STANDARD MOTOR PRODUCTS, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Management’s Report on Internal Control over Financial Reporting 45 Reports of Independent Registered Public Accounting Firm 46 Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021 48 Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021 49 Consolidated Balance Sheets as of December 31, 2023 and 2022 50 Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 51 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021 52 Notes to Consolidated Financial Statements 53 44 Index MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING To the Stockholders of Standard Motor Products, Inc. and Subsidiaries: Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) of the Exchange Act). Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Because of these inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation, and may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control - Integrated Framework. Based on our assessment using those criteria, we concluded that, as of December 31, 2023, our internal control over financial reporting is effective. Our independent registered public accounting firm, KPMG LLP, has audited our consolidated financial statements as of and for the year ended December 31, 2023 and has also audited the effectiveness of our internal control over financial reporting as of December 31, 2023. KPMG’s report appears on the following pages of this “Item 8. Financial Statements and Supplementary Data.” 45 Index REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Standard Motor Products, Inc. and Subsidiaries: Opinion on Internal Control Over Financial Reporting We have audited Standard Motor Products, Inc and Subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission . In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes and financial statement Schedule II, Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated February 22, 2024 expres sed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP New York, New York February 22, 2024 46 Index REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Standard Motor Products, Inc. and Subsidiaries: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Standard Motor Products, Inc. and Subsidiaries’ (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2023, and the related notes and financial statement Schedule II Valuation and Qualifying Accounts (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report da ted February 22, 2024 e xpressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Asbestos liability and litigation As discussed i n Notes 1 and 23 to t he consolidated financial statements, the Company is involved in asbestos litigation and has a potential asbestos liability. As of December 31, 2023, the accrued asbestos liability was $82 million. The Company’s asbestos liability represents the low end of the actuarially determined range of the undiscounted liability for settlement payments and awards of asbestos related damages, excluding legal costs and any potential recovery from insurance carriers. We identified the assessment of the asbestos liability recorded as a critical audit matter. This required subjective auditor judgment, due to the nature of the estimate and assumptions, including the applicability of those assumptions to the current facts and circumstances, as well as judgments about future events and uncertainties. Specialized skills were needed to evaluate the Company’s key assumptions. The key assumptions included future claim filings, closed with pay ratios, closed with pay lag patterns, settlement values, and large claims. Minor changes to these key assumptions could have had a significant effect on the Company’s assessment of the accrual for the asbestos liability. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the asbestos liability estimation process. This included controls related to the key assumptions and the claims data utilized in the process, and the potential need for an updated actuarial valuation. We evaluated the asbestos related legal cases settled during the year and the number of open cases as of year-end by reading letters received directly from the Company’s external and internal legal counsel. We tested a selection of claims data used in the actuarial model by comparing the selection items to underlying claims documentation. We involved an actuarial professional with specialized skills and knowledge, who assisted in evaluating (1) the future claim filings assumption by developing an independent expectation and comparing it against the Company’s future claim filing assumption, and (2) the closed with pay ratios, closed with pay lag patterns, settlement values, and large claims by comparing them to the Company’s historical experience. /s/ KPMG LLP We have served as the Company’s auditor since 2010. New York, New York February 22, 2024 47 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2023 2022 2021 (Dollars in thousands, except share and per share data) Net sales $ 1,358,272 $ 1,371,815 $ 1,298,816 Cost of sales 969,446 989,276 921,885 Gross profit 388,826 382,539 376,931 Selling, general and administrative expenses 293,583 276,626 247,547 Restructuring and integration expenses 2,642 1,891 392 Other income, net 76 113 7 Operating income 92,677 104,135 128,999 Other non-operating income, net 2,326 4,814 3,494 Interest expense 13,287 10,617 2,028 Earnings from continuing operations before income taxes 81,716 98,332 130,465 Provision for income taxes 18,368 25,206 31,044 Earnings from continuing operations 63,348 73,126 99,421 Loss from discontinued operations, net of income tax benefit of $ 10,188 , $ 6,216 and $ 2,975 ( 28,996 ) ( 17,691 ) ( 8,467 ) Net earnings 34,352 55,435 90,954 Net earnings attributable to noncontrolling interest 204 84 68 Net earnings attributable to SMP (a) $ 34,148 $ 55,351 $ 90,886 Net earnings attributable to SMP Earnings from continuing operations $ 63,144 $ 73,042 $ 99,353 Discontinued operations ( 28,996 ) ( 17,691 ) ( 8,467 ) Total $ 34,148 $ 55,351 $ 90,886 Per share data attributable to SMP Net earnings per common share – Basic: Earnings from continuing operations $ 2.91 $ 3.37 $ 4.49 Discontinued operations ( 1.34 ) ( 0.82 ) ( 0.39 ) Net earnings per common share – Basic $ 1.57 $ 2.55 $ 4.10 Net earnings per common share – Diluted: Earnings from continuing operations $ 2.85 $ 3.30 $ 4.39 Discontinued operations ( 1.31 ) ( 0.80 ) ( 0.37 ) Net earnings per common share – Diluted $ 1.54 $ 2.50 $ 4.02 Dividend declared per share $ 1.16 $ 1.08 $ 1.00 Average number of common shares 21,716,177 21,683,719 22,147,479 Average number of common shares and dilutive common shares 22,161,341 22,139,981 22,616,456 (a) Throughout this Form 10-K, “SMP” refers to Standard Motor Products, Inc. and subsidiaries. See accompanying notes to consolidated financial statements. 48 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2023 2022 2021 (In thousands) Net earnings $ 34,352 $ 55,435 $ 90,954 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 7,447 ( 8,222 ) ( 2,462 ) Derivative instruments ( 924 ) 3,823 — Pension and postretirement plans ( 13 ) ( 15 ) ( 16 ) Total other comprehensive income (loss), net of tax 6,510 ( 4,414 ) ( 2,478 ) Total comprehensive income 40,862 51,021 88,476 Comprehensive income (loss) attributable to noncontrolling interest, net of tax: Net earnings 204 84 68 Foreign currency translation adjustments 14 ( 113 ) 15 Comprehensive income (loss) attributable to noncontrolling interest, net of tax 218 ( 29 ) 83 Comprehensive income attributable to SMP $ 40,644 $ 51,050 $ 88,393 See accompanying notes to consolidated financial statements. 49 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2023 2022 (Dollars in thousands, except share data) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 32,526 $ 21,150 Accounts receivable, less allowances for discounts and expected credit losses of $ 8,045 and $ 5,375 in 2023 and 2022 , respectively 160,282 167,638 Inventories 507,075 528,715 Unreturned customer inventories 18,240 19,695 Prepaid expenses and other current assets 26,100 25,241 Total current assets 744,223 762,439 Property, plant and equipment, net 121,872 107,148 Operating lease right-of-use assets 100,065 49,838 Goodwill 134,729 132,087 Other intangibles, net 92,308 100,504 Deferred incomes taxes 40,533 33,658 Investments in unconsolidated affiliates 24,050 41,745 Other assets 35,267 27,510 Total assets $ 1,293,047 $ 1,254,929 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Current portion of revolving credit facility $ — $ 50,000 Current portion of term loan and other debt 5,029 5,031 Accounts payable 107,455 89,247 Sundry payables and accrued expenses 63,303 49,990 Accrued customer returns 38,238 37,169 Accrued core liability 18,399 22,952 Accrued rebates 42,278 37,381 Payroll and commissions 29,561 31,361 Total current liabilities 304,263 323,131 Long-term debt 151,182 184,589 Noncurrent operating lease liabilities 88,974 40,709 Other accrued liabilities 25,742 22,157 Accrued asbestos liabilities 72,013 63,305 Total liabilities 642,174 633,891 Commitments and contingencies Stockholders’ equity: Common Stock - par value $ 2.00 per share: Authorized 30,000,000 shares, issued 23,936,036 shares 47,872 47,872 Capital in excess of par value 101,751 105,615 Retained earnings 573,226 564,242 Accumulated other comprehensive income ( 5,974 ) ( 12,470 ) Treasury stock - at cost ( 2,018,982 shares and 2,350,377 shares in 2023 and 2022 , respectively) ( 81,811 ) ( 95,239 ) Total SMP stockholders’ equity 635,064 610,020 Noncontrolling interest 15,809 11,018 Total stockholders’ equity 650,873 621,038 Total liabilities and stockholders’ equity $ 1,293,047 $ 1,254,929 See accompanying notes to consolidated financial statements. 50 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2023 2022 2021 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 34,352 $ 55,435 $ 90,954 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 29,022 28,298 27,243 Amortization of deferred financing cost 491 421 228 Increase (decrease) to allowance for expected credit losses 2,943 ( 757 ) 451 Increase (decrease) to inventory reserves 3,068 6,035 ( 585 ) Customer bankruptcy charge — 7,002 — Equity income from joint ventures ( 2,070 ) ( 3,464 ) ( 3,295 ) Employee Stock Ownership Plan allocation 2,966 2,296 2,513 Stock-based compensation 6,598 8,178 9,479 (Increase) in deferred income taxes ( 6,952 ) ( 713 ) ( 1,801 ) Increase in tax valuation allowance 674 1,068 466 Loss on discontinued operations, net of tax 28,996 17,691 8,467 Change in assets and liabilities: Decrease in accounts receivable 7,965 6,916 28,464 (Increase) decrease in inventories 29,494 ( 67,495 ) ( 107,609 ) (Increase) in prepaid expenses and other current assets ( 70 ) ( 5,509 ) ( 843 ) Increase (decrease) in accounts payable 19,645 ( 48,604 ) 33,046 Increase (decrease) in sundry payables and accrued expenses ( 4,284 ) ( 29,089 ) 13,430 Net changes in other assets and liabilities ( 8,578 ) ( 5,242 ) ( 15,044 ) Net cash provided by (used in) operating activities 144,260 ( 27,533 ) 85,564 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of and investments in businesses ( 3,954 ) ( 1,934 ) ( 125,419 ) Cash acquired in step acquisition 6,779 — — Capital expenditures ( 28,633 ) ( 25,956 ) ( 25,875 ) Other investing activities 108 73 45 Net cash used in investing activities ( 25,700 ) ( 27,817 ) ( 151,249 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under term loan — 100,000 — Repayments of term loan ( 5,000 ) ( 2,500 ) — Net borrowings (repayments) under revolving credit facilities ( 78,500 ) 16,702 115,298 Net borrowings (repayments) of other debt and lease obligations ( 58 ) ( 2,895 ) 3,048 Purchase of treasury stock — ( 29,656 ) ( 26,862 ) Payments of debt issuance costs — ( 2,128 ) — Increase (decrease) in overdraft balances ( 189 ) ( 595 ) 247 Dividends paid ( 25,164 ) ( 23,428 ) ( 22,179 ) Dividends paid to noncontrolling interest ( 700 ) — ( 540 ) Net cash provided by (used in) financing activities ( 109,611 ) 55,500 69,012 Effect of exchange rate changes on cash 2,427 ( 755 ) ( 1,060 ) Net increase (decrease) in cash and cash equivalents 11,376 ( 605 ) 2,267 CASH AND CASH EQUIVALENTS at beginning of year 21,150 21,755 19,488 CASH AND CASH EQUIVALENTS at end of year $ 32,526 $ 21,150 $ 21,755 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 14,597 $ 9,892 $ 1,721 Income taxes $ 16,019 $ 25,015 $ 26,323 See accompanying notes to consolidated financial statements. 51 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Years Ended December 31, 2023, 2022 and 2021 Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total SMP Non- controlling Interest Total (In thousands) BALANCE AT DECEMBER 31, 2020 $ 47,872 $ 105,084 $ 463,612 $ ( 5,676 ) $ ( 60,656 ) $ 550,236 $ — $ 550,236 Noncontrolling interest in business acquired — — — — — — 11,504 11,504 Net earnings — — 90,886 — — 90,886 68 90,954 Other comprehensive loss, net of tax — — — ( 2,493 ) — ( 2,493 ) 15 ( 2,478 ) Cash dividends paid ($ 1.00 per share) — — ( 22,179 ) — — ( 22,179 ) — ( 22,179 ) Purchase of treasury stock — — — — ( 26,862 ) ( 26,862 ) — ( 26,862 ) Dividends paid to noncontrolling interest — — — — — — ( 540 ) ( 540 ) Stock-based compensation — 159 — — 9,320 9,479 — 9,479 Employee Stock Ownership Plan — 134 — — 2,379 2,513 — 2,513 BALANCE AT DECEMBER 31, 2021 47,872 105,377 532,319 ( 8,169 ) ( 75,819 ) 601,580 11,047 612,627 Net earnings — — 55,351 — — 55,351 84 55,435 Other comprehensive loss, net of tax — — — ( 4,301 ) — ( 4,301 ) ( 113 ) ( 4,414 ) Cash dividends paid ($ 1.08 per share) — — ( 23,428 ) — — ( 23,428 ) — ( 23,428 ) Purchase of treasury stock — — — — ( 29,656 ) ( 29,656 ) — ( 29,656 ) Stock-based compensation — ( 131 ) — — 8,309 8,178 — 8,178 Employee Stock Ownership Plan — 369 — — 1,927 2,296 — 2,296 BALANCE AT DECEMBER 31, 2022 47,872 105,615 564,242 ( 12,470 ) ( 95,239 ) 610,020 11,018 621,038 Noncontrolling interest in step acquisition — — — — — — 5,273 5,273 Net earnings — — 34,148 — — 34,148 204 34,352 Other comprehensive loss, net of tax — — — 6,496 — 6,496 14 6,510 Cash dividends paid ($ 1.16 per share) — — ( 25,164 ) — — ( 25,164 ) — ( 25,164 ) Dividends paid to noncontrolling interest — — — — — — ( 700 ) ( 700 ) Stock-based compensation — ( 3,880 ) — — 10,478 6,598 — 6,598 Employee Stock Ownership Plan — 16 — — 2,950 2,966 — 2,966 BALANCE AT DECEMBER 31, 2023 $ 47,872 $ 101,751 $ 573,226 $ ( 5,974 ) $ ( 81,811 ) $ 635,064 $ 15,809 $ 650,873 See accompanying notes to consolidated financial statements. 