,000 square foot facility in Edwardsville, Kansas, and integrate state-of-the-art technologies to deliver improved logistics capabilities,

operational efficiencies, as well as enhanced employee, customer and supplier experiences.

The new facility is located just five miles away from our Edwardsville facility, enabling us to retain our existing workforce avoiding the additional costs

of hiring and training.

The facility will have a phased opening beginning in early 2025.

We will incur additional costs in 2023 and 2024 during the phase-in period while we operate the two facilities.

Impact of Russia’s Invasion of the Ukraine

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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

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

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

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

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

Environmental, Social, & Governance (“ESG”)

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serve as a statement of principles to guide our decision-making and reinforce our commitment to these values in all aspects of our business.

These values also serve as the foundation for our increased focus on many important environmental,

social and governance issues, such as environmental stewardship and our efforts to identify and implement practices that reduce our environmental impact while achieving our business goals;

our attention to diversity, equity and inclusion,

employee development, retention, and health and safety;

These values also serve as the foundation for our increased focus on many important environmental, social

and governance issues, such as environmental stewardship and our efforts to identify and implement practices that reduce our environmental impact while achieving our business goals;

our attention to diversity, equity and inclusion, employee

development, retention, and health and safety;

and our community engagement initiatives, to name a few.

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

Additional information on our ESG initiatives can be found on our corporate website at ir.smpcorp.com under

“Environmental & Social Responsibility” (including our most recent sustainability report) 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.

Additional information on our ESG initiatives can be found on our corporate website at smpcorp.com under

“Sustainability” (including our most recent sustainability report) 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.

Interim Results of Operations

Comparison of the Three Months Ended June 30, 2023 to the Three Months Ended June 30, 2022

Consolidated net sales for the three months ended June 30, 2023 were $353.1 million, a decrease of $6.3 million, or 1.8%, compared to

Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022

Consolidated net sales for the three months ended September 30, 2023 were $386.4 million, an increase of $5 million, or 1.3%, compared to

$381.4 million in the same period of 2022, with the majority of our net sales to customers located in the United States.

Net sales decreased in our Vehicle Control and Temperature Control operating segments, while net sales in our Engineered

Solutions operating segment increased when compared to the comparable period in the prior year.

The following table summarizes consolidated net sales by segment and by major product group within each segment for the three months ended June 30, 2023 and 2022 (in thousands):

Net sales increased in our Temperature Control and Engineered Solutions operating segments, while net sales in our Vehicle

Control operating segment decreased when compared to the comparable period in the prior year.

The following table summarizes consolidated net sales by segment and by major product group within each segment for the three months ended September 30, 2023 and 2022 (in thousands):

Three Months Ended

September 30,

Vehicle Control

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Total Engineered Solutions

Vehicle Control’s net sales for the three months ended June 30, 2023 decreased slightly to $183.8 million compared to $185.8 million in the same period of 2022.

Net sales in the electrical and safety product group for the three months ended

June 30, 2023 decreased year-over-year;

while net sales increased slightly in the engine management (ignition, emissions, and fuel delivery) product group and remained essentially flat in the wire sets and other product group when compared to the

three months ended June 30, 2022.

The decrease in net sales in our Vehicle Control operating segment primarily reflects lower sales to a customer that filed for bankruptcy in the first quarter of the year.

Temperature Control’s net sales for the three months ended June 30, 2023 decreased $8.5 million, or 8.1%, to $97.1 million compared to $105.6 million in the same period of 2022.

Net sales declined in each of the AC systems components and

other thermal components product groups for the three months ended June 30, 2023 when compared to the comparable period in the prior year.

Temperature Control’s net sales for the second quarter of 2023 reflects the impact of a rainy spring and

early summer season across key markets, and thus impacted the timing of early season customer orders in 2023, which were lower than the strong customer orders of the second quarter of 2022 when sales were up 6.4% and customers replenished their

prior year inventory levels.

Overall, full year results at Temperature Control will be dependent upon summer weather conditions and customer inventory levels.

Engineered Solutions’ net sales for the three months ended June 30, 2023 increased $4.2 million, or 6.2%, to $72.2 million compared to $68 million in the same period of 2022.

Net sales increased in the each of the commercial vehicle and light

vehicle product groups for the three months ended June 30, 2023 when compared to the three month ended June 30, 2022;

while net sales in the construction and agriculture, and all other product groups declined year-over-year.

Overall, net sales

in our Engineered Solutions operating segment showed year-over-year improvement driven by increased pricing and new business wins, and we continue to be optimistic about the long-term growth potential of the complementary markets served in our

newly created Engineered Solutions operating segment.

Vehicle Control’s net sales for the three months ended September 30, 2023 decreased $6.8 million, or 3.4%, to $190.9 million compared to $197.7 million in the same period of 2022.

The decrease in net sales in our Vehicle Control operating

segment reflects the impact of lower sales to a customer that filed for bankruptcy in the first quarter of 2023, as well as the negative impact in 2023 of customer pipeline orders in the third quarter of 2022 that did not recur in the third quarter

Temperature Control’s net sales for the three months ended September 30, 2023 increased $6.2 million, or 5.3%, to $123.6 million compared to $117.4 million in the same period of 2022.

The increase in net sales in our Temperature Control segment

reflects the impact of the timing of customer orders.

Customer orders in the first half of 2023 were lower than orders in the same period of 2022, resulting from lower customer demand caused by a rainy spring and cool early summer temperatures

across key markets.