52 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Principles of Consolidation Stan dard Motor Products, Inc. and its subsidiaries (referred to hereinafter in these notes to the consolidated financial statements as “we,” “us,” “our,” “SMP,” or the “Company”) is a leading manufacturer and distributor of premium replacement parts in the automotive aftermarket, and a custom-engineered solutions provider to vehicle and equipment manufacturers in diverse non-aftermarket end markets. Our automotive aftermarket is comprised of two segments, Vehicle Control and Temperature Control, while our Engineered Solutions segment offers a broad array of conventional and future-oriented technologies in markets for commercial and light vehicles, construction, agriculture, power sports, marine, hydraulics and lawn and garden. We sell our products primarily to 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 . The consolidated financial statements include our accounts and all domestic and international companies in which we have more than a 50 % equity ownership, except in instances where the minority shareholder maintains substantive participating rights, in which case we follow the equity method of accounting. In instances where we have more than a 50 % equity ownership and the minority shareholder does not maintain substantive participating rights, our consolidated financial statements include the accounts of the company on a consolidated basis with its net income and equity reported at amounts attributable to both our equity position and that of the noncontrolling interest. Investments in unconsolidated affiliates are accounted for on the equity method, as we do not have a controlling financial interest but have the ability to exercise significant influence. All significant inter-company items have been eliminated . Use of Estimates T he preparation of consolidated annual and quarterly financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. We have made a number of estimates and assumptions in the preparation of these consolidated financial statements. We can give no assurance 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 disruptions in the supply chain caused by geo-political risks, 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. Some of the more significant estimates include allowances for expected credit losses, cash discounts, valuation of inventory, valuation of long-lived assets, goodwill and other intangible assets, depreciation and amortization of long-lived assets, product liability exposures, asbestos, environmental and litigation matters, valuation of deferred tax assets, share based compensation and sales returns and other allowances. Reclassification Certain prior period amounts in the accompanying consolidated financial statements and related notes have been reclassified to conform to the 2023 presentation. 53 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Reportable Segments Beginning on January 1, 2023, we reorganized our business into three operating segments – Vehicle Control, Temperature Control and Engineered Solutions. The new operating segment structure better aligns our operations with our strategic focus on diversifying our business, provides greater transparency into our positioning to capture opportunities for growth in the future, and provides clarity regarding the unique dynamics and margin profiles of the markets served by each segment. Prior period segment results have been reclassified to conform to our operating segment reorganization. For additional information related to our segment reorganization, see Note 8, “Goodwill and Acquired Intangible Assets,” Note 21, “Industry Segment and Geographic Data” and Note 22, “Net Sales.” Cash and Cash Equivalents We consider all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Allowance for Expected Credit Losses and Cash Discounts We do not generally require collateral for our trade accounts receivable. Accounts receivable have been reduced by an allowance for amounts that may become uncollectible in the future. These allowances are established based on a combination of write-off history, supportable forecasts, aging analysis, and specific account evaluations. When a receivable balance is known to be uncollectible, it is written off against the allowance for expected credit losses. Cash discounts are provided based on an overall average experience rate applied to qualifying accounts receivable balances. Inventories Inventories are valued at the lower of cost and net realizable value. Cost is determined on the first-in first-out basis. Where appropriate, standard cost systems are utilized for purposes of determining cost; the standards are adjusted as necessary to ensure they approximate actual costs. Estimates of lower of cost and net realizable value of inventory are determined by comparing the actual cost of the product to the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation of the inventory. We also evaluate inventories on a regular basis to identify inventory on hand that may be obsolete or in excess of current and future projected market demand. For inventory deemed to be obsolete, we provide a reserve on the full value of the inventory. Inventory that is in excess of current and projected use is reduced by an allowance to a level that approximates our estimate of future demand. Future projected demand requires management judgment and is based upon (a) our review of historical trends and (b) our estimate of projected customer specific buying patterns and trends in the industry and markets in which we do business. Using rolling twelve month historical information, we estimate future demand on a continuous basis. The historical volatility of such estimates has been minimal. We maintain provisions for inventory reserves of $ 42.9 million and $ 42.5 million as of December 31, 2023 and 2022, respectively . We utilize cores (used parts) in our remanufacturing processes for air conditioning compressors, diesel injectors, and diesel pumps. The production of air conditioning compressors, diesel injectors, and diesel pumps involves the rebuilding of used cores, which we acquire either in outright purchases from used parts brokers, or from returns pursuant to an exchange program with customers. Under such exchange programs, at the time of sale of air conditioning compressors, diesel injectors, and diesel pumps, we estimate the core expected to be returned from the customer and record the estimated return as unreturned customer inventory. 54 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In addition, many of our customers can return inventory to us based upon customer warranty and overstock arrangements within customer specific limits. At the time products are sold, we accrue a liability for product warranties and overstock returns and record as unreturned customer inventory our estimate of anticipated customer returns. Estimates are based upon historical information on the nature, frequency and probability of the customer return. Unreturned core, warranty and overstock customer inventory is recorded at standard cost. Revision to these estimates is made when necessary, based upon changes in these factors. We regularly study trends of such claims. Property, Plant and Equipment Property, plant and equipment are recorded at historical cost and are depreciated using the straight-line method of depreciation over the estimated useful lives as follows: Estimated Life Buildings 25 to 33-1/2 years Building improvements 10 to 25 years Machinery and equipment 5 to 12 years Tools, dies and auxiliary equipment 3 to 8 years Furniture and fixtures 3 to 12 years Leasehold improvements are depreciated over the shorter of the estimated useful life or the term of the lease. Costs related to maintenance and repairs which do not prolong the assets useful lives are expensed as incurred. We assess our property, plant and equipment to be held and used for impairment when indicators are present that the carrying value may not be recoverable. Leases We determine if an arrangement is a lease at inception. For operating leases, we include and report operating lease right-of-use (“ROU”) assets, sundry payables and accrued expenses, and noncurrent operating lease liabilities on our consolidated balance sheet for leases with a term longer than twelve months. Finance leases are reported on our consolidated balance sheets in property, plant and equipment, current portion of other debt, and long-term debt. Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the total lease payments over the lease term. Our ROU assets represent the right to use an underlying leased asset over the existing lease term, and the corresponding lease liabilities represent our obligation to make lease payments arising from the lease agreement. As most of our leases do not provide for an implicit rate, we use our incremental borrowing rate based on the information available when determining the present value of our lease payments. Our lease terms may include options to terminate, or extend, our lease when it is reasonably certain that we will execute the option. Lease agreements may contain lease and non-lease components, which are generally accounted for separately. Operating lease expense is recognized on a straight-line basis over the lease term. Valuation of Long-Lived and Intangible Assets and Goodwill At acquisition, we estimate and record the fair value of purchased intangible assets, which primarily consist of customer relationships, trademarks and trade names, patents, developed technology and intellectual property, and non-compete agreements. Intangible assets acquired through business combinations are subject to potential adjustments within the measurement period, which is up to one year from the acquisition date. Valuing intangible assets requires the use of significant estimates and assumptions. As related to valuing customer relationships, significant estimates and assumptions used include but are not limited to: (1) forecasted revenues attributable to existing customers; (2) forecasted earnings before interest and taxes (“EBIT”) margins; (3) customer attrition rates; and (4) the discount rate. Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill and certain other intangible assets having indefinite lives are not amortized to earnings, but instead are subject to periodic testing for impairment. Intangible assets determined to have definite lives are amortized over their remaining useful lives. We believe that the fair value of acquired identifiable net assets, including intangible assets, are based upon reasonable estimates and assumptions. 55 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) We assess the impairment of long‑lived assets, identifiable intangibles assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. With respect to goodwill and identifiable intangible assets having indefinite lives, we test for impairment on an annual basis or in interim periods if an event occurs or circumstances change that may indicate the fair value is below its carrying amount. Factors we consider important, which could trigger an impairment review, include the following: (a) significant underperformance relative to expected historical or projected future operating results; (b) significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and (c) significant negative industry or economic trends. We review the fair values using the discounted cash flows method and market multiples. When performing our evaluation of goodwill for impairment, if we conclude qualitatively that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then a quantitative impairment test would not be required. If we are unable to reach this conclusion, then we would perform a goodwill quantitative impairment test. In performing the quantitative test, the fair value of the reporting unit is compared to its carrying amount. A charge for impairment is recognized by the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Identifiable intangible assets having indefinite lives are reviewed for impairment on an annual basis using a methodology similar with that used to evaluate goodwill. Intangible assets having definite lives and other long-lived assets are reviewed for impairment whenever events such as product discontinuance, plant closures, product dispositions or other changes in circumstances indicate that the carrying amount may not be recoverable. In reviewing intangible assets having definite lives and other long-lived assets for impairment, we compare the carrying value of such assets to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference between the assets fair value and their carrying value. There are inherent assumptions and estimates used in developing future cash flows requiring our judgment in applying these assumptions and estimates to the analysis of identifiable intangibles and long‑lived asset impairment including projecting revenues, interest rates, tax rates and the cost of capital. Many of the factors used in assessing fair value are outside our control and it is reasonably likely that assumptions and estimates will change in future periods. These changes can result in future impairments. In the event our planning assumptions were modified resulting in impairment to our assets, we would be required to include an expense in our statement of operations, which could materially impact our business, financial condition and results of operations. Foreign Currency Translation Assets and liabilities of our foreign operations are translated into U.S. dollars at year-end exchange rates. Income statement accounts are translated using the average exchange rates prevailing during the year. The resulting translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) and remains there until the underlying foreign operation is liquidated or substantially disposed of. Foreign currency transaction gains or losses are recorded in the statement of operations under the caption “other non-operating income (expense), net.” 56 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Revenue Recognition We derive our revenue primarily from vehicle aftermarket sales in our Vehicle Control and Temperature Control Segments, and non-aftermarket sales in our Engineered Solutions Segment. We recognize revenues when our performance obligation has been satisfied and the control of products has been transferred to a customer which typically occurs upon shipment. Revenue is measured as the amount of consideration we expect to receive in exchange for the transfer of goods or providing services. The amount of consideration we receive and revenue we recognize depends on the marketing incentives, product warranty and overstock returns we offer to our customers. For certain of our sales of remanufactured products, we also charge our customers a deposit for the return of a used core component which we can use in our future remanufacturing activities. Such deposit is not recognized as revenue at the time of the sale but rather carried as a core liability. At the same time, we estimate the core expected to be returned from the customer and record the estimated return as unreturned customer inventory. The liability is extinguished when a core is actually returned to us, or at period end when we estimate and recognize revenue for the core deposits not expected to be returned. We estimate and record provisions for cash discounts, quantity rebates, sales returns and warranties in the period the sale is recorded, based upon our prior experience and current trends. Significant management judgments and estimates must be made and used in estimating sales returns and allowances relating to revenue recognized in any accounting period. Product Warranty and Overstock Returns Many of our products carry a warranty ranging from a 90 -day limited warranty to a lifetime limited warranty, which generally covers defects in materials or workmanship and failure to meet industry published specifications and/or the result of installation error. In addition to warranty returns, we also permit our customers to return new, undamaged products to us within customer-specific limits (which are generally limited to a specified percentage of their annual purchases from us) in the event that they have overstocked their inventories. At the time products are sold, we accrue a liability for product warranties and overstock returns as a percentage of sales based upon estimates established using historical information on the nature, frequency and average cost of the claim and the probability of the customer return. At the same time, we record an estimate of anticipated customer returns as unreturned customer inventory. Significant judgments and estimates must be made and used in connection with establishing the sales returns and other allowances in any accounting period. Revision to these estimates is made when necessary, based upon changes in these factors. We regularly study trends of such claims. New Customer Acquisition Costs New customer acquisition costs refer to arrangements pursuant to which we incur change-over costs to induce a new customer to switch from a competitor’s brand. In addition, change-over costs include the costs related to removing the new customer’s inventory and replacing it with our inventory commonly referred to as a stock lift. New customer acquisition costs are recorded as a reduction to revenue when incurred. Selling, General and Administration Expenses Selling, general and administration expenses include shipping costs and advertising, which are expensed as incurred. Shipping and handling charges, as well as freight to customers, are included in distribution expenses as part of selling, general and administration expenses. 57 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Deferred Financing Costs Deferred financing costs represent costs incurred in conjunction with our debt financing activities. Deferred financing costs related to our term loan and revolving credit facilities are capitalized and amortized over the life of the related financing arrangement. If the debt is retired early, the related unamortized deferred financing costs are written off in the period the debt is retired and are recorded in the statement of operations under the caption other non-operating income (expense), net. Accounting for Income Taxes Income taxes are calculated using the asset and liability method. Deferred tax assets and liabilities are determined based on the estimated future tax effects of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, as measured by the current enacted tax rates. We maintain valuation allowances when it is more likely than not that all or a portion of a deferred asset will not be realized. In determining whether a valuation allowance is warranted, we consider all positive and negative evidence and all sources of taxable income such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies to estimate if sufficient future taxable income will be generated to realize the deferred tax asset. The assessment of the adequacy of our valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates, or we adjust these estimates in future periods for current trends or expected changes in our estimating assumptions, we may need to modify the level of valuation allowance which could materially impact our business, financial condition and results of operations. The valuation allowance of $ 3.8 million as of December 31, 2023 is intended to provide for the uncertainty regarding the ultimate realization of our U.S. foreign tax credit carryovers. Based on these considerations, we believe it is more likely than not that we will realize the benefit of the net deferred tax asset of $ 40.5 million as of December 31, 2023 , which is net of the remaining valuation allowance. Tax benefits are recognized for an uncertain tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances and when new information becomes available. Such adjustments are recognized entirely in the period in which they are identified. During the years ended December 31, 2023, 2022 and 2021 , we did not establish a liability for uncertain tax positions. Environmental Reserves We are subject to various U.S. Federal and state and local environmental laws and regulations and are involved in certain environmental remediation efforts. We estimate and accrue our liabilities resulting from such matters based upon a variety of factors including the assessments of environmental engineers and consultants who provide estimates of potential liabilities and remediation costs. Such estimates are not discounted to reflect the time value of money due to the uncertainty in estimating the timing of the expenditures, which may extend over several years. Potential recoveries from insurers or other third parties of environmental remediation liabilities are recognized independently from the recorded liability, and any asset related to the recovery will be recognized only when the realization of the claim for recovery is deemed probable. 58 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Asbestos Litigation In evaluating our potential asbestos-related liability, we have considered various factors including, among other things, an actuarial study of the asbestos related liabilities performed by an independent actuarial firm, our settlement amounts and whether there are any co-defendants, the jurisdiction in which lawsuits are filed, and the status and results of such claims. As is our accounting policy, we consider the advice of actuarial consultants with experience in assessing asbestos-related liabilities to estimate our potential claim liability; and perform an actuarial evaluation in the third quarter of each year and whenever events or changes in circumstances indicate that additional provisions may be necessary. The methodology used to project asbestos-related liabilities and costs in our actuarial study considered: (1) historical data available from publicly available studies; (2) an analysis of our recent claims history to estimate likely filing rates into the future; (3) an analysis of our currently pending claims; (4) an analysis of our settlements and awards of asbestos-related damages to date; and (5) an analysis of closed claims with pay ratios and lag patterns in order to develop average future settlement values. Based on the information contained in the actuarial study and all other available information considered by us, we have concluded that no amount within the range of settlement payments and awards of asbestos-related damages was more likely than any other and, therefore, in assessing our asbestos liability we compare the low end of the range to our recorded liability to determine if an adjustment is required. Future legal costs are expensed as incurred and reported in earnings (loss) from discontinued operations in the accompanying statement of operations. We plan to perform an annual actuarial evaluation during the third quarter of each year for the foreseeable future and whenever events or changes in circumstances indicate that additional provisions may be necessary. Given the uncertainties associated with projecting such matters into the future and other factors outside our control, we can give no assurance that additional provisions will not be required. We will continue to monitor events and changes in circumstances surrounding these potential liabilities in determining whether to perform additional actuarial evaluations and whether additional provisions may be necessary, which will reported in earnings (loss) from discontinued operations in the accompanying statement of operations. At the present time, however, we do not believe that any additional provisions would be reasonably likely to have a material adverse effect on our liquidity or consolidated financial position. Loss Contingencies We have loss contingencies, for such matters as legal claims and legal proceedings. Establishing loss reserves for these matters requires estimates, judgment of risk exposure and ultimate liability. We record provisions when the liability is considered probable and reasonably estimable. Significant judgment is required for both the determination of probability and the determination as to whether an exposure can be reasonably estimated. We maintain an ongoing monitoring and identification process to assess how the activities are progressing against the accrued estimated costs. As additional information becomes available, we reassess our potential liability related to these matters. Adjustments to the liabilities are recorded in the statement of operations in the period when additional information becomes available. Such revisions of the potential liabilities could have a material adverse effect on our business, financial condition or results of operations. Concentrations of Credit Risk Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash investments, accounts receivable and derivative financial instruments used to reduce our market risk for changes in interest rates on our variable rate borrowings. We place our cash investments with high quality financial institutions and limit the amount of credit exposure to any one institution. Derivative financial instruments used to reduce our market risk for changes in interest rates on our variable rate borrowings are entered into with high quality financial institutions, with their credit worthiness reviewed on a quarterly basis. Although we are directly affected by developments in the vehicle parts industry, management does not believe significant credit risk exists. 59 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) With respect to accounts receivable, such receivables are primarily from warehouse distributors and major retailers in the automotive aftermarket industry located in the U.S. We perform ongoing credit evaluations of our customers’ financial conditions. A significant portion of our net sales are concentrated from our three largest individual customers. The loss of one or more of these customers or, a significant reduction in purchases of our products from any one of them, could have a materially adverse impact on our business, financial condition and results of operations. 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. The $ 7 million pre-tax charge was included in selling, general and administrative expenses in our consolidated statement of operation s. The bankruptcy court proceedings have continued into 2023. Although the courts have named us a “critical supplier,” the funds allocated to us have not yet been determined and, as such, we have not recorded an adjustment to the $ 7 million pre-tax charge previously recorded. For further information on net sales to our three largest customers and our concentration our customer risk, see Note 21, “Industry Segment and Geographic Data.” Foreign Cash Balances Substantially all of the cash and cash equivalents, including foreign cash balances, at December 31, 2023 and 2022 were uninsured. Foreign cash balances at December 31, 2023 and 2022 were $ 30.5 million and $ 18.5 million , respectively. Derivative Instruments and Hedging Activities We occasionally use derivative financial instruments to reduce our market risk for changes in interest rates on our variable rate borrowings. Derivative financial instruments are recorded at fair value in other current and long-term assets, and other current and long-term liabilities in the consolidated balance sheets. For derivative financial instruments that have been formally designated as cash flow interest rate hedges (“interest rate swap agreements”), provided that the hedging instrument is highly effective, the entire change in the fair value of the derivative will be deferred and recorded in accumulated other comprehensive income (“AOCI”) in the consolidated balance sheets. When the underlying hedged transaction is realized (i.e., when the interest payments on the underlying borrowing are recognized in the consolidated statements of operations), the gain/loss included in AOCI is recorded in earnings and reflected on the same line as the gain/loss on the hedged item attributable to the hedged risk (i.e., interest expense). At the inception of each transaction, we formally document the hedge relationship, including the identification of the hedge instrument, the related hedged items, the effectiveness of the hedge, as well as its risk management objectives and strategies. 60 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Recently Issued Accounting Pronouncements Standards that are not yet adopted as of December 31, 2023 Standard Description Effective date Effects on the financial statements or other significant matters ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ASU 2023-07 will improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an interim and annual basis. ASU 2023-07 expands segment disclosures by requiring disclosure of (1) significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss; (2) the amount and description of the composition of other segment items to reconcile to segment profit and loss; and (3) the CODM’s title and position and how the CODM uses the reported segment measures to allocate resources. Additionally, ASU 2023-07 requires interim disclosures of all reportable segment profit or loss and assets previously required annually by Topic 280. The ASU is effective for the fiscal years beginning after December 15, 2023, which for us is December 31, 2024, and all subsequent interim periods, with full retrospective application required to all prior periods presented. Early adoption is permitted. The new standard will require expanding our segment disclosure to include additional segment level information. We are currently evaluating the full impact of adopting ASU 2023-07 on our consolidated financial statements, disclosures, processes and controls. On an ongoing basis, we will continue to assess the impact of the new standard through our planned date of adoption of December 31, 2024. ASU 2023-09, Income Taxes (Topic 270): Improvements to Income Tax Disclosures ASU 2023-09 will improve transparency and decision making usefulness of income tax disclosures. ASU 2023-09 will expand the annual required income effective tax rate reconciliation disclosures to include disclosure of (1) eight specific categories of rate reconciling items; (2) additional information for reconciling items that meet or exceed a quantitative threshold; and (3) expand the required disclosures to include reconciling percentages as well as reported amounts. Additionally, the ASU 2023-09 will expand required interim and annual disclosures of income taxes paid to include the disaggregation by federal, state and foreign jurisdictions, with expanded disclosures required annually. The ASU is effective for annual reporting periods beginning after December 15, 2024, which for us is January 1, 2025, with full retrospective application required to all prior periods presented. Early adoption is permitted. The new standard will require expanding our interim and annual income tax disclosures in our financial statements. We are currently evaluating the full impact of adopting ASU 2023-09 on our consolidated financial statements, disclosures, processes and controls. On an ongoing basis, we will continue to assess the impact of the new standard through our planned date of adoption of March 31, 2025. We have reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on the Company’s consolidated financial statements. 