As summer temperatures increased, customer demand increased significantly in the third quarter of 2023 resulting in strong third quarter 2023 sales.

Overall, full year results at Temperature Control is dependent upon ongoing

weather conditions and customer inventory levels.

Engineered Solutions’ net sales for the three months ended September 30, 2023 increased $5.5 million, or 8.4%, to $71.8 million compared to $66.3 million in the same period of 2022.

Overall, net sales in our Engineered Solutions operating

segment showed year-over-year improvement driven by strong demand and new business wins, and we continue to be optimistic about the long-term growth potential of the complementary markets served in our newly created Engineered Solutions operating

Gross Margins.

Gross margins, as a percentage of consolidated net sales, increased to 28.7% in the second quarter of 2023, compared to 26.8% in the second quarter of 2022.

following table summarizes gross margins by segment for the three months ended June 30, 2023 and 2022, respectively (in thousands):

Gross margins, as a percentage of consolidated net sales, increased to 29.7% in the third quarter of 2023, compared to 28% in the third quarter of 2022.

The following

table summarizes gross margins by segment for the three months ended September 30, 2023 and 2022, respectively (in thousands):

Three Months Ended

Vehicle Control

Temperature Control

Engineered Solutions

September 30,

Gross margins

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Gross margin percentage

Compared to the second quarter of 2022, gross margins at Vehicle Control increased 3.8 percentage points from 28.9% to 32.7%.

Gross margins at Temperature Control decreased 0.5 percentage points from 27.8% to 27.3%, and gross margins at

Compared to the third quarter of 2022, gross margins at Vehicle Control increased 1.4 percentage points from 30.5% to 31.9%.

Gross margins at Temperature Control increased 0.7 percentage points from 29.9% to 30.6%, and gross margins at

Engineered Solutions increased 5.3 percentage points from 17.1% to 22.4%.

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absorption due to lower production levels than those achieved in the same period in 2022.

The gross margin percentage decrease in our Temperature Control operating segment reflects the impact of lower sales volumes;

while the gross margin

percentage increase at our Engineered Solutions operating segment is driven primarily by higher sales and increased pricing, which more than offset the negative impact of customer sales mix.

All of our operating segments were negatively impacted

by the ongoing inflationary cost increases in certain raw materials, labor and transportation expenses.

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

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

The gross margin percentage increase in our Temperature Control operating segment reflects the impact of increased pricing and higher sales volumes;

the gross margin percentage increase at our Engineered Solutions operating segment is driven primarily by favorable customer sales mix and increased pricing.

All of our operating segments were negatively impacted by the ongoing inflationary cost

increases in certain raw materials, labor and transportation expenses.

While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost savings initiatives coupled with our ability to pass

through higher prices to our customers should help to offset much of this impact to our gross margins.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses (“SG&A”) were $73.8 million, or 20.9% of consolidated net sales, in the second quarter

of 2023, as compared to $68.5 million, or 19% of consolidated net sales, in the second quarter of 2022.

The $5.3 million increase in SG&A expenses as compared to the second quarter of 2022 is principally due to higher interest rate related

costs of $4.8 million incurred in our supply chain financing arrangements.

Excluding the impact of the incremental interest rate costs incurred in our supply chain financing arrangements, SG&A expenses in the second quarter of 2023 were

19.6% of consolidated net sales, slightly higher than the percentage in the comparable prior year period, primarily due to lower sales volume.

Selling, general and administrative expenses (“SG&A”) were $79.8 million, or 20.6% of consolidated net sales, in the third quarter of

2023, as compared to $73.2 million, or 19.2% of consolidated net sales, in the third quarter of 2022.

The $6.6 million increase in SG&A expenses as compared to the third quarter of 2022 is principally due to (1) higher interest rate related

costs of $4 million incurred in our supply chain financing arrangements, and (2) higher distribution costs.

Excluding the impact of the incremental interest rate costs incurred in our supply chain financing arrangements, SG&A expenses in the

third quarter of 2023 were 19.6% of consolidated net sales, slightly higher than the percentage in the comparable prior year period, primarily due to lower sales volume.

Restructuring and Integration Expenses.

Restructuring and integration expenses were $0.3 million for the three months ended June 30, 2023.

Restructuring and integration expenses were $0.2 million for the three months ended September 30, 2023.

Restructuring and integration expenses

incurred in the second quarter of 2023 relate to product line relocations from our Independence, Kansas manufacturing facility and from our St.

Thomas, Canada manufacturing facility to our manufacturing facilities in Reynosa, Mexico, as part of

our Cost Reduction Initiative announced during the fourth quarter of 2022.

Total restructuring expenses incurred during the three months ended June 30, 2023 related to the initiative of $0.3 million consisted of (1) expenses of approximately

$0.1 million consisting of employee severance and bonuses related to our product line relocations, and (2) expenses of approximately $0.2 million related to the relocation of machinery and equipment to our manufacturing facilities in Reynosa,

incurred in the third quarter of 2023 relate to product line relocations from our Independence, Kansas manufacturing facility and from our St.

Thomas, Canada manufacturing facility to our manufacturing facilities in Reynosa, Mexico, as part of our

Cost Reduction Initiative announced during the fourth quarter of 2022.

Total restructuring expenses incurred during the three months ended September 30, 2023 related to the initiative of $0.2 million consisted of (1) expenses of approximately $0.1

million consisting of employee severance and bonuses related to our product line relocations, and (2) expenses of approximately $0.1 million related to the relocation of machinery and equipment to our manufacturing facilities in Reynosa, Mexico.