61 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. Business Acquisitions and Investments 2023 Increase in Equity Investment Investment in Foshan GWO YNG SMP Vehicle Climate Control & Cooling Products Co. Ltd. In April 2014, we formed Foshan GWO YNG SMP Vehicle Climate Control & Cooling Products Co. Ltd. (“Gwo Yng”), a 50/50 joint venture with Gwo Yng Enterprise Co., Ltd., a China-based manufacturer of air conditioner accumulators, filter driers, hose assemblies and switches. We acquired our 50 % interest in the joint venture for approximately $ 14 million. In March 2018, we acquired an additional 15 % equity interest in the joint venture for RMB 26,475,583 (approximately $ 4.2 million), thereby increasing our equity interest in the joint venture to 65 %. While we increased our equity interest in the joint venture to 65 %, the minority shareholder maintained substantive participating rights that allowed it to participate in certain significant financial and operating decisions that occur in the ordinary course of business. As a result, we continued to account for our investment in the joint venture under the equity method of accounting. In July 2023, we acquired an additional 15 % equity interest in the joint venture for RMB 27,378,290 (approximately $ 4 million), thereby increasing our equity interest in Gwo Yng to 80 %. In connection with the transaction, we amended and restated the charter documents of Gwo Yng to remove all minority shareholder substantive participating rights, giving SMP control of Gwo Yng. As a result, as of the closing date of the transaction, Gwo Yng was accounted for as a business combination achieved in stages (“a step acquisition”). Accordingly, commencing on the closing of the transaction, we reported the results of Gwo Yng on a consolidated basis with the minority ownership interest reported as a noncontrolling interest. The following table summarizes the allocation of the total step acquisition purchase consideration to the identifiable assets acquired and liabilities assumed based on their fair values (in thousands): Total purchase consideration (1) $ 21,725 Assets acquired and liabilities assumed: Cash and cash equivalents $ 6,779 Receivables 5,912 Inventory 5,945 Other current assets 528 Property, plant and equipment, net 2,924 Operating lease right-of-use assets 4,372 Intangible assets (2) 532 Goodwill 2,208 Long term investments and other assets 7,257 Current liabilities ( 6,004 ) Noncurrent operating lease liabilities ( 3,455 ) Subtotal 26,998 Fair value of acquired noncontrolling interest ( 5,273 ) Total purchase consideration allocated to net assets acquired $ 21,725 (1) Total purchase consideration is the sum of the fair value of the previously held equity investment interest in Gwo Yng of $ 17.7 million and the cash paid of $ 4 million for the acquisition of the additional 15 % equity ownership interest. (2) Intangible assets consists of customer relationships of $ 0.4 million and capitalized software of $ 0.1 million. 62 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Intangible assets of $ 0.4 million consisting of customer relationships will be amortized on a straight-line basis over the estimated useful life of 10 years. Goodwill of $ 2.2 million was allocated to the Temperature Control and Engineered Solutions segments in the amounts of $ 1.2 million and $ 1 million, respectively. The goodwill reflects relationships, business specific knowledge and the replacement cost of an assembled workforce associated with personal reputations. Revenues from Gwo Yng included in our consolidated statement of operations from the closing date of our 15 % equity increase in July 2023 through December 31, 2023 were not material. 2022 Increase in Equity Investment Investment in Foshan Che Yijia New Energy Technology Co., Ltd. In August 2019, we acquired an approximate 29 % minority interest in Foshan Che Yijia New Energy Technology Co., Ltd. (“CYJ”) for approximately $ 5.1 million. CYJ is a manufacturer of automotive electric air conditioning compressors and is located in China. We determined, at that time, that due to a lack of a voting majority and other qualitative factors, we do not control the operations of CYJ and accordingly, our investment in CYJ would be accounted for under the equity method of accounting. In October 2022, we acquired an additional 3.55 % equity interest in CYJ for RMB 1.7 million (approximately $ 242,000 ), increasing our minority ownership interest in CYJ from an approximate interest of 29 % to 33 %. The additional acquired ownership interest in CYJ was paid for in cash funded by borrowings under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent. We will continue to account for our minority interest in CYJ using the equity method of accounting. 2022 Business Acquisitions Acquisition of Capital Stock of Kade Trading GmbH (“Kade”) In October 2022, we acquired 100 % of the capital stock of Kade Trading GmbH (“Kade”) headquartered in Glinde, Germany for Euros 2.7 million (approximately $ 2.7 million) plus a Euros 0.5 million (approximately $ 0.5 million) earn-out based upon Kade’s performance in 2024 and 2025. Kade is a supplier across Europe of mobile temperature control components to commercial vehicle, passenger car and specialty equipment markets and has been a distributor of products from our joint ventures including electric compressors, hose assemblies and receiver dryers, with annual sales of approximately $ 6 million. The acquired Kade business, reported as part of our Engineered Solutions segment, was paid for with cash. The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values (in thousands): Purchase price $ 3,176 Assets acquired and liabilities assumed: Receivables $ 790 Inventory 829 Other current assets (1) 1,003 Property, plant and equipment, net 63 Operating lease right-of-use assets 401 Intangible assets 2,395 Goodwill 766 Current liabilities ( 1,977 ) Noncurrent operating lease liabilities ( 328 ) Deferred income taxes ( 766 ) Net assets acquired $ 3,176 (1) The other current assets balance includes $ 1 million of cash acquired. 63 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Intangible assets acquired of $ 2.4 million consist of customer relationships that will be amortized on a straight-line basis over the estimated useful life of 15 years . Incremental revenues from the acquired Kade business included in our consolidated statement of operations for the year ended December 31, 2023 were $ 5 million. 3. Restructuring and Integration Expenses The aggregated liabilities included in “sundry payables and accrued expenses” and “other accrued liabilities” in the consolidated balance sheet relating to the restructuring and integration activities as of and for the years ended December 31, 2023 and 2022, consisted of the following (in thousands): Workforce Reduction Other Exit Costs Total Exit activity liability at December 31 , 2021 $ 79 $ — $ 79 Restructuring and integration costs: Amounts provided for during 2022 (1) 1,521 370 1,891 Cash payments ( 16 ) ( 144 ) ( 160 ) Reclassification of environmental and other liabilities ( 63 ) ( 226 ) ( 289 ) Exit activity liability at December 31 , 2022 $ 1,521 $ — $ 1,521 Restructuring and integration costs: Amounts provided for during 2023 (1) (2) 1,973 669 2,642 Cash payments ( 1,803 ) ( 577 ) ( 2,380 ) Reclassification of environmental liability — ( 92 ) ( 92 ) Foreign currency exchange rate changes 38 — 38 Exit activity liability at December 31 , 2023 $ 1,729 $ — $ 1,729 (1) Included in restructuring and integration costs in 2023 and 2022 is a $ 0.1 million and $ 0.2 million increase, respectively, in environmental cleanup costs related to ongoing monitoring and remediation in connection with the prior closure of our manufacturing operations at our Long Island City, New York location. The environmental liability has been reclassed to accrued liabilities as of December 31, 2023 and 2022, respectively. (2) Restructuring and integration expenses incurred during the year ended December 31, 2023 consist of $ 1.3 million in our Vehicle Control segment, $ 1.1 million in our Temperature Control segment and $ 0.2 million in our Engineered Solutions segment. Restructuring Costs Cost Reduction Initiative During the fourth quarter of 2022, to further our ongoing efforts to improve operating efficiencies and reduce costs, we announced plans for a reduction in our sales force, and initiated plans to relocate certain product lines from our Independence, Kansas manufacturing facility and from our St. Thomas, Canada manufacturing facility to our manufacturing facilities in Reynosa, Mexico . Total restructuring expenses related to the initiative of approximately $ 2.5 million and $ 1.5 million were incurred during the years ended December 31, 2023 and 2022, respectively. Expenses for the year ended December 31, 2023 consist of (1) expenses of approximately $ 0.7 million related to a further sales force reduction, (2) expenses of approximately $ 1.3 million of employee severance and bonuses related to our product line relocations, and (3) expenses of approximately $ 0.5 million related to the relocation of machinery and equipment to our manufacturing facilities in Reynosa, Mexico. Expenses for the year ended December 31, 2022 consist of (1) expenses of approximately $ 0.9 million related to our sales force reduction, and (2) expenses of approximately $ 0.6 million consisting of employee severance related to our product line relocations. Cash payments made under the initiative were $ 2.4 million during the year ended December 31, 2023. 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 the second quarter of 2024 . 64 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Plant Rationalization Programs The 2016 Plant Rationalization Program, which included the shutdown and sale of our Grapevine, Texas facility, and the 2017 Orlando Rationalization Program, which included the shutdown of our Orlando, Florida facility, have been completed. Cash payments made of $ 16 ,000 during the year ended December 31, 2022 consist of severance payments to former employees terminated in connection with these programs. There is no remaining aggregate liability related to these programs as of December 31, 2022. Integration Costs Particulate Matter Senso r (“Soot Sensor”) Product Line Relocation In connection with our acquisitions in March 2021 and November 2021 of certain soot sensor product lines from Stoneridge, Inc., we incurred certain integration expenses in connection with the relocation of certain inventory, machinery, and equip ment from Stoneridge’s facilities in Lexington, Ohio and Tallinn, Estonia to our existing facilities in Independence, Kansas and Bialystok, Poland, respectively. Integration expenses recognized and cash payments made of $ 144 ,000 during the year ended December 31, 2022 related to these relocation activities.The soot sensor product line relocation has been completed and there is no remaining aggregate liability related to the soot sensor product line relocation as of December 31, 2022. 4. Sale of Receivables We are party to several supply chain financing arrangements, in which we may sell certain of our customers’ trade accounts receivable to such customers’ financial institutions. We sell our undivided interests in certain of these receivables at our discretion when we determine that the cost of these arrangements is less than the cost of servicing our receivables with existing debt. Under the terms of the agreements, we retain no rights or interest, have no obligations with respect to the sold receivables, and do not service the receivables after the sale . As such, these transactions are being accounted for as a sale. Pursuant to these agreements, we sold $ 830.8 million and $ 813.7 million of receivables for the years ended December 31, 2023 and 2022, respectively. Receivables presented at financial institutions and not yet collected as of December 31, 2023 were $ 4.5 million and remained in our accounts 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 $ 46 million, $ 32 million and $ 11.5 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, 2023, 2022 and 2021, 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 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. 65 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. Inventories December 31, 2023 2022 (In thousands) Finished goods $ 302,557 $ 324,362 Work-in-process 18,503 14,099 Raw materials 186,015 190,254 Subtotal 507,075 528,715 Unreturned customer inventories 18,240 19,695 Total inventories $ 525,315 $ 548,410 6. Property, Plant and Equipment December 31, 2023 2022 (In thousands) Land, buildings and improvements $ 45,710 $ 42,651 Machinery and equipment 177,337 166,149 Tools, dies and auxiliary equipment 73,494 67,017 Furniture and fixtures 33,212 32,084 Leasehold improvements 16,418 15,083 Construction-in-progress 35,357 23,340 Total property, plant and equipment 381,528 346,324 Less accumulated depreciation 259,656 239,176 Total property, plant and equipment, net $ 121,872 $ 107,148 Depreciation expense was $ 19.7 million in 2023, $ 19 million in 2022 and $ 18.2 million in 2021. 7. Leases Quantitative Lease Disclosures We have operating and finance leases for our manufacturing facilities, warehouses, office space, automobiles, and certain equipment. Our leases have remaining lease terms of up to eleven years , some of which may include one or more five-year renewal options. We have not included any of the renewal options in our operating lease payments, as we concluded that it is not reasonably certain that we will exercise any of these renewal options. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Operating lease expense is recognized on a straight-line basis over the lease term. Finance leases are not material. 66 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables provide quantitative disclosures related to our operating leases and includes all operating leases acquired from the date of the acquisition (in thousands) : Balance Sheet Information December 31, Assets 2023 2022 Operating lease right-of-use assets $ 100,065 $ 49,838 Liabilities Sundry payables and accrued expenses $ 17,139 $ 10,763 Noncurrent operating lease liabilities 88,974 40,709 Total operating lease liabilities $ 106,113 $ 51,472 Weighted Average Remaining Lease Term Operating leases 8.3 Years 7 Years Weighted Average Discount Rate Operating leases 4.8 % 3.7 % Year Ended, December 31, Expense and Cash Flow Information 2023 2022 Lease Expense Operating lease expense (a) $ 16,434 $ 11,411 Supplemental Cash Flow Information Cash Paid for the amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 12,099 $ 11,293 Right-of-use assets obtained in exchange for new lease obligations: Operating leases (b) $ 66,014 $ 31,064 (a) Excludes expenses of approximately $ 3.3 million, $ 2.7 million and $ 2 million for the years ended December 31, 2023, 2022, and 2021, respectively, related to non-lease components such as maintenance, property taxes, etc., and operating lease expense for leases with an initial term of 12 months or less, which is not material. (b) During the year ended December 31, 2023 includes $ 27.8 million of right-of-use assets related to the lease modification and extension for our distribution center and office in Lewisville, Texas; $ 26.1 million of right-of-use assets related to the new distribution center in Shawnee, Kansas; $ 4.4 million of right-of-use assets obtained in Gwo Yng step-acquisition; and $ 3.7 million of right-of-use assets related to our Reynosa, Mexico lease renewal. Minimum Lease Payments At December 31, 2023, we are obligated to make minimum lease payments through 2034, under operating leases, which are as follows (in thousands): 2024 $ 17,607 2025 16,145 2026 14,814 2027 13,671 2028 11,415 Thereafter 58,059 Total lease payments $ 131,711 Less: Interest ( 25,598 ) Present value of lease liabilities $ 106,113 67 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. Goodwill and Other Intangible Assets Goodwill We assess the impairment of long ‑ lived and identifiable intangibles assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. With respect to goodwill, we test for impairment on an annual basis or in interim periods if an event occurs or circumstances change that may indicate the fair value of a reporting unit is below its carrying amount. When performing our evaluation of goodwill for impairment, if we conclude qualitatively that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then a quantitative impairment test would not be required. If we are unable to reach this conclusion, then we would perform a goodwill quantitative impairment test. In performing the quantitative test, the fair value of the reporting unit is compared to its carrying amount. A charge for impairment is recognized by the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. In connection with our operating segment reorganization, we reassessed our reporting units and reallocated goodwill from the reporting units that existed prior to the change to the new reporting units, using a relative fair value approach similar to that used when a portion of a reporting unit is to be disposed of. We performed goodwill impairment tests as of January 1, 2023 on both the reporting units in place prior to the change and the new reporting units, and concluded that the estimated fair values of each of the reporting units exceeded their respective carrying amounts and, therefore, no impairment charge was necessary. We completed our annual impairment test of goodwill as of December 31, 2023. As of December 31, 2023, we performed a qualitative assessment of the likelihood of a goodwill impairment for the Vehicle Control, Temperature Control and Engineered Solutions reporting units. Based upon our qualitative assessment, we determined that it was not more likely than not that the fair value of the each of the Vehicle Control, Temperature Control and Engineered Solutions reporting units was less than their respective carrying amounts. As such, we concluded that the quantitative impairment test would not be required, and that there would be no required goodwill impairment charge as of December 31, 2023 at each of the reporting units. While we concluded that we did no t have a goodwill impairment charge as of December 31, 2023, and we do not believe that future impairments are probable, we will need to maintain the current ongoing performance levels at each of the Vehicle Control, Temperature Control and Engineered Solutions reporting units in future periods to sustain their goodwill carrying values. 68 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Changes in the carrying values of goodwill by operating segment during the years ended December 31, 2023 and 2022 are as follows (in thousands): Vehicle Control Temperature Control Engineered Solutions Total Balance as of December 31 , 2021 : Goodwill $ 129,318 $ 10,839 $ 29,983 $ 170,140 Accumulated impairment losses ( 38,488 ) — — ( 38,488 ) $ 90,830 $ 10,839 $ 29,983 $ 131,652 Activity in 2022 Acquisition of Kade — 582 184 766 Foreign currency exchange rate change ( 310 ) 53 ( 74 ) ( 331 ) Balance as of December 31 , 2022 : Goodwill 129,008 11,474 30,093 170,575 Accumulated impairment losses ( 38,488 ) — — ( 38,488 ) $ 90,520 $ 11,474 $ 30,093 $ 132,087 Activity in 2023 Step acquisition of Gwo Yng — 1,214 994 2,208 Foreign currency exchange rate change 286 42 106 434 Balance as of December 31 , 2023: Goodwill 129,294 12,730 31,193 173,217 Accumulated impairment losses ( 38,488 ) — — ( 38,488 ) $ 90,806 $ 12,730 $ 31,193 $ 134,729 Acquired Intangible Assets Acquired identifiable intangible assets as of December 31, 2023 and 2022 consist of: December 31, 2023 2022 (In thousands) Customer relationships $ 159,641 $ 158,717 Patents, developed technology and intellectual property 14,123 14,123 Trademarks and trade names 8,880 8,880 Non-compete agreements 3,295 3,282 Supply agreements 800 800 Leaseholds 160 160 Total acquired intangible assets 186,899 185,962 Less accumulated amortization (1) ( 95,681 ) ( 86,945 ) Net acquired intangible assets $ 91,218 $ 99,017 (3) Applies to all intangible assets, except for a related trademark/trade name totaling $ 2.6 million, which has an indefinite useful life and, as such, is not being amortized. Total amortization expense for acquired intangible assets was $ 8.5 million for the year ended December 31, 2023, $ 8.6 million for the year ended December 31, 2022, and $ 8.7 million for the year ended December 31, 2021. Based on the current estimated useful lives assigned to our intangible assets, amortization expense is estimated to be $ 8.5 million for 2024, $ 8.5 million in 2025, $ 8.5 million in 2026, $ 8.4 million in 2027 and $ 54.7 million in the aggregate for the years 2028 through 2041. For information related to identified intangible assets acquired in the Kade acquisition and Gwo Yng step acquisition, see Note 2, “Business Acquisitions and Investments,” of the notes to our consolidated financial statements. Other Intangible Assets Other intangible assets include computer software. Computer software as of December 31, 2023 and 2022 totaled $ 19.1 million and $ 18.7 million , respectively . Total accumulated computer software amortization as of December 31, 2023 and 2022 was $ 18 million and $ 17.2 million, respectively. Computer software is amortized over its estimated useful life of 3 to 10 years . Amortization expense for computer software was $ 0.8 million, $ 0.7 million and $ 0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. 69 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. Investments in Unconsolidated Affiliates December 31, 2023 2022 (In thousands) Foshan FGD SMP Automotive Compressor Co. Ltd $ 18,426 $ 16,747 Foshan Che Yijia New Energy Technology Co., Ltd. 3,128 4,098 Orange Electronic Co. Ltd 2,496 2,490 Foshan GWO YNG SMP Vehicle Climate Control & Cooling Products Co. Ltd. — 18,410 Total $ 24,050 $ 41,745 Investment in Foshan FGD SMP Automotive Compressor Co. Ltd. In November 2017, we formed Foshan FGD SMP Automotive Compressor Co., Ltd., a 50/50 joint venture with Foshan Guangdong Automotive Air Conditioning Co., Ltd. (“FGD”), a China-based manufacturer of automotive belt driven air conditioning compressors. We acquired our 50 % interest in the joint venture for approximately $ 12.5 million. We determined that due to a lack of a voting majority, and other qualitative factors, we do not control the operations of the joint venture and accordingly, our investment in the joint venture is accounted for under the equity method of accounting. During the years ended December 31, 2023 and 2022, we made purchases from the joint venture of approximately $ 44.1 million and $ 43.5 million, respectively. Investment in Foshan Che Yijia New Energy Technology Co., Ltd. In August 2019, we acquired an approximate 29 % minority interest in Foshan Che Yijia New Energy Technology Co., Ltd. (“CYJ”) for approximately $ 5.1 million . CYJ is a manufacturer of automotive electric air conditioning compressors and is located in China. Our minority interest in CYJ is accounted for using the equity method of accounting. In December 2021, Standard Motor Products (Hong Kong), Ltd., (“SMP HK”), a subsidiary of Standard Motor Products, Inc., entered into an unsecured loan agreement with CYJ. Under the terms of the loan agreement, CYJ shall have the right to borrow from SMP HK, as lender, up to an aggregate principal amount of $ 4 million, with interest calculated on the basis of simple interest of five percent ( 5 %) per annum and a maturity date of November 30, 2023 , subject to extension by SMP HK at its sole discretion. In September 2023, the loan agreement was extended through November 30, 2025. Outstanding borrowings under the loan agreement at December 31, 2023 were $ 4 million. In October 2022, we acquired an additional 3.55 % equity interest in CYJ for RMB 1.7 million (approximately $ 242,000 ), increasing our minority ownership interest in CYJ from an approximate interest of 29 % to 33 %. We will continue to account for our minority interest in CYJ using the equity method of accounting. During the years ended December 31, 2023 and 2022, purchases we made from CYJ were not material. Investment in Orange Electronic Co. Ltd. In January 2013, we acquired a minority interest in Orange Electronic Co., Ltd. (“Orange”) for $ 6.3 million. Orange is a manufacturer of tire pressure monitoring system sensors and is located in Taiwan. As of December 31, 2022, our minority interest in Orange of 19.4 % is accounted for using the equity method of accounting as we have the ability to exercise significant influence. During the years ended December 31, 2023 and 2022, we made purchases from Orange of approximately $ 3.2 million and $ 4.5 million, respectively. 70 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Investment in Foshan GWO YNG SMP Vehicle Climate Control & Cooling Products Co. Ltd. In April 2014, we formed Foshan GWO YNG SMP Vehicle Climate Control & Cooling Products Co. Ltd. (“Gwo Yng”), a 50/50 joint venture with Gwo Yng Enterprise Co., Ltd., a China-based manufacturer of air conditioner accumulators, filter driers, hose assemblies and switches. We acquired our 50 % interest in the joint venture for approximately $ 14 million. In March 2018, we acquired an additional 15 % equity interest in the joint venture for RMB 26,475,583 (approximately $ 4.2 million), thereby increasing our equity interest in the joint venture to 65 %. While we increased our equity interest in the joint venture to 65 %, the minority shareholder maintained substantive participating rights that allowed it to participate in certain significant financial and operating decisions that occur in the ordinary course of business. As a result, we continued to account for our investment in the joint venture under the equity method of accounting. In July 2023, we acquired an additional 15 % equity interest in the joint venture for RMB 27,378,290 (approximately $ 4 million), thereby increasing our equity interest in Gwo Yng to 80 %. In connection with the transaction, we amended and restated the charter documents of Gwo Yng to remove all minority shareholder substantive participating rights, giving SMP control of Gwo Yng. As a result, as of the closing date of the transaction, Gwo Yng will be accounted for as a business combination achieved in stages (“a step acquisition”). Accordingly, commencing on the closing of the transaction, we will report the results of Gwo Yng on a consolidated basis with the minority ownership interest reported as a noncontrolling interest. During the year ended December 31, 2023 and through the date of our step acquisition in July 2023, we made purchases from the joint venture of approximately $ 10.3 million. Purchases made from the joint venture approximated $ 16.2 million during the year ended December 13, 2022. For additional information related to Gwo Yng, see Note 2, “Business Acquisitions and Investments,” of the notes to our consolidated financial statements. 10. Other Assets December 31, 2023 2022 (In thousands) Deferred compensation $ 23,893 $ 20,190 Long-term investments 7,468 — Noncurrent portion of interest rate swap fair value 1,944 3,091 Deferred financing costs, net 1,125 1,603 Other 837 2,626 Total other assets, net $ 35,267 $ 27,510 Def erred compensation consists of assets held in a nonqualified defined contribution pension plan as of December 31, 2023 and 2022, respectively. Long term investments as of December 31, 2023 consist of certificates of deposit with original maturities in excess of twelve months . 71 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Credit Facilities and Long-Term Debt Total debt outstanding is summarized as follows: December 31, 2023 2022 (In thousands) Credit facility – term loan due 2027 $ 92,500 $ 97,500 Credit facility – revolver due 2027 63,500 142,000 Other 211 120 Total debt $ 156,211 $ 239,620 Current maturities of debt $ 5,029 $ 55,031 Long-term debt 151,182 184,589 Total debt $ 156,211 $ 239,620 Term Loan and Revolving Credit Facilities In June 2022, the Company entered into a new Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (the “Credit Agreement”). The Credit Agreement provides for a $ 500 million credit facility comprised of a $ 100 million term loan facility (the “term loan”) and a $ 400 million multi-currency revolving credit facility available in U.S. Dollars, Euros, Sterling, Swiss Francs, Canadian Dollars and other currencies as agreed to by the administrative agent and the lenders (the “revolving facility”). The Credit Agreement replaces and refinances the 2015 Credit Agreement. Borrowings under the Credit Agreement were used to repay all outstanding borrowings under the 2015 Credit Agreement, and pay certain fees and expenses incurred in connection with the Credit Agreement, with future borrowings used for other general corporate purposes of the Company and its subsidiaries. The term loan amortizes in quarterly installments of 1.25 % in each of the first four years, and quarterly installments of 2.5 % in the fifth year of the Credit Agreement. The revolving facility has a $ 25 million sub-limit for the issuance of letters of credit and a $ 25 million sub-limit for the borrowing of swingline loans. The maturity date is June 1, 2027 . The Company may request up to two one-year extensions of the maturity date. The Company may, upon the agreement of one or more then existing lenders or of additional financial institutions not currently party to the Credit Agreement, increase the revolving facility commitments or obtain incremental term loans by an aggregate amount not to exceed (x) the greater of (i) $ 168 million or (ii) 100 % of consolidated EBITDA (as defined in the Credit Agreement) for the four fiscal quarters ended most recently before such date, plus (y) the amount of any voluntary prepayment of term loans, plus (z) an unlimited amount so long as, immediately after giving effect thereto, the pro forma First Lien Net Leverage Ratio (as defined in the Credit Agreement) does not exceed 2.5 to 1.0. 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 were made at one-month Term SOFR. The applicable margin for the term benchmark borrowings ranges from 1.0 % to 2.0 %, and the applicable margin for alternate base rate borrowings ranges from 0 % to 1.0 %, in each case, based on the total net leverage ratio of the Company and its restricted subsidiaries. The Company may select interest periods of one, three or 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. The interest rate swap agreement matures in May 2029. 72 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Outstanding borrowings at December 31, 2023 under the Credit Agreement were $ 156 million, consisting of current borrowings of $ 5 million and long-term debt of $ 151 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 $ 2.3 million and $ 2.4 million at December 31, 2023 and 2022, respectively. At December 31, 2023, the weighted average interest rate under our Credit Agreement was 5 %, which consisted of $ 156 million in borrowings at 5 % under Term SOFR, adjusted for the impact of the interest rate swap agreement on $ 100 million of borrowings. 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 year ended December 31, 2023, our average daily alternative base rate loan balance was $ 0.1 million, compared to 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 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. Polish Overdraft Facility I n November 2023, our Polish subsidiary, SMP Poland sp. z.o.o., further amended its overdraft facility with HSBC Continental Europe (Spolka Akcyjna) Oddzial w Polsce. The overdraft facility, as amended, provides for borrowings under the facility in Euros and U.S. Dollars. Under the amended terms, the overdraft facility provides for borrowings of up to Zloty 30 million (approximately $ 7.6 million) if borrowings are solely in Zloty, or up to 85 % of the Zloty 30 million limit (approximately $ 6.5 million) if borrowings are in Euros and/or U.S. Dollars. The overdraft facility has a maturity date in March 2024, with automatic three-month renewals until June 2027, subject to cancellation by either party, at its sole discretion, at least 30 days prior to the commencement of the three-month renewal period. Borrowings under the amended overdraft facility will bear interest at a rate equal to (1) the one month Warsaw Interbank Offered Rate (“WIBOR”) + 1.0 % for borrowings in Polish Zloty, (2) the one month Euro Interbank Offered Rate (“EURIBOR”) + 1.0 % for borrowings in Euros, and (3) the Mid-Point of the Fed Target Range + 1.25 % for borrowings in U.S Dollars. Borrowings under the overdraft facility are guaranteed by Standard Motor Products, Inc., the ultimate parent company. There were no borrowings outstanding under the overdraft facility at both December 31, 2023 and December 31, 2022 . 