Additional restructuring costs related to the initiative, and expected to be incurred, are approximately $0.5 million.

We anticipate that the Cost Reduction Initiative will be completed by the end of 2023.

We anticipate that the Cost Reduction Initiative will be substantially completed by the end of 2023.

Operating Income.

Operating income was $27.2 million, or 7.7% of consolidated net sales, in the second quarter of 2023, compared to $27.9 million, or 7.8% of consolidated net sales,

in the second quarter of 2022.

The year-over-year decrease in operating income of $0.7 million is primarily the result of the impact of lower operating income in the Temperature Control segment stemming from lower net sales, and higher interest

rate related costs of $4.8 million incurred in our supply chain financing arrangements included in SG&A expenses offset, in part, by higher gross margins as a percentage of sales in the Vehicle Control and Engineered Solutions segments.

Operating income was $34.8 million, or 9% of consolidated net sales, in the third quarter of 2023, compared to $33.6 million, or 8.8% of consolidated net sales, in

the third quarter of 2022.

The year-over-year increase in operating income of $1.2 million is the result of higher net sales and gross margins as a percentage of sales offset, in part, by higher SG&A expenses, consisting primarily of higher

interest rate related costs of $4 million incurred in our supply chain financing arrangements, and slightly higher restructuring and integration expenses.

Other Non-Operating Income (Expense), Net.

Other non-operating income, net was $0.8 million in the second quarter of 2023, compared to $1.9 million in the second quarter of 2022.

The year-over-year decrease in other non-operating income (expense), net results from the decrease in year-over-year equity income from our joint ventures, due in part to lower production related to inventory reduction plans, and the unfavorable

impact of changes in foreign currency exchange rates.

Other non-operating income, net was $1.7 million in the third quarter of 2023, compared to $1.5 million in the third quarter of 2022.

year-over-year increase in other non-operating income, net results from the increase in year-over-year equity income from our Foshan FGD SMP Automotive Compressor Co., Ltd.

(“FGD”) joint venture, which more than offset the lower year-over-year

equity income achieved in our joint ventures other than FGD.

The decline in equity income from our joint ventures other than FGD is due, in part, to lower production levels related to inventory reduction plans, and the impact of our acquisition of

an additional 15% equity interest in Gwo Yng.

Commencing in July 2023, on the date of our 15% increase equity interest, the financial results of Gwo Yng were no longer accounted for under the equity method of accounting.

Instead, Gwo Yng’s

financial results were reported on a consolidated basis, resulting in lower joint venture equity income.

Interest Expense.

Interest expense increased to $3.3 million in the second quarter of 2023, compared to $1.8 million in the second quarter of 2022.

The year-over-year increase in

interest expense reflects the impact of higher year-over-year average interest rates on our credit facilities offset, in part, by the impact of slightly lower average outstanding borrowings in the second quarter of 2023 when compared to the

second quarter of 2022.

Interest expense is essentially flat at $3.6 million in the third quarter of 2023, compared to $3.7 million in the third quarter of 2022.

Interest expense reflects

the impact of higher year-over-year average interest rates on our credit facilities offset by the impact of lower average outstanding borrowings in the third quarter of 2023 when compared to the third quarter of 2022.

Income Tax Provision .

The income tax provision in the second quarter of 2023 was $6.3 million at an effective tax rate of 25.5% compared to

The income tax provision in the third quarter of 2023 was $8 million at an effective tax rate of 24.3% compared to $8.3

million at an effective tax rate of 26.3% for the same period in 2022.

The effective tax rate was essentially flat year-over-year.

The lower effective tax rate in the third quarter of 2023 compared to the comparable period in 2022 results primarily from the income tax provision impact in 2022 related to

the exercise of restricted stock.

The exercise of annual restricted stock grants will occur in the fourth quarter of 2023 rather than in the third quarter as was the case in 2022.

Loss from Discontinued Operations.

Loss from discontinued operations, net of income tax, reflects legal expenses and other costs associated with our asbestos-related liability.

During the second quarter of 2023 and 2022, the loss from discontinued operations, net of tax was $9.2 million and $1.7 million, respectively.

The loss from discontinued operations includes an $11 million pre-tax provision in the second quarter

of 2023 which arose from the May 11, 2023 court ruling in a breach of contract claim in connection with a legal proceeding with a third party;

and legal and other administrative expenses, before taxes, of $1.5 million and $2.3 million in the

second quarter of 2023 and 2022, respectively.

As discussed more fully in Note 18, “Commitments and Contingencies” in the notes to our consolidated financial statements (unaudited), we are responsible for certain future liabilities relating to

alleged exposure to asbestos containing products.

Loss from discontinued operations, net of income tax, during the third quarter of 2023 and 2022, reflects information contained in the actuarial

studies performed as of August 31, 2023 and 2022, other information available and considered by us, and legal expenses associated with our asbestos related liability.

During the third quarter of 2023 and 2022, the loss from discontinued

operations, net of tax was $18.2 million and $14.3 million, respectively.

The loss from discontinued operations for the third quarter of 2023 and 2022 includes (1) a $23.8 million and $18.5 million pre-tax provision, respectively, to increase our

indemnity liability in line with the August 31, 2023 and 2022 actuarial studies;

(2) legal and other administrative expenses, before taxes, of $1.3 million and $0.8 million in the third quarter of 2023 and 2022, respectively, and;

million credit, before taxes, in the third quarter of 2023 related the final settlement of a breach of contract legal proceeding.