73 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Maturities of Debt As of December 31, 2023, maturities of debt through 2027, assuming no prepayments, are as follows (in thousands): Revolving Credit Facility Term Loan Facility Polish Overdraft Facility and Other Debt Total 2024 $ — $ 5,000 $ 29 $ 5,029 2025 — 5,000 31 5,031 2026 — 7,500 49 7,549 2027 63,500 75,000 102 138,602 Total $ 63,500 $ 92,500 $ 211 $ 156,211 Less: current maturities — ( 5,000 ) ( 29 ) ( 5,029 ) Long-term debt $ 63,500 $ 87,500 $ 182 $ 151,182 Deferred Financing Costs We have deferred financing costs of approximately $ 1.6 million and $ 2.1 million as of December 31, 2023 and 2022, resp ectively. Deferred financing costs are related to our term loan and revolving credit facilities. Deferred financing costs as of December 31, 2023, assuming no prepayments, are being amortized in the amounts of $ 0.5 million in 2024, $ 0.5 million in 2025, $ 0.5 million in 2026 and $ 0.1 million in 2 027. 12. Accumulated Other Comprehensive Income Changes in Accumulated Other Comprehensive Income by Component (in thousands) Foreign Currency Translation Unrecognized Postretirement Benefit Costs (Credit) Unrealized derivative gains (losses) Total Balance at December 31, 2021 attributable to SMP $ ( 8,221 ) $ 52 $ — $ ( 8,169 ) Other comprehensive income before reclassifications ( 8,109 ) — 3,797 (1) ( 4,312 ) Amounts reclassified from accumulated other comprehensive income — ( 15 ) 26 11 Other comprehensive income, net ( 8,109 ) ( 15 ) 3,823 ( 4,301 ) Balance at December 31, 2022 attributable to SMP $ ( 16,330 ) $ 37 $ 3,823 $ ( 12,470 ) Other comprehensive income before reclassifications 7,433 — 831 (1) 8,264 Amounts reclassified from accumulated other comprehensive income — ( 13 ) ( 1,755 ) ( 1,768 ) Other comprehensive income, net 7,433 ( 13 ) ( 924 ) 6,496 Balance at December 31, 2023 attributable to SMP $ ( 8,897 ) $ 24 $ 2,899 $ ( 5,974 ) (1) Consists of the unrecognized loss relating to the change in fair value of the cash flow interest rate hedge of $ 1.2 million ($ 0.9 million, net of tax) plus cash settlement receipts of $ 2.4 million ($ 1.7 million, net of tax) in the year ended December 31, 2023; and the unrecognized gain relating to the change in fair value of the cash flow interest rate hedge of $ 5.2 million ($ 3.8 million, net of tax) minus cash settlement payments of $ 42 ,000 ($ 31 ,000, net of tax) in the year December 31, 2022. 74 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Reclassifications Out of Accumulated Other Comprehensive Income (in thousands): Year Ended December 31, Details About Accumulated Other Comprehensive Income Components 2023 2022 Derivative cash flow hedge: Unrecognized gain (loss) (1) $ ( 2,372 ) $ 35 Postretirement Benefit Plans: Unrecognized gain (loss) (2) ( 22 ) ( 25 ) Total before income tax ( 2,394 ) 10 Income tax expense (benefit) ( 626 ) ( 1 ) Total reclassifications attributable to SMP $ ( 1,768 ) $ 11 (1) Unrecognized accumulated other comprehensive income (loss) related to the cash flow interest rate hedge is reclassified to earnings and reported as part of interest expense in our consolidated statements of operations when the interest payments on the underlying borrowings are recognized. (2) Unrecognized accumulated other comprehensive income (loss) related to our post retirement plans is reclassified to earnings and included in the computation of net periodic postretirement benefit costs, which are included in other non-operating income (expense), net in our consolidated statements of operations (see Note 15, “Employee Benefits,” for additional information). 13. Stockholders’ Equity We have authority to issue 500,000 shares of preferred stock, $ 20 par value, and our Board of Directors is vested with the authority to establish and designate any series of preferred, to fix the number of shares therein and the variations in relative rights as between each series. In December 1995, our Board of Directors established a new series of preferred shares designated as Series A Participating Preferred Stock. The number of shares constituting the Series A Preferred Stock is 30,000 . The Series A Preferred Stock is designed to participate in dividends, ranks senior to our common stock as to dividends and liquidation rights and has voting rights. Each share of the Series A Preferred Stock shall entitle the holder to one thousand votes on all matters submitted to a vote of the stockholders of the Company. No such shares were outstanding at December 31, 2023 and 2022. In March 2020, our Board of Directors authorized the purchase of up to $ 20 million of our common stock under a stock repurchase program. Stock repurchases under this program, during the year ended December 31, 2021 were 150,273 shares of our common stock at a total cost of $ 6.5 million thereby completing the 2020 Board of Directors authorization. In February 2021, our Board of Directors authorized the purchase of up to an additional $ 20 million of our common stock under a stock repurchase program. Stock repurchases under this program during the year ended December 31, 2021 were 464,992 shares of our common stock at a total cost of $ 20 million, thereby completing the February 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 repurchases under this program, during the year ended December 31, 2021 and 2022 were 7,000 and 692,067 shares of our common stock, respectively, at a total cost of $ 0.3 million and $ 29.7 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. To date, there have been no repurchases of our common stock under the program. 75 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14. Stock-Based Compensation Plans Our stock-based compensation program is a broad-based program designed to attract and retain employees while also aligning employees’ interests with the interests of our shareholders. In addition, members of our Board of Directors participate in our stock-based compensation program in connection with their service on our board. In May 2021, our Board of Directors and Shareholders approved an amendment and restatement to the 2016 Omnibus Incentive Plan (the “Plan”). Under the Plan, which terminates in May 2026, we are authorized to issue, among other things, shares of restricted and performance-based stock to eligible employees and restricted stock to directors of up to 2,050,000 shares; and shares of restricted and performance-based stock to nonemployee directors of up to 350,000 shares. Shares issued under the Plan that are cancelled, forfeited or expire by their terms are eligible to be granted again under the Plan. The 2016 Omnibus Incentive Plan is the only remaining plan available to provide stock-based incentive compensation to our employees, directors and other eligible persons. Awards previously granted under the 2006 Omnibus Incentive Plan remain outstanding, while shares not yet granted under the plan are not available for future issuance. We account for our stock-based compensation plans in accordance with the provisions of FASB ASC 718, Stock Compensation , which requires that a company measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The service period is the period of time that the grantee must provide services to us before the stock-based compensation is fully vested. The grant-date fair value of the award is recognized as an expense on a straight-line basis over the requisite service periods in our consolidated statements of operations. Forfeitures are estimated at the time of grant based on historical trends in order to estimate the amount of share-based awards that will ultimately vest. We monitor actual forfeitures for any subsequent adjustment to forfeiture rates. Restricted Stock and Performance Share Grants We currently grant shares of restricted stock to eligible employees and our independent directors and performance-based stock to eligible employees. We grant eligible employees two types of restricted stock (standard restricted shares and long-term retention restricted shares). Standard restricted shares granted to employees become fully vested no earlier than three years after the date of grant. Long-term retention restricted shares granted to selected executives vest at a 25 % rate on or within approximately two months of an executive reaching the ages of 60 and 63, and become fully vested on or within approximately two months of an executive reaching the age of 65. Restricted shares granted to directors become fully vested upon the first anniversary of the date of grant. Performance-based shares issued to eligible employees are subject to a three-year measuring period and the achievement of performance targets and, depending upon the achievement of such performance targets, they may become vested no earlier than three years after the date of grant. Each period we evaluate the probability of achieving the applicable targets, and we adjust our accrual accordingly. Restricted shares (other than long-term retention restricted shares) and performance shares issued to certain key executives and directors are subject to a one or two year holding period upon the lapse of the vesting period. Forfeitures on stock grants are estimated at 5 % for employees and 0 % for executives and directors based upon our evaluation of historical and expected future turnover. Prior to the time a restricted share becomes fully vested or a performance share is issued, the awardees cannot transfer, pledge, hypothecate or encumber such shares. Prior to the time a restricted share is fully vested, the awardees have all other rights of a stockholder, including the right to vote (but do not receive dividends during the vesting period). Prior to the time a performance share is issued, the awardees shall have no rights as a stockholder. All shares and rights are subject to forfeiture if certain employment conditions are not met. 76 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Under the amended and restated 2016 Omnibus Incentive Plan, 2,050,000 shares are authorized to be issued. At December 31, 2023, under the plan, there were an aggregate of (a) 1,633,549 shares of restricted and performance-based stock grants issued, net of forfeitures, and (b) 416,451 shares of common stock available for future grants. For the year ended December 31, 2023, 230,875 restricted and performance-based shares were granted ( 165,125 restricted shares and 65,750 performance-based shares). In determining the grant date fair value, the stock price on the date of grant, as quoted on the New York Stock Exchange, was reduced by the present value of dividends expected to be paid on the shares issued and outstanding during the requisite service period, discounted at a risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the restriction or vesting period at the grant date. In addition, a further discount for the lack of marketability reduced the fair value of grants issued to certain key executives and directors subject to the one or two year post vesting holding period. Assumptions used in calculating the discount for the lack of marketability include an estimate of stock volatility, risk-free interest rate, and a dividend yield. As related to restricted and performance stock shares, we recorded compensation expense of $ 6.2 million ($ 4.8 million, net of tax), $ 7.6 million ($ 5.7 million, net of tax) and $ 9.1 million ($ 6.9 million, net of tax), for the years ended December 31, 2023, 2022 and 2021, respectively. The unamortized compensation expense related to our restricted and performance-based shares was $ 13.3 million and $ 14.9 million at December 31, 2023 and 2022, respectively and is expected to be recognized over a weighted average period of 4.1 years and 0.3 years for employees and directors, respectively, as of December 31, 2023 and over a weighted average period of 4.3 years and 0.3 years for employees and directors, respectively, as of December 31, 2022. Our restricted and performance-based share activity was as follows for the years ended December 31, 2023 and 2022: Shares Weighted Average Grant Date Fair Value per Share Balance at December 31 , 2021 807,019 $ 34.92 Granted 246,325 28.44 Vested ( 190,082 ) 41.71 Performance Shares Target Adjustment 25,317 42.21 Forfeited ( 7,750 ) 40.73 Balance at December 31 , 2022 880,829 $ 31.79 Granted 230,875 27.00 Vested ( 248,065 ) 36.30 Performance Shares Target Adjustment 29,137 36.30 Forfeited ( 11,800 ) 35.36 Balance at December 31 , 2023 880,976 $ 29.48 The weighted-average grant date fair value of restricted and performance-based shares outstanding as of December 31, 2023, 2022 and 2021 was $ 26 million (or $ 29.48 per share), $ 28 million (or $ 31.79 per share), and $ 28.2 million (or $ 34.92 per share), respectively. 77 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15. Employee Benefits Defined Contribution Plans We maintain various defined contribution plans, which include profit sharing, and provide retirement benefits for substantially all of our employees. Matching obligations, in connection with the plans which are funded in cash and typically contributed to the plans in March of the following year, are as follows (in thousands): U.S. Defined Contribution Year ended December 31, 2023 $ 10,510 2022 10,180 2021 9,763 We maintain a defined contribution Supplemental Executive Retirement Plan for key employees. Under the plan, these employees may elect to defer a portion of their compensation and, in addition, we may at our discretion make contributions to the plan on behalf of the employees. In March 2023 and 2022, contributions of $ 0.8 million were made related to calendar years 2022 and 2021, respectively. As of December 31, 2023, we have recorded an obligation of $ 0.6 million for 2023. We also have an Employee Stock Ownership Plan and Trust (“ESOP”) for employees who are not covered by a collective bargaining agreement. In connection therewith, we maintain an employee benefits trust to which we contribute shares of treasury stock. We are authorized to instruct the trustees to distribute such shares toward the satisfaction of our future obligations under the plan. The shares held in trust are not considered outstanding for purposes of calculating earnings per share until they are committed to be released. The trustees will vote the shares in accordance with its fiduciary duties. During 2023, we contributed to the trust an additional 72,800 shares from our treasury and released 72,800 shares from the trust leaving 200 shares remaining in the trust as of December 31, 2023. The provision for expense in connection with the ESOP was approximately $ 3 million in 2023, $ 2.3 million in 2022 and $ 2.5 million in 2021. Defined Benefit Pension Plan We maintain a defined benefit unfunded Supplemental Executive Retirement Plan (“SERP”). The SERP, as amended, is a defined benefit plan pursuant to which we will pay supplemental pension benefits to certain key employees upon the attainment of a contractual participant’s payment date based upon the employees’ years of service and compensation. As there are no current participants in the SERP, there was no benefit obligation outstanding related to the plan as of December 31, 2023 and 2022 and we recorded no expense related to the plan during the years ended December 31, 2023, 2022 and 2021. Postretirement Medical Benefits We provide certain medical and dental care benefits to 14 former U.S. union employees. The postretirement medical and dental benefit obligation for the former union employees as of December 31, 2023, and the net periodic benefit cost for our postretirement benefit plans for the years ended December 31, 2023, 2022 and 2021 were not material. 78 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 16. Other Non-Operating Income (Expense), Net The components of other non-operating income (expense), net are as follows: Year Ended December 31, 2023 2022 2021 (In thousands) Interest and dividend income $ 517 $ 209 $ 49 Equity income from joint ventures 2,070 3,464 3,295 Gain (loss) on foreign exchange ( 776 ) 334 ( 257 ) Other non-operating income, net 515 807 407 Total other non-operating income, net $ 2,326 $ 4,814 $ 3,494 17. Derivative Financial Instruments Interest Rate Swap Agreements We occasionally use derivative financial instruments to reduce our market risk for changes in interest rates on our variable rate borrowings. The principal financial instruments used for cash flow hedging purposes are interest rate swap agreements. The interest rate swaps effectively convert a portion of our variable rate borrowings under our existing facilities to a fixed rate based upon determined notional amount. We do not enter into interest rate swap agreements, or other financial instruments, for trading or speculative purposes. In June 2022, we entered into a seven year interest rate swap agreement with a notional amount of $ 100 million that is to mature in May 2029 . The interest rate swap agreement has been designated as a cash flow hedge of interest payments on $ 100 million of borrowings under our Credit Agreement. Under the terms of the swap agreement, we will receive monthly variable interest payments based on one month Term SOFR and will pay interest based upon a fixed rate of 2.683 % per annum, adjusted upward for the credit spread adjustment in the Credit Agreement of 0.10 % and the loan margin in the Credit Agreement of 1.25 % at December 31, 2023. The fair value of the interest rate swap agreement as of December 31, 2023 and December 31, 2022 was an asset of $ 3.9 million and $ 5.2 million, respectively, which has been deferred and recorded in accumulated other comprehensive income, net of income taxes, in our consolidated balance sheet. When the interest expense on the underlying borrowing is recognized, the deferred gain/loss in accumulated other comprehensive income is recorded in earnings as interest expense in the consolidated statements of operations. We perform quarterly hedge effectiveness assessments and anticipate that the interest rate swap will be highly effective throughout its term. 18. Fair Value Measurements We follow a three-level fair value hierarchy that prioritizes the inputs to measure fair value. This hierarchy requires entities to maximize the use of “observable inputs” and minimize the use of “unobservable inputs.” The three levels of inputs used to measure fair value are as follows: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect assumptions that market participants would use in pricing an asset or liability. 79 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following is a summary of the estimated fair values, carrying amounts, and classification under the fair value hierarchy of our financial instruments at December 31, 2023 and December 31, 2022 (in thousands): December 31, 2023 December 31, 2022 Fair Value Hierarchy Fair Value Carrying Amount Fair Value Carrying Amount Cash and cash equivalents (a) LEVEL 1/2 $ 32,526 $ 32,526 $ 21,150 $ 21,150 Deferred compensation LEVEL 1 23,893 23,893 20,190 20,190 Short term borrowings LEVEL 1 5,029 5,029 55,031 55,031 Long-term debt LEVEL 1 151,182 151,182 184,589 184,589 Cash flow interest rate swap LEVEL 2 3,939 3,939 5,174 5,174 Long-term investments LEVEL 2 7,468 7,468 — — (a) As of December 31, 2023 cash and cash equivalents consist of cash of $ 29.5 million and cash equivalents of $ 3 million, which are classified as Level 1 and Level 2, respectively, under the fair value hierarchy. Cash and cash equivalents at December 31, 2022 consists solely of cash of $ 21.2 million, which is classified as Level 1 under the fair value hierarchy. Cash equivalents consist of certificates of deposit with original maturities of 3 months, or less. These securities are accounted for as held-to-maturity and recorded at amortized cost, which approximates their fair values at December 31, 2023. The fair value of the underlying assets held by the deferred compensation plan are based on the quoted market prices of the underlying funds which are held by registered investment companies. The carrying value of our variable rate short-term borrowings and long-term debt under our credit facilities approximates fair value as the variable interest rates in the facilities reflect current market rates. The fair value of our cash flow interest rate swap agreement is obtained from an independent third party, is based upon market quotes, and represents the net amount required to terminate the interest rate swap, taking into consideration market rates and counterparty credit risk. Long-term investments consist of certificates of deposit with original maturities in excess of twelve months. These securities are accounted for as held-to-maturity and recorded at amortized cost, which approximates their fair values at December 31, 2023. 19. Income Taxes The income tax provision (benefit) consists of the following (in thousands): Year Ended December 31, 2023 2022 2021 Current: Domestic $ 15,422 $ 16,182 $ 26,528 Foreign 9,224 8,669 5,851 Total current 24,646 24,851 32,379 Deferred: Domestic ( 5,769 ) 1,102 ( 1,161 ) Foreign ( 509 ) ( 747 ) ( 174 ) Total deferred ( 6,278 ) 355 ( 1,335 ) Total income tax provision $ 18,368 $ 25,206 $ 31,044 80 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Reconciliations between taxes at the U.S. Federal income tax rate and taxes at our effective income tax rate on earnings from continuing operations before income taxes are as follows (in thousands): Year Ended December 31, 2023 2022 2021 U.S. Federal income tax rate of 21 % $ 17,160 $ 20,650 $ 27,398 Increase (decrease) in tax rate resulting from: State and local income taxes, net of federal income tax benefit 2,086 3,118 4,579 Change in valuation allowance 674 1,068 466 Income tax (benefit) attributable to foreign income 377 ( 53 ) ( 122 ) Other non-deductible items, net ( 1,929 ) 423 ( 1,277 ) Provision for income taxes $ 18,368 $ 25,206 $ 31,044 The following is a summary of the components of the net deferred tax assets and liabilities recognized in the accompanying consolidated balance sheets (in thousands): December 31, 2023 2022 Deferred tax assets: Inventories $ 10,493 $ 11,604 Allowance for customer returns 13,083 14,506 Accrued asbestos liabilities 20,758 17,208 Accrued salaries and benefits 11,816 12,048 Tax credit and NOL carryforwards 5,968 5,103 Allowance for expected credit losses 3,567 2,965 Other 17 215 65,702 63,649 Valuation allowance ( 3,830 ) ( 3,155 ) Total deferred tax assets 61,872 60,494 Deferred tax liabilities: Intangible assets acquired, net of amortization 12,668 13,292 Depreciation 7,597 8,715 Interest rate swap agreement 990 1,299 Other 84 3,530 Total deferred tax liabilities 21,339 26,836 Net deferred tax assets $ 40,533 $ 33,658 In assessing the realizability of the deferred tax assets, we consider whether it is more likely than not that some portion or the entire deferred tax asset will be realized. Ultimately, the realization of the deferred tax asset is dependent upon the generation of sufficient taxable income in those periods in which temporary differences become deductible and/or net operating loss carryforwards can be utilized. We consider the level of historical taxable income, scheduled reversal of temporary differences, carryback and carryforward periods, tax planning strategies and projected future taxable income in determining whether a valuation allowance is warranted. We also consider cumulative losses in recent years as well as the impact of one-time events in assessing our pre-tax earnings. Assumptions regarding future taxable income require significant judgment. Our assumptions are consistent with estimates and plans used to manage our business. The valuation allowance of $ 3.8 million as of December 31, 2023 is intended to provide for uncertainty regarding the ultimate realization of our U.S. foreign tax credit carryovers. Based on these considerations, we believe it is more likely than not that we would realize the benefit of the net deferred tax asset of $ 40.5 million as of December 31, 2023, which is net of the remaining valuation allowance. At December 31, 2023, we have foreign tax credit carryforwards of approximately $ 3.8 million that will expire in varying amounts by 2032 . As related to the taxation of our foreign subsidiaries, we aggregate our foreign earnings and profits, and utilize allowable deductions and available foreign tax credits in computing our U.S. tax. Notwithstanding the U.S. taxation of these amounts, we intend to continue to invest most, or all, of these earnings indefinitely outside of the U.S., and do not expect to incur any significant additional taxes related to such amounts. 81 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In accordance with generally accepted accounting practices, we recognize in our financial statements only those tax positions that meet the more-likely-than-not recognition threshold. We establish tax reserves for uncertain tax positions that do not meet this threshold. During the years ended December 31, 2023, 2022 and 2021, we did no t establish a liability for uncertain tax positions. We are subject to taxation in the U.S. and various state, local and foreign jurisdictions. As of December 31, 2023, the Company is no longer subject to U.S. Federal tax examinations for years before 2020. We remain subject to examination by state and local tax authorities for tax years 2019 through 2022 . Foreign jurisdictions have statutes of limitations generally ranging from 2 to 6 years. Years still open to examination by foreign tax authorities in major jurisdictions include Canada ( 2019 onward), Hong Kong ( 2018 onward), China ( 2021 onward), Mexico ( 2019 onward), Poland ( 2018 onward), Hungary ( 2018 onward), U.K. ( 2017 onward) and Germany ( 2019 onward). We do not presently anticipate that our unrecognized tax benefits will significantly increase or decrease over the next 12 months; however, actual developments in this area could differ from those currently expected. 20. Earnings Per Share We present two calculations of earnings per common share. “Basic” earnings per common share equals net earnings attributable to SMP divided by weighted average common shares outstanding during the period. “Diluted” earnings per common share equals net earnings attributable to SMP divided by the sum of weighted average common shares outstanding during the period plus potentially dilutive common shares. Potentially dilutive common shares that are anti-dilutive are excluded from net earnings per common share. The following are reconciliations of the net earnings attributable to SMP and the shares used in calculating basic and dilutive net earnings per common share attributable to SMP (in thousands, except per share data): Year Ended December 31, 2023 2022 2021 Net Earnings Attributable to SMP - Earnings from continuing operations $ 63,144 $ 73,042 $ 99,353 Loss from discontinued operations ( 28,996 ) ( 17,691 ) ( 8,467 ) Net earnings attributable to SMP $ 34,148 $ 55,351 $ 90,886 Basic Net Earnings Per Common Share Attributable to SMP - Earnings from continuing operations per common share $ 2.91 $ 3.37 $ 4.49 Loss from discontinued operations per common share ( 1.34 ) ( 0.82 ) ( 0.39 ) Net earnings per common share attributable to SMP $ 1.57 $ 2.55 $ 4.10 Weighted average common shares outstanding 21,716 21,684 22,147 2023 2022 2021 Diluted Net Earnings Per Common Share Attributable to SMP - Earnings from continuing operations per common share $ 2.85 $ 3.30 $ 4.39 Loss from discontinued operations per common share ( 1.31 ) ( 0.80 ) ( 0.37 ) Net earnings per common share attributable to SMP $ 1.54 $ 2.50 $ 4.02 Weighted average common shares outstanding 21,716 21,684 22,147 Plus incremental shares from assumed conversions: Dilutive effect of restricted stock and performance-based stock 445 456 469 Weighted average common shares outstanding – Diluted 22,161 22,140 22,616 82 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The shares listed below were not included in the computation of diluted net earnings per common share attributable to SMP because to do so would have been anti-dilutive for the periods presented or because they were excluded under the treasury method (in thousands): 2023 2022 2021 Restricted and performance shares 280 292 269 21. Industry Segment and Geographic Data Beginning on January 1, 2023, we reorganized our business into three operating segments – Vehicle Control, Temperature Control and Engineered Solutions . The new operating segment structure better aligns our operations with our strategic focus on diversifying our business, provides greater transparency into our positioning to capture opportunities for growth in the future, and provides clarity regarding the unique dynamics and margin profiles of the markets served by each segment. Vehicle Control is the new name for our Engine Management operating segment. It includes our core automotive aftermarket business after carving out all non-aftermarket business to our Engineered Solutions operating segment. The Vehicle Control operating segment includes sales from ignition, emissions and fuel delivery, electrical and safety, and wire sets and other product categories. Temperature Control is our ongoing automotive aftermarket operating segment, after the carve out of all non-aftermarket business to our Engineered Solutions operating segment. Temperature Control derives its sales from air conditioning system components and other thermal product categories. Our Temperature Control operating segment is poised to benefit from the broader adoption of more complex air conditioning systems that will provide passenger comfort regardless of the vehicle’s powertrain. 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. 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. 83 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The accounting policies of each segment are the same as those described in the summary of significant accounting policies (see Note 1). The following tables contain financial information for each reportable operating segment (in thousands): Year Ended December 31, 2023 2022 2021 Net sales (a): Vehicle Control $ 737,932 $ 750,571 $ 737,431 Temperature Control 337,754 351,237 324,080 Engineered Solutions 282,586 270,007 237,305 Other — — — Total net sales $ 1,358,272 $ 1,371,815 $ 1,298,816 Depreciation and Amortization: Vehicle Control $ 13,877 $ 14,075 $ 14,840 Temperature Control 3,424 2,973 3,345 Engineered Solutions 9,966 9,557 7,390 Other 1,755 1,693 1,668 Total depreciation and amortization $ 29,022 $ 28,298 $ 27,243 Operating income (loss) : Vehicle Control $ 71,327 $ 74,153 $ 97,029 Temperature Control 17,343 26,459 30,077 Engineered Solutions 19,944 18,713 19,982 Other ( 15,937 ) ( 15,190 ) ( 18,089 ) Total operating income $ 92,677 $ 104,135 $ 128,999 Investment in unconsolidated affiliates: Vehicle Control $ 2,496 $ 2,490 $ 2,729 Temperature Control 19,711 27,557 28,518 Engineered Solutions 1,843 11,698 12,840 Other — — — Total investment in unconsolidated affiliates $ 24,050 $ 41,745 $ 44,087 Capital expenditures : Vehicle Control $ 13,955 $ 13,378 $ 17,048 Temperature Control 1,899 3,973 2,130 Engineered Solutions 12,095 6,489 5,354 Other 684 2,116 1,343 Total capital expenditures $ 28,633 $ 25,956 $ 25,875 Total assets : Vehicle Control $ 620,569 $ 618,789 $ 604,016 Temperature Control 274,657 254,137 234,771 Engineered Solutions 292,080 289,518 272,791 Other 105,741 92,485 86,383 Total assets $ 1,293,047 $ 1,254,929 $ 1,197,961 (a) There are no intersegment sales among our Vehicle Control, Temperature Control and Engineered Solutions operating segments. Other consists of financial information related to the activities of our corporate headquarters function. 