As discussed more fully in Note 18, “Commitments and Contingencies” in the notes to our consolidated financial

statements (unaudited), we are responsible for certain future liabilities relating to alleged exposure to asbestos containing products.

Net Earnings Attributable to Noncontrolling Interest.

Net earnings (loss) attributable to noncontrolling interest relates to our 70% ownership in a joint venture in Hong Kong, with

operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”).

Net earnings attributable to the noncontrolling interest of $50,000 and $85,000 during the three months ended June 30, 2023 and 2022, respectively, represents 30% of the net

earnings of Trombetta Asia, Ltd.

Comparison of the Six Months Ended June 30, 2023 to the Six Months Ended June 30, 2022

Consolidated net sales for the six months ended June 30, 2023 were $681.1 million, a slight decrease of $1.1 million, compared to

Net earnings (loss) attributable to noncontrolling interest relates to the minority shareholders’ interest in our 70% owned joint

venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”) and, in our 80% ownership in Gwo Yng, commencing in July 2023 upon the completion of our step acquisition.

Net earnings attributable to the noncontrolling

interest was $63,000 and $52,000 during the three months ended September 30, 2023 and 2022, respectively.

For additional information on the Gwo Yng step acquisition, see Note 3, “Business Acquisitions and Investments,” in the notes to our

consolidated financial statements (unaudited).

Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022

Consolidated net sales for the nine months ended September 30, 2023 were $1,067.5 million, an increase of $3.9 million, compared to

$1,063.6 million in the same period of 2022, with the majority of our net sales to customers in the United States.

Net sales decreased in our Temperature Control operating segment, while net sales in our Vehicle Control and Engineered Solutions

operating segments increased when compared to the comparable period in the prior year.

The following table summarizes consolidated net sales by segment and by major product group within each segment for the six months ended June 30, 2023 and 2022 (in thousands):

Six Months Ended

Net sales increased in our Engineered Solutions operating segment, while net sales in our Vehicle Control and Temperature Control

operating segments decreased when compared to the comparable period in the prior year.

The following table summarizes consolidated net sales by segment and by major product group within each segment for the nine months ended September 30, 2023 and 2022 (in thousands):

Nine Months Ended

September 30,

Vehicle Control

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Total Engineered Solutions

Vehicle Control’s net sales for the six months ended June 30, 2023 increased $5.4 million, or 1.5%, to $368.4 million compared to $363 million in the same period of 2022.

Net sales in the electrical and safety, and wire sets and other product

groups for the six months ended June 30, 2023 increased year-over-year;

while net sales in the electrical and safety product group decreased in the six months ended June 30, 2023 when compared to the comparable period in the prior year.

the increase in net sales in our Vehicle Control operating segment reflects the positive impact of increased pricing and the $7.3 million increase in net sales in the first quarter of 2023, offset in part, by lower sales to a customer that filed

for bankruptcy in the first quarter of the year.

Temperature Control’s net sales for the six months ended June 30, 2023 decreased $9.2 million, or 5.2%, to $169.5 million compared to $178.7 million in the same period of 2022.

Net sales declined in the AC systems components product group for

the six months ended June 30, 2023 when compared to the comparable period in the prior year;

while net sales in the other thermal components product group was essentially flat year-over-year.

Temperature Control’s net sales for the first six

months of 2023 reflect the impact of a rainy spring and early summer season across key markets, and thus impacted the timing of early season customer orders in 2023, which were lower than the strong customer orders of the comparable period of

2022 when sales were up 14.7% and customers replenished their prior year inventory levels.

Overall, full year results at Temperature Control will be dependent upon summer weather conditions and customer inventory levels.

Engineered Solutions’ net sales for the six months ended June 30, 2023 increased $2.8 million, or 2%, to $143.3 million compared to $140.5 million in the same period of 2022.

Net sales increased in the each of the commercial vehicle and all

other product groups for the six months ended June 30, 2023 when compared to the six months ended June 30, 2022;

while net sales in the construction and agriculture, and light vehicle product groups declined year-over-year.

Overall, net sales in

our Engineered Solutions operating segment showed a year-over-year improvement driven by increased pricing and new business wins, and we continue to be optimistic about the long-term growth potential of the complementary markets served in our

newly created Engineered Solutions operating segment.

Vehicle Control’s net sales for the nine months ended September 30, 2023 decreased slightly to $559.3 million compared to $560.7 million in the same period of 2022.

Overall, the decrease in net sales in our Vehicle Control operating segment

reflects the impact of lower sales to a customer that filed for bankruptcy in the first quarter of 2023, as well as the negative impact in 2023 of customer pipeline orders that occurred in the third quarter of 2022 that did not recur in the third

quarter of 2023.

Temperature Control’s net sales for the nine months ended September 30, 2023 decreased slightly to $293.1 million compared to $296.1 million in the same period of 2022.

The lower year-over-year Temperature Control net sales reflects the impact

of a slow start to the season caused by a rainy spring and cool early summer temperatures across key markets which negatively impacted first and second quarter 2023 net sales.

After the slow start to the season, demand increased significantly in

the third quarter of 2023 as summer temperatures increased.

The result was strong third quarter 2023 net sales, which somewhat offset the lower year-over-year first half 2023 results.

Overall, full year results at Temperature Control is dependent

upon ongoing weather conditions and customer inventory levels.

Engineered Solutions’ net sales for the nine months ended September 30, 2023 increased $8.3 million, or 4%, to $215.1 million compared to $206.8 million in the same period of 2022.

Overall, net sales in our Engineered Solutions operating

segment showed a year-over-year improvement driven by strong demand and new business wins, and we continue to be optimistic about the long-term growth potential of the complementary markets served in our newly created Engineered Solutions operating

Gross Margins.

Gross margins, as a percentage of consolidated net sales, increased to 28.3% in the first six months of 2023, compared to 27.3% during the same period in 2022.

following table summarizes gross margins by segment for the six months ended June 30, 2023 and 2022, respectively (in thousands):

Six Months Ended

Temperature Control

Engineered Solutions

Gross margins, as a percentage of consolidated net sales, increased to 28.8% in the first nine months of 2023, compared to 27.5% during the same period in 2022.

following table summarizes gross margins by segment for the nine months ended September 30, 2023 and 2022, respectively (in thousands):

Nine Months Ended

September 30,

Gross margins

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Gross margin percentage

Compared to the first six months of 2022, gross margins at Vehicle Control increased 2.1 percentage points from 30.1% to 32.2%.

Gross margins at Temperature Control decreased 0.4 percentage points from 27.3% to 26.9%, and gross margins at

Engineered Solutions decreased 0.4 percentage points from 20.1% to 19.7%.

The gross margin percentage increase in our Vehicle Control operating segment reflects the positive impact of increased pricing and operating performance, which more offset increases in material and labor costs, as well as the lower fixed cost

absorption due to lower production levels than those achieved in the same period in 2022.

The gross margin percentage decrease in our Temperature Control operating segment reflects the impact of lower sales volumes;

while the gross margin

percentage decrease at our Engineered Solutions operating segment is primarily driven by the negative impact of customer sales mix.

All of our operating segments were negatively impacted by the ongoing inflationary cost increases in certain raw

materials, labor and transportation expenses.

While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost savings initiatives coupled with our ability to pass through higher prices to our

customers should help to offset much of this impact to our gross margins.

Compared to the first nine months of 2022, gross margins at Vehicle Control increased 1.9 percentage points from 30.2% to 32.1%.

Gross margins at Temperature Control increased 0.2 percentage points from 28.3% to 28.5%, and gross margins at

Engineered Solutions increased 1.5 percentage points from 19.1% to 20.6%.

The gross margin percentage increase in our Vehicle Control operating segment reflects the positive impact of increased pricing and operating performance, which more than offset increases in material and labor costs, as well as the lower fixed

cost absorption due to lower production levels than those achieved in the same period in 2022.

The gross margin percentage increase in our Temperature Control operating segment reflects the impact increased pricing and the higher sales volumes in

the third quarter of 2023;

while the gross margin percentage increase at our Engineered Solutions operating segment is driven primarily by favorable customer sales mix and increased pricing.

All of our operating segments were negatively impacted

by the ongoing inflationary cost increases in certain raw materials, labor and transportation expenses.

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

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

Selling, General and Administrative Expenses.

Selling, general and administrative expenses (“SG&A”) were $143.5 million, or 21.1% of consolidated net sales, in the first six

months of 2023, as compared to $131.4 million, or 19.3% of consolidated net sales in the first six months of 2022.

The $12.1 million increase in SG&A expenses as compared to the first six months of 2022 is principally due to (1) higher

Selling, general and administrative expenses (“SG&A”) were $223.3 million, or 20.9% of consolidated net sales, in the first nine

months of 2023, as compared to $204.6 million, or 19.2% of consolidated net sales in the first nine months of 2022.

The $18.7 million increase in SG&A expenses as compared to the first nine months of 2022 is principally due to (1) higher

interest rate related costs of $14.3 million incurred in our supply chain financing arrangements, and (2) higher distribution costs.

Excluding the impact of the incremental interest rate costs incurred in our supply chain financing arrangements,

SG&A expenses in the six months of 2023 were 19.6% of consolidated net sales, slightly higher than the percentage in the comparable prior year period.

SG&A expenses in the nine months of 2023 were 19.6% of consolidated net sales, slightly higher than the percentage in the comparable prior year period.

Restructuring and Integration Expenses.

Restructuring and integration expenses were $1.2 million in six months ended June 30, 2023 compared to $44,000 in the comparable period of

Restructuring and integration expenses incurred in the first six months of 2023 relate to product line relocations from our Independence, Kansas manufacturing facility and from our St.

Restructuring and integration expenses were $1.4 million in nine months ended September 30, 2023 compared to $44,000 in the comparable period

Restructuring and integration expenses incurred in the first nine months of 2023 relate to product line relocations from our Independence, Kansas manufacturing facility and from our St.

Thomas, Canada manufacturing facility to our

manufacturing facilities in Reynosa, Mexico, as part of our Cost Reduction Initiative announced during the fourth quarter of 2022.

Total restructuring expenses incurred during the six months ended June 30, 2023 related to the initiative of $1.2

Total restructuring expenses incurred during the nine months ended September 30, 2023 related to the initiative of

$1.4 million consisted of (1) expenses of approximately $1.1 million consisting of employee severance and bonuses related to our product line relocations, and (2) expenses of approximately $0.3 million related to the relocation of machinery and

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We anticipate that the Cost Reduction Initiative will be

completed by the end of 2023.

substantially completed by the end of 2023.