84 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Reconciliation of segment operating income to net earnings: Year Ended December 31, 2023 2022 2021 (In thousands) Operating income $ 92,677 $ 104,135 $ 128,999 Other non-operating income, net 2,326 4,814 3,494 Interest expense 13,287 10,617 2,028 Earnings from continuing operations before income taxes 81,716 98,332 130,465 Provision for income taxes 18,368 25,206 31,044 Earnings from continuing operations 63,348 73,126 99,421 Discontinued operations, net of tax ( 28,996 ) ( 17,691 ) ( 8,467 ) Net earnings $ 34,352 $ 55,435 $ 90,954 December 31, 2023 2022 2021 Long-lived assets (a) : (In thousands) United States $ 368,792 $ 326,199 $ 315,983 Asia 75,869 76,766 80,175 Europe 44,517 38,351 37,892 Mexico 13,262 10,355 12,119 Canada 5,851 7,161 4,461 Total long-lived assets $ 508,291 $ 458,832 $ 450,630 (a) Long-lived assets are attributed to countries based upon the location of the assets. Our three largest individual customers accounted for approximately 59 % of our consolidated net sales in 2023. During 2023, O’Reilly Auto Parts, AutoZone and NAPA accounted for 29 %, 16 % and 14 % of our consolidated net sales, respectively. Net sales from each of the customers were reported in our Vehicle Control and Temperature Control Segments. The loss of one or more of these customers or, a significant reduction in purchases of our products from any one of them could have a material adverse impact on our business, financial condition and results of operations. In addition, any consolidation among our key customers may further increase our customer concentration risk. For the disaggregation of our net sales from customers by major product group and geographic area within each of our operating segments, see Note 22, “Net Sales.” 22. Net Sales Disaggregation of Net Sales We disaggregate our net sales from contracts with customers by major product group and geographic area within each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our net sales are affected by economic factors. Major Product Group The Vehicle Control operating segment generates its revenues from core aftermarket sales of ignition, emissions, and fuel delivery, electrical and safety, and wire sets and other product categories. The Temperature Control operating segment generates its revenue from aftermarket sales of air conditioning system components and other thermal products. The Engineered Solutions operating segment generates revenues from custom-engineered products to vehicle and equipment manufacturers in highly diversified global end-markets such as commercial and light vehicles, construction, agriculture, power sports and marine. 85 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes consolidated net sales by major product group within each operating segment for the years ended December 31, 2023, 2022 and 2021 (in thousands): Year Ended December 31, 2023 2022 2021 Vehicle Control Engine Management (Ignition, Emissions and Fuel Delivery) $ 450,180 $ 454,571 $ 444,196 Electrical and Safety 221,782 230,487 224,520 Wire Sets and Other 65,970 65,513 68,715 Total Vehicle Control 737,932 750,571 737,431 Temperature Control AC System Components 237,756 245,484 231,466 Other Thermal Components 99,998 105,753 92,614 Total Temperature Control 337,754 351,237 324,080 Engineered Solutions Commercial Vehicle 83,025 80,275 76,066 Construction/Agriculture 43,402 42,385 33,220 Light Vehicle 92,759 91,533 86,440 All Other 63,400 55,814 41,579 Total Engineered Solutions 282,586 270,007 237,305 Other — — — Total $ 1,358,272 $ 1,371,815 $ 1,298,816 Geographic Area We sell our line of products primarily in the United States, with additional sales in Canada, Mexico, Europe, Asia and Latin America. Sales are attributed to countries based upon the location of the customer. Our sales are substantially denominated in U.S. dollars. The following tables provide disaggregation of net sales information by geographic area within each operating segment for the years ended December 31, 2023, 2022 and 2021 (in thousands): Year Ended December 31, 2023 Vehicle Control Temperature Control Engineered Solutions Other Total Geographic Area: United States $ 659,570 $ 319,904 $ 168,878 $ — $ 1,148,352 Canada 36,088 17,081 25,689 — 78,858 Europe 916 8 59,266 — 60,190 Mexico 36,350 49 6,658 — 43,057 Asia 351 526 19,522 — 20,399 Other foreign 4,657 186 2,573 — 7,416 Total $ 737,932 $ 337,754 $ 282,586 $ — $ 1,358,272 86 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year Ended December 31, 2022 Vehicle Control Temperature Control Engineered Solutions Other Total Geographic Area: United States $ 682,145 $ 335,281 $ 191,678 $ — $ 1,209,104 Canada 35,233 14,596 16,762 — 66,591 Europe 661 75 37,784 — 38,520 Mexico 26,019 401 4,897 — 31,317 Asia 2,408 63 16,715 — 19,186 Other foreign 4,105 821 2,171 — 7,097 Total $ 750,571 $ 351,237 $ 270,007 $ — $ 1,371,815 Year Ended December 31, 2021 Vehicle Control Temperature Control Engineered Solutions Other Total Geographic Area: United States $ 677,684 $ 309,247 $ 147,447 $ — $ 1,134,378 Canada 35,063 13,585 13,912 — 62,560 Europe 771 153 26,759 — 27,683 Mexico 19,741 358 5,547 — 25,646 Asia 144 101 40,771 — 41,016 Other foreign 4,028 636 2,869 — 7,533 Total $ 737,431 $ 324,080 $ 237,305 $ — $ 1,298,816 23. Commitments and Contingencies Total rent expense for the three years ended December 31, 2023 was as follows (in thousands): Total (1) Real Estate Other 2023 $ 19,706 $ 15,735 $ 3,971 2022 14,135 11,385 2,750 2021 12,065 9,500 2,565 (1) In cludes expenses of approximately $ 3.3 million , $ 2.7 million, and $ 2 million for the years ended December 31, 2023, 2022 and 2021, respectively, related to non-lease components such as maintenance, property taxes, etc., and operating lease expense for leases with an initial term of 12 months or less, which is no t material. For our operating lease minimal rental payments that we are obligated to make, see Note 7, “Leases.” Warranties We generally warrant our products against certain manufacturing and other defects. These product warranties are provided for specific periods of time depending on the nature of the product. As of December 31, 2023 and 2022, we have accrued $ 21.1 million and $ 19.7 million, respectively, for estimated product warranty claims included in accrued customer returns. The accrued product warranty costs are based primarily on historical experience of actual warranty claims. Warranty expense for each of the years 2023, 2022, and 2021 were $ 120 million, $ 112.5 million and $ 91.9 million, respectively. The following table provides the changes in our product warranties: December 31, 2023 2022 (In thousands) Balance, beginning of period $ 19,667 $ 17,463 Liabilities accrued for current year sales 120,027 112,477 Settlements of warranty claims ( 118,560 ) ( 110,273 ) Balance, end of period $ 21,134 $ 19,667 87 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Letters of Credit As of December 31, 2023 and 2022, we had outstanding letters of credit with certain vendors aggregating approximately $ 2.3 million and $ 2.4 million, respectively. These letters of credit are being maintained as security for reimbursements to insurance companies and as security to the landlord of our administrative offices in Long Island City, New York. The contract amount of the letters of credit is a reasonable estimate of their value as the value for each is fixed over the life of the commitment. Change of Control Arrangements We have a change in control arrangement with one key officer. In the event of a change of control (as defined in the agreement), the executive will receive severance payments and certain other benefits as provided in his agreement. Asbestos I n 1986, we acquired a brake business, which we subsequently sold in March 1998 and which is accounted for as a discontinued operation in the accompanying statement of operations. When we originally acquired this brake business, we assumed future liabilities relating to any alleged exposure to asbestos-containing products manufactured by the seller of the acquired brake business. In accordance with the related purchase agreement, we agreed to assume the liabilities for all new claims filed on or after September 2001. Our ultimate exposure will depend upon the number of claims filed against us on or after September 2001, and the amounts paid for settlements, awards of asbestos-related damages, and defense of such claims. At December 31, 2023, approximately 1,390 cases were outstanding for which we may be responsible for any related liabilities. Since inception in September 2001 through December 31, 2023, the amounts paid for settled claims and awards of asbestos-related damages, including interest, were approximately $ 74.6 million. We do not have insurance coverage for the indemnity and defense costs associated with the claims we face. In evaluating our potential asbestos-related liability, we have considered various factors including, among other things, an actuarial study of the asbestos related liabilities performed by an independent actuarial firm, our settlement amounts and whether there are any co-defendants, the jurisdiction in which lawsuits are filed, and the status and results of such claims. As is our accounting policy, we consider the advice of actuarial consultants with experience in assessing asbestos-related liabilities to estimate our potential claim liability; and perform an actuarial evaluation in the third quarter of each year and whenever events or changes in circumstances indicate that additional provisions may be necessary. The methodology used to project asbestos-related liabilities and costs in our actuarial study considered: (1) historical data available from publicly available studies; (2) an analysis of our recent claims history to estimate likely filing rates into the future; (3) an analysis of our currently pending claims; (4) an analysis of our settlements and awards of asbestos-related damages to date; and (5) an analysis of closed claims with pay ratios and lag patterns in order to develop average future settlement values. Based on the information contained in the actuarial study and all other available information considered by us, we have concluded that no amount within the range of settlement payments and awards of asbestos-related damages was more likely than any other and, therefore, in assessing our asbestos liability we compare the low end of the range to our recorded liability to determine if an adjustment is required. 88 Index STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In accordance with our policy to perform an annual actuarial evaluation in the third quarter of each year, an actuarial study was performed as of August 31, 2023 . T he results of the August 31, 2023 study included an estimate of our undiscounted liability for settlement payments and awards of asbestos-related damages, excluding legal costs, ranging from $ 84 million to $ 135.3 million for the period through 2065 . The change from the prior year study, which was as of August 31, 2022, was a $ 15.2 million increase for the low end of the range and a $ 23.7 million increase for the high end of the range. The increase in the estimated undiscounted liability from the prior year study at both the low end and high end of the range reflects our actual experience, our historical data and certain assumptions with respect to events that may occur in the future. Based upon the results of the August 31, 2023 actuarial study, in September 2023 we increased our asbestos liability to $ 84 million , the low end of the range, and recorded an incremental pre-tax provision of $ 23.8 million in earnings (loss) from discontinued operations in the accompanying statement of operations. Future legal costs, which are expensed as incurred and reported in earnings (loss) from discontinued operations in the accompanying statement of operations, are estimated, according to the August 31, 2023 study, to range from $ 53.1 million to $ 105.2 million for the period through 2065 . Total operating cash outflows related to discontinued operations, which include settlements, awards of asbestos-related damages and legal costs, net of taxes, were $ 11 million , $ 12 million and $ 8.8 million for the years ended December 31, 2023, 2022 and 2021 , respectively. We plan to perform an annual actuarial evaluation during the third quarter of each year for the foreseeable future and whenever events or changes in circumstances indicate that additional provisions may be necessary. Given the uncertainties associated with projecting such matters into the future and other factors outside our control, we can give no assurance that additional provisions will not be required. We will continue to monitor events and changes in circumstances surrounding these potential liabilities in determining whether to perform additional actuarial evaluations and whether additional provisions may be necessary. At the present time, however, we do not believe that any additional provisions would be reasonably likely to have a material adverse effect on our liquidity or consolidated financial position. Other Litigation In connection with the aforementioned former brake business, we were subject to a legal proceeding alleging a breach of contract claim of the related purchase agreement. In May 2023, we were found liable for approximately $ 11 million and, as such, in the second quarter of 2023 we recorded a pre-tax provision of such amount in earnings (loss) from discontinued operations in the accompanying statement of operations. However, in August 2023, we reached a final settlement of the legal proceeding, in which we reduced our liability to $ 10.5 million. In connection therewith, we reduced the pre-tax provision to $ 10.5 million and recorded a $ 0.5 million credit in earnings (loss) from discontinued operations in the accompanying statement of operations. Payment of such claim was made in early October 2023. We are currently involved in various other legal claims and legal proceedings (some of which may involve substantial amounts), including claims related to commercial disputes, product liability, employment, and environmental. Although these legal claims and legal proceedings are subject to inherent uncertainties, based on our understanding and evaluation of the relevant facts and circumstances, we believe that the ultimate outcome of these matters will not, either individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations . We may at any time determine that settling any of these matters is in our best interests, which settlement may include substantial payments. Although we cannot currently predict the specific amount of any liability that may ultimately arise with respect to any of these matters, we will record provisions when the liability is considered probable and reasonably estimable. Significant judgment is required in both the determination of probability and the determination as to whether an exposure can be reasonably estimated. As additional information becomes available, we reassess our potential liability related to these matters. Such revisions of the potential liabilities could have a material adverse effect on our business, financial condition or results of operations. 89 Index ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.