Operating Income.

Operating income was $47.9 million, or 7% of consolidated net sales, in the six months ended June 30, 2023, compared to $54.8 million, or 8% of consolidated net

sales, in the six months ended June 30, 2022.

The year-over-year decrease in operating income of $6.9 million is primarily the result of the impact of lower operating income in the Temperature Control segment stemming from lower net sales, and

higher interest rate related costs of $10.3 million incurred in our supply chain financing arrangements included in SG&A expenses offset, in part, by higher gross margins as a percentage of net sales in the Vehicle Control and Engineered

Solutions segments.

Operating income was $82.7 million, or 7.7% of consolidated net sales, in the nine months ended September 30, 2023, compared to $88.4 million, or 8.3% of consolidated

net sales, in the nine months ended September 30, 2022.

The year-over-year decrease in operating income of $5.7 million is the result of higher SG&A expenses, consisting primarily of higher interest rate related costs of $14.3 million incurred

in our supply chain financing arrangements, and higher restructuring and integration expenses offset, in part, by higher net sales and gross margins as a percentage of sales.

Other Non-Operating Income (Expense), Net.

Other non-operating income, net was $1 million in the first six months of 2023, compared to $3.4 million in the first six months of 2022.

impact of changes in foreign currency exchange rates.

Other non-operating income, net was $2.8 million in the first nine months of 2023, compared to $4.9 million in the first nine months of

The year-over-year decrease in other non-operating income, net results from the decrease in year-over-year equity income from our joint ventures, and the unfavorable impact of changes in foreign currency exchange rates.

The decline in

equity income from our joint ventures is due, in part, to lower production levels related to inventory reduction plans, and the impact of our acquisition of an additional 15% equity interest in Gwo Yng.

Commencing in July 2023, on the date of our

15% increase equity interest, the financial results of Gwo Yng were no longer accounted for under the equity method of accounting.

Instead, Gwo Yng’s financial results were reported on a consolidated basis, resulting in lower joint venture equity

Interest Expense.

Interest expense increased to $7.1 million in the first six months of 2023, compared to $2.6 million for the same period in 2022.

Interest expense increased to $10.8 million in the first nine months of 2023, compared to $6.3 million for the same period in 2022.

The year-over-year increase in

interest expense reflects the impact of higher year-over-year average interest rates on our credit facilities, and the impact of higher average outstanding borrowings in the first half of 2023 when compared to the first half of 2022.

interest expense reflects the impact of higher year-over-year average interest rates on our credit facilities when compared to the first nine months of 2022.

Income Tax Provision .

The income tax provision for the six months ended June 30, 2023 was $10.7 million at an effective tax rate of 25.5%,

The income tax provision for the nine months ended September 30, 2023 was $18.7 million at an effective tax rate of 25%,

compared to $22.4 million at an effective tax rate of 25.7% for the same period in 2022.

The effective tax rate was essentially flat year-over-year.

The lower effective tax rate in the nine months ended September 30, 2023 compared to the comparable period in 2022 results primarily from the income tax

provision impact in 2022 related to the exercise of restricted stock in the third quarter of 2022.

The exercise of annual restricted stock grants will occur in the fourth quarter of 2023 rather than in the third quarter as was the case in 2022.

Loss from Discontinued Operations.

Loss from discontinued operations, net of income tax, reflects legal expenses and other costs associated with our asbestos-related liability.

During the first six months of 2023 and 2022, the loss from discontinued operations, net of tax was $10 million and $2.8 million, respectively.

The loss from discontinued operations includes an $11 million pre-tax provision in the second quarter

of 2023 which arose from the May 11, 2023 court ruling in a breach of contract claim in connection with a legal proceeding with a third party;

and legal and other administrative expenses, before taxes, of $2.5 million and $3.8 million in the

first six months of 2023 and 2022, respectively.

alleged exposure to asbestos containing products.

Loss from discontinued operations, net of income tax, during the nine months ended September 30, 2023 and 2022, reflects information contained in the

actuarial studies performed as of August 31, 2023 and 2022, other information available and considered by us, and legal expenses associated with our asbestos related liability.

During the first nine months of 2023 and 2022, the loss from

discontinued operations, net of tax was $28.2 million and $17.1 million, respectively.

The loss from discontinued operations for the nine months ended September 30, 2023 and 2022 includes (1) a $23.8 million and $18.5 million pre-tax provision,

respectively, to increase our indemnity liability in line with the August 31, 2023 and 2022 actuarial studies;

(2) legal and other administrative expenses, before taxes, of $3.8 million and $4.6 million for the nine months ended September 30, 2023

and 2022, respectively, and;

(3) a $10.5 million pre-tax provision for the nine months ended September 30, 2023 related to a breach of contract legal proceeding.

As discussed more fully in Note 18, “Commitments and Contingencies” in the notes to

our consolidated financial statements (unaudited), we are responsible for certain future liabilities relating to alleged exposure to asbestos containing products.

Net Earnings Attributable to Noncontrolling Interest.

Net earnings (loss) attributable to noncontrolling interest relates to our 70% ownership in a joint venture in Hong Kong, with

operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”).

Net earnings attributable to the noncontrolling interest of $89,000 and $77,000 during the six months ended June 30, 2023 and 2022, respectively, represents 30% of the net earnings

of Trombetta Asia, Ltd.

Net earnings (loss) attributable to noncontrolling interest relates to the minority shareholders’ interest in our 70% owned joint

Net earnings attributable to the noncontrolling

interest was $152,000 and $129,000 during the nine months ended September 30, 2023 and 2022, respectively.

For additional information on the Gwo Yng step acquisition, see Note 3, “Business Acquisitions and Investments,” in the notes to our

consolidated financial statements (unaudited).

Restructuring and Integration Programs

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Our primary cash requirements include working capital, capital expenditures, regular quarterly dividends, stock repurchases, principal and interest payments on indebtedness and acquisitions.

The following table summarizes our primary sources

of funds including ongoing net cash flows from operating activities and availability under our Credit Agreement.

The following table summarizes our primary sources of

funds including ongoing net cash flows from operating activities and availability under our Credit Agreement.

September 30,

(In thousands)

Operating cash flows

Cash and cash equivalents

Remaining borrowing capacity

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Operating Activities.

During the first six months of 2023, cash provided by operating activities was $39.4 million compared to cash used in operating activities of $95.3 million in

During the first nine months of 2023, cash provided by operating activities was $132.9 million compared to cash used in operating activities of $75.5 million in

the same period of 2022.

The increase in cash provided by operating activities resulted primarily from the smaller year-over-year increase in accounts receivable, the decrease in inventories compared to an increase in inventories in the prior

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

and accrued expenses in the prior year offset, in part, by the decrease in net earnings.

Net earnings during the first six months of 2023 were $21.1 million compared to $38.6 million in the first six months of 2022.

During the first six months of 2023, (1) the increase in accounts receivable was $48.3 million compared to the

the increase in accounts payable compared to a decrease in accounts payable in the prior year, the decrease in prepaid expenses and other current assets compared to an increase in prepaid expenses and other current assets in the prior year, and the

larger year-over-year increase in sundry payables and accrued expenses offset, in part, by the decrease in net earnings.

Net earnings during the first nine months of 2023 were $27.9 million compared to $47.5 million in the first nine months of 2022.

During the first nine months of 2023, (1) the increase in accounts receivable was $38.9 million compared to the

year-over-year increase in accounts receivable of $51.9 million in 2022;

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(3) the increase in accounts payable was

$4.3 million compared to the year-over-year increase in accounts payable of $1.6 million in 2022;

(4) the increase in prepaid expenses and other current assets was $0.5 million compared to the year-over-year increase in prepaid expenses and other

$15.9 million compared to the year-over-year decrease in accounts payable of $31.8 million in 2022;

(4) the decrease in prepaid expenses and other current assets was $2.9 million compared to the year-over-year increase in prepaid expenses and other

current assets of $6.3 million in 2022;

and (5) the increase in sundry payables and accrued expenses was $2.8 million compared to the year-over-year decrease in sundry payables and accrued expenses of $5 million in 2022.

During the second quarter and first six months of 2023, we actively managed our working capital generating operating cash flow of $59.8 million and $39.4 million, respectively, reducing our inventory to more normalized levels.

We anticipate

further inventory decreases during 2023 as we continue to actively manage our working capital to maximize our operating cash flow.

and (5) the increase in sundry payables and accrued expenses was $12.3 million compared to the year-over-year increase in sundry payables and accrued expenses of $3.8 million in 2022.

During the third quarter and first nine months of 2023, we generated operating cash flow of $93.5 million and $132.9 million, respectively, by reducing our inventory to more normalized levels while actively managing our accounts receivable and

accounts payable.

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

Investing Activities .

Cash used in investing activities was $9.4 million in the first six months of 2023, compared to $13.2 million in the

Cash used in investing activities was $15.1 million in the first nine months of 2023, compared to $19.5 million in the

same period of 2022.

Investing activities during the first six months of 2023 and 2022 consisted of capital expenditures of $9.5 million and $13.2 million, respectively.

Investing activities during the first nine months of 2023 consisted of (1) the payment of $4 million for our acquisition of an additional 15% equity interest in Foshan GWO YNG SMP Vehicle Climate Control & Cooling Products

(“Gwo Yng”) and (2) capital expenditures of $18 million offset, in part, by cash acquired of $6.8 million in the Gwo Yng step acquisition.

Investing activities during the first nine months of 2022 consisted of capital expenditures of

$19.5 million.

Financing Activities .

Cash used in financing activities was $29.1 million in the first six months of 2023 as compared to cash provided by

Cash used in financing activities was $111 million in the first nine months of 2023 as compared to cash provided by

financing activities of $92 million in the same period of 2022.

During the first six months of 2023, we (1) reduced our borrowings under our Credit Agreement by $16.5 million;

During the first nine months of 2023, we (1) reduced our borrowings under our Credit Agreement by $92.1 million;

and (2) paid dividends of $18.8 million.

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credit facility.

During the first six months of 2022, we (1) increased our borrowings under our credit facilities by $139.2 million;

(2) made cash payments of $2.1 million for debt issuance costs in connection with our refinancing;

(3) made cash

payments for the repurchase of shares of our common stock of $25.6 million;

During the first nine months of 2022, we (1) increased our borrowings under our credit facilities by $143.2 million;

(2) repaid $1.7 million of other debt and lease obligations:

(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 $17.6 million.

Cash provided by borrowings under our credit facilities were used to fund our operating activities, investing activities, payment

of debt issuance costs, purchase shares of our common stock and pay dividends.

Cash provided by borrowings under our credit facilities were used

to fund our operating activities, investing activities, payment of debt issuance costs, purchase shares of our common stock and pay dividends.

Dividends of $18.8 million and $17.6 million were paid in 2023 and 2022, respectively.

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The maturity date is June 1, 2027.

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

the maturity date.

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

maturity date.

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

8 unchanged sentences

The Company may select

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

interest periods of one, three or nine 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.

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 June 30, 2023 under the Credit Agreement were $223 million, consisting of current borrowings of $58.7 million and long-term debt of $164.3 million;

Outstanding borrowings at September 30, 2023 under the Credit Agreement were $147.4 million, consisting of current borrowings of $52.4 million and long-term debt of $95 million;

while outstanding borrowings at December 31, 2022 were $239.5

million, consisting of current borrowings of $55 million and long-term debt of $184.5 million.

Letters of credit outstanding under the Credit Agreement were $2.4 million at both June 30, 2023 and December 31, 2022.

At June 30, 2023, the weighted average interest rate under our Credit Agreement was 5.6%, which consisted of $223 million in borrowings under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100 million of

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%.

During the six months ended June 30, 2023, our average daily alternative base rate loan balance was $0.2 million, compared to a balance of $10.8 million for the

six months ended June 30, 2022 and a balance of $5.6 million for the year ended December 31, 2022.

Letters of credit outstanding under the Credit Agreement were $2.4 million at both September 30, 2023 and December 31, 2022.

At September 30, 2023, the weighted average interest rate under our Credit Agreement was 5.2%, which consisted of $146 million in borrowings at 5.1% 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 $1.4 million at 9%.

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%.

During the nine months ended September 30, 2023, our average daily alternative base rate loan balance

was $0.1 million, compared to a balance of $7.5 million for the nine months ended September 30, 2022 and a balance of $5.6 million for the year ended December 31, 2022.

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

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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.

Borrowings under the overdraft facility are guaranteed by Standard Motor

Products, Inc., the ultimate parent company.

There were no borrowings outstanding under the overdraft facility at both June 30, 2023 and December 31, 2022.

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.

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

the ultimate parent company.

There were no borrowings outstanding under the overdraft facility at both September 30, 2023 and 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 $211.6 million and $382.5 million of receivables during the three months and six months ended June 30, 2023, respectively, and $218.4 million and $374.1 million for the comparable periods in 2022.

Receivables presented at financial institutions and not yet collected as of June 30, 2023 were approximately $10.7 million and remained in our accounts receivable balance as of that date.

Pursuant to these agreements, we sold $260.4 million and $643 million of receivables during the three months and nine months ended September 30, 2023, respectively, and $236.3 million and $610.4 million for the comparable periods in 2022.

Receivables presented at financial institutions and not yet collected as of September 30, 2023 were approximately $12.6 million and remained in our accounts receivable balance as of that date.

There were no receivables presented at financial

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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 $12.4 million and $21.5

million related to the sale of receivables was included in selling, general and administrative expense in our consolidated statements of operations for the three months and six months ended June 30, 2023, respectively, and $7.7 million and $11.2

A charge in the amount of $14.6 million and $36.1 million

related to the sale of receivables was included in selling, general and administrative expense in our consolidated statements of operations for the three months and nine months ended September 30, 2023, respectively, and $10.6 million and $21.8

million for the comparable periods in 2022.

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Material Cash Commitments

Material cash commitments as of June 30, 2023 consist of required cash payments to service our outstanding borrowings of $223 million under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, the future minimum cash requirements of

$93.6 million through 2034 under operating leases, and future cash payments relating to our restructuring activities of $1.7 million.

All of our other cash commitments as of June 30, 2023 are not material.

For additional information related to

our material cash commitments, see Note 4, “Restructuring and Integration Expenses”, Note 8, “Leases,” and Note 9, “Credit Facilities and Long-Term Debt,” in the notes to our consolidated financial statements (unaudited).

Material cash commitments as of September 30, 2023 consist of required cash payments to service our outstanding borrowings of $147.4 million under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, and the future minimum cash

requirements of $129.7 million through 2034 under operating leases.

All of our other cash commitments as of September 30, 2023 are not material.

For additional information related to our material cash commitments, see Note 8, “Leases,” and Note

9, “Credit Facilities and Long-Term Debt,” in the notes to our consolidated financial statements (unaudited).

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

and other governments,

the geo-political impact of U.S.

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

and other governments, the

geo-political impact of U.S.

relations with China, 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

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We have identified the accounting policies and estimates surrounding the “Valuation of Long-Lived and Intangible Assets and Goodwill,” and “Asbestos Litigation” as critical to our business operations and the understanding of our results of

The impact and any associated risks related to these policies and estimates on our business operations is discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such

policies and estimates affect our reported and expected financial results.

There have been no material changes to these and other accounting policies and estimates from the information provided in Note 1 of the Notes to our Consolidated Financial

Statements in our Annual Report on Form 10-K for the year ended December 31, 2022.

and estimates affect our reported and expected financial results.

There have been no material changes to these and other accounting policies and estimates from the information provided in Note 1 of the Notes to our Consolidated Financial Statements

in our Annual Report on Form 10-K for the year ended December 31, 2022.

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

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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 disruptions in the supply chain, Russia’s

invasion of the Ukraine and resultant sanctions imposed by the U.S.

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, Russia’s invasion

of the Ukraine and resultant sanctions imposed by the U.S.

and other governments, the geo-political impact of U.S.

relations with China, 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.

relations with China, 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.

Recently Issued Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis