UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2024

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission file number:  001-04743

Standard Motor Products, Inc.

(Exact name of registrant as specified in its charter)

New York	11-1362020
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

37-18 Northern Blvd., Long Island City, New York	11101
(Address of principal executive offices)	(Zip Code)

(718) 392-0200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $2.00 per share	SMP	New York Stock Exchange LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑     No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  ☑	Accelerated Filer ☐
Non-Accelerated Filer   ☐	Smaller reporting company   ☐
Emerging growth company    ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐     No ☑

As of the close of business on July 30, 2024, there were 21,712,938 outstanding shares of the registrant’s Common Stock, par value $2.00 per share.

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

INDEX

PART I - FINANCIAL INFORMATION

		Page No.
Item 1.	Consolidated Financial Statements:
	Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023	3
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023	4
	Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023	5
	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2024 and 2023	6
	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023	7
	Notes to Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	44

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	46
Signatures		47

2

PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except share and per share data, unaudited)	2024			2023			2024			2023
Net sales	$	389,829		$	353,075		$	721,232		$	681,103
Cost of sales		278,382			251,806			520,263			488,567
Gross profit		111,447			101,269			200,969			192,536
Selling, general and administrative expenses		83,885			73,843			158,618			143,476
Restructuring and integration expenses		2,559			294			2,751			1,206
Other income (expense), net		(17	)		46			5			70
Operating income		24,986			27,178			39,605			47,924
Other non-operating income, net		2,199			802			3,018			1,027
Interest expense		2,752			3,283			4,819			7,145
Earnings from continuing operations before taxes		24,433			24,697			37,804			41,806
Provision for income taxes		6,109			6,289			9,451			10,661
Earnings from continuing operations		18,324			18,408			28,353			31,145
Loss from discontinued operations, net of income taxes		(917	)		(9,221	)		(1,956	)		(10,001	)
Net earnings		17,407			9,187			26,397			21,144
Net earnings attributable to noncontrolling interest		344			50			510			89
Net earnings attributable to SMP (a)	$	17,063		$	9,137		$	25,887		$	21,055
Net earnings (loss) attributable to SMP
Continuing operations	$	17,980		$	18,358		$	27,843		$	31,056
Discontinued operations		(917	)		(9,221	)		(1,956	)		(10,001	)
Net earnings attributable to SMP	$	17,063		$	9,137		$	25,887		$	21,055
Per common share data
Basic:
Continuing operations	$	0.83		$	0.85		$	1.27		$	1.43
Discontinued operations		(0.05	)		(0.43	)		(0.09	)		(0.46	)
Net earnings attributable to SMP per common share	$	0.78		$	0.42		$	1.18		$	0.97
Diluted:
Continuing operations	$	0.81		$	0.83		$	1.25		$	1.40
Discontinued operations		(0.04	)		(0.42	)		(0.09	)		(0.45	)
Net earnings attributable to SMP per common share	$	0.77		$	0.41		$	1.16		$	0.95
Dividend declared per common share	$	0.29		$	0.29		$	0.58		$	0.58
Weighted average number of common shares, basic		21,767,526			21,689,067			21,845,678			21,649,562
Weighted average number of common shares, diluted		22,185,536			22,183,489			22,277,590			22,139,708

(a) Throughout this Form 10-Q, “SMP” refers to Standard Motor Products, Inc. and subsidiaries.

See accompanying notes to consolidated financial statements (unaudited).

3

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, unaudited)	2024			2023			2024			2023
Net earnings	$	17,407		$	9,187		$	26,397		$	21,144
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(3,744	)		1,166			(4,968	)		3,986
Derivative instruments		79			1,831			1,470			454
Pension and postretirement plans		(2	)		(4	)		(5	)		(7	)
Other comprehensive income, net of tax		(3,667	)		2,993			(3,503	)		4,433
Comprehensive income		13,740			12,180			22,894			25,577
Comprehensive income (loss) attributable to noncontrolling interest, net of tax:
Net earnings		344			50			510			89
Foreign currency translation adjustments		(11	)		(81	)		(15	)		(110	)
Comprehensive income (loss) attributable to noncontrolling interest, net of tax		333			(31	)		495			(21	)
Comprehensive income attributable to SMP	$	13,407		$	12,211		$	22,399		$	25,598

See accompanying notes to consolidated financial statements (unaudited).

4

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data, unaudited)	June 30, 2024			December 31, 2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	26,156		$	32,526
Accounts receivable, less allowances for discounts and expected credit losses of $8,672 and $8,045 for 2024 and 2023, respectively		239,317			160,282
Inventories		508,183			507,075
Unreturned customer inventories		18,119			18,240
Prepaid expenses and other current assets		24,880			26,100
Total current assets		816,655			744,223
Property, plant and equipment, net of accumulated depreciation of $265,904 and $259,656 for 2024 and 2023, respectively		131,921			121,872
Operating lease right-of-use assets		99,121			100,065
Goodwill		134,476			134,729
Other intangibles, net		87,597			92,308
Deferred income taxes		40,287			40,533
Investments in unconsolidated affiliates		25,615			24,050
Other assets		38,656			35,267
Total assets	$	1,374,328		$	1,293,047
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of term loan and other debt	$	5,030		$	5,029
Accounts payable		105,094			107,455
Sundry payables and accrued expenses		66,239			63,303
Accrued customer returns		53,102			38,238
Accrued core liability		16,017			18,399
Accrued rebates		54,280			42,278
Payroll and commissions		32,404			29,561
Total current liabilities		332,166			304,263
Long-term debt		203,162			151,182
Noncurrent operating lease liabilities		88,820			88,974
Other accrued liabilities		29,501			25,742
Accrued asbestos liabilities		66,357			72,013
Total liabilities		720,006			642,174
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		102,738			101,751
Retained earnings		586,407			573,226
Accumulated other comprehensive income		(9,462	)		(5,974	)
Treasury stock – at cost (2,223,698 shares and 2,018,982 shares in 2024 and 2023, respectively)		(87,537	)		(81,811	)
Total SMP stockholders’ equity		640,018			635,064
Noncontrolling interest		14,304			15,809
Total stockholders’ equity		654,322			650,873
Total liabilities and stockholders’ equity	$	1,374,328		$	1,293,047

See accompanying notes to consolidated financial statements (unaudited).

5

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)	Six Months Ended June 30,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	26,397		$	21,144
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		14,619			14,129
Amortization of deferred financing cost		240			248
Increase to allowance for expected credit losses		418			204
Increase to inventory reserves		2,907			1,600
Equity income from joint ventures		(2,207	)		(943	)
Employee stock ownership plan allocation		1,394			1,483
Stock-based compensation		3,049			3,633
Increase in deferred income taxes		(241	)		(390	)
Loss on discontinued operations, net of tax		1,956			10,001
Change in assets and liabilities:
Increase in accounts receivable		(81,060	)		(48,271	)
(Increase) decrease in inventories		(3,641	)		30,924
Increase (decrease) in prepaid expenses and other current assets		2,757			(468	)
Increase (decrease) in accounts payable		(2,168	)		4,323
Increase in sundry payables and accrued expenses		29,966			2,776
Net change in other assets and liabilities		(4,525	)		(1,023	)
Net cash provided by (used in) operating activities		(10,139	)		39,370
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(22,941	)		(9,507	)
Other investing activities		18			66
Net cash used in investing activities		(22,923	)		(9,441	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of term loan		(2,500	)		(2,500	)
Net borrowings (repayments) under revolving credit facilities		54,500			(14,000	)
Net borrowings (repayments) of other debt and lease obligations		(14	)		(47	)
Purchase of treasury stock		(10,409	)		—
Increase in overdraft balances		200			258
Dividends paid		(12,706	)		(12,544	)
Dividends paid to noncontrolling interest		(600	)		(255	)
Net cash provided by (used in) financing activities		28,471			(29,088	)
Effect of exchange rate changes on cash		(1,779	)		1,028
Net increase (decrease) in cash and cash equivalents		(6,370	)		1,869
CASH AND CASH EQUIVALENTS at beginning of period		32,526			21,150
CASH AND CASH EQUIVALENTS at end of period	$	26,156		$	23,019
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	5,603		$	7,694
Income taxes	$	6,435		$	9,356
Noncash financing activity:
Dividend payable to noncontrolling interest	$	1,400		$	—

See accompanying notes to consolidated financial statements (unaudited).

6

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended June 30, 2024

(In thousands, unaudited)	Common Stock		Capital in Excess of  Par Value		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total SMP			Non- Controlling Interest			Total
Balance at March 31, 2024	$	47,872	$	102,704	$	575,658		$	(5,806	)	$	(81,278	)	$	639,150		$	15,971		$	655,121
Net earnings		—		—		17,063			—			—			17,063			344			17,407
Other comprehensive income (loss), net of tax		—		—		—			(3,656	)		—			(3,656	)		(11	)		(3,667	)
Cash dividends paid		—		—		(6,314	)		—			—			(6,314	)		—			(6,314	)
Purchase of treasury stock		—		—		—			—			(7,838	)		(7,838	)		—			(7,838	)
Dividends to noncontrolling interest		—		—		—			—			—			—			(2,000	)		(2,000	)
Stock-based compensation		—		34		—			—			1,579			1,613			—			1,613
Balance at June 30, 2024	$	47,872	$	102,738	$	586,407		$	(9,462	)	$	(87,537	)	$	640,018		$	14,304		$	654,322

Three Months Ended June 30, 2023

(In thousands, unaudited)	Common Stock		Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total SMP			Non- Controlling Interest			Total
Balance at March 31, 2023	$	47,872	$	106,675		$	569,899		$	(11,001	)	$	(91,801	)	$	621,644		$	11,028		$	632,672
Net earnings		—		—			9,137			—			—			9,137			50			9,187
Other comprehensive income (loss), net of tax		—		—			—			3,074			—			3,074			(81	)		2,993
Cash dividends paid		—		—			(6,283	)		—			—			(6,283	)		—			(6,283	)
Dividends to noncontrolling interest		—		—			—			—			—			—			(255	)		(255	)
Stock-based compensation		—		(146	)		—			—			2,247			2,101			—			2,101
Balance at June 30, 2023	$	47,872	$	106,529		$	572,753		$	(7,927	)	$	(89,554	)	$	629,673		$	10,742		$	640,415

See accompanying notes to consolidated financial statements (unaudited).

7

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2024

(In thousands, unaudited)	Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total SMP			Non- Controlling Interest			Total
Balance at December 31, 2023	$	47,872	$	101,751	$	573,226		$	(5,974	)	$	(81,811	)	$	635,064		$	15,809		$	650,873
Net earnings		—		—		25,887			—			—			25,887			510			26,397
Other comprehensive income (loss), net of tax		—		—		—			(3,488	)		—			(3,488	)		(15	)		(3,503	)
Cash dividends paid		—		—		(12,706	)		—			—			(12,706	)		—			(12,706	)
Purchase of treasury stock		—		—		—			—			(10,409	)		(10,409	)		—			(10,409	)
Dividends to noncontrolling interest		—		—		—			—			—			—			(2,000	)		(2,000	)
Stock-based compensation		—		984		—			—			1,899			2,883			—			2,883
Employee Stock Ownership Plan		—		3		—			—			2,784			2,787			—			2,787
Balance at June 30, 2024	$	47,872	$	102,738	$	586,407		$	(9,462	)	$	(87,537	)	$	640,018		$	14,304		$	654,322

Six Months Ended June 30, 2023

(In thousands, unaudited)	Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total SMP			Non- Controlling Interest			Total
Balance at December 31, 2022	$	47,872	$	105,615	$	564,242		$	(12,470	)	$	(95,239	)	$	610,020		$	11,018		$	621,038
Net earnings		—		—		21,055			—			—			21,055			89			21,144
Other comprehensive income (loss), net of tax		—		—		—			4,543			—			4,543			(110	)		4,433
Cash dividends paid		—		—		(12,544	)		—			—			(12,544	)		—			(12,544	)
Dividends to noncontrolling interest		—		—		—			—			—			—			(255	)		(255	)
Stock-based compensation		—		898		—			—			2,735			3,633			—			3,633
Employee Stock Ownership Plan		—		16		—			—			2,950			2,966			—			2,966
Balance at June 30, 2023	$	47,872	$	106,529	$	572,753		$	(7,927	)	$	(89,554	)	$	629,673		$	10,742		$	640,415

See accompanying notes to consolidated financial statements (unaudited).

8

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Basis of Presentation

Standard 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 accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.  The unaudited 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.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire year.

Reclassification

Certain prior period amounts in the accompanying consolidated financial statements and related notes have been reclassified to conform to the 2024 presentation.

Note 2.  Summary of Significant Accounting Policies

The preparation of consolidated annual and quarterly financial statements in conformity with GAAP 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.

9

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

There have been no material changes to our critical accounting policies and estimates from the information provided in Note 1 of the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023.

Recently Issued Accounting Pronouncements

Standards not yet adopted as of June 30, 2024

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 effective income tax rate reconciliation disclosures to include (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 annual disclosures of income taxes paid to include the disaggregation by federal, state and foreign jurisdictions.	The ASU is effective for annual reporting periods beginning after December 15, 2024, which for us is December 31, 2025, with prospective application. Early adoption and retrospective application are permitted.	The new standard will require expanding our 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 December 31, 2025.

10

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

Note 3.  Business Acquisitions and Investments

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 Chinese yuan renminbi 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 Chinese yuan renminbi 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 (a)				$	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 (b)		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

(a) 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.

(b) Intangible assets consists of customer relationships of $0.4 million and capitalized software of $0.1 million.

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STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Intangible assets of $0.4 million consisting of customer relationships is 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

Note 4.   Restructuring and Integration Expenses

Voluntary Retirement Incentive Program

During the quarter we offered a voluntary retirement incentive package of severance and other benefit enhancements to eligible employees in the United States and Canada as part of our commitment to optimizing our cost structure and providing professional development opportunities to our employees. The offer period ended on June 14, 2024.  Costs primarily comprise of compensation expense and enhanced medical benefits and are charged to restructuring and integration expenses in our statement of operations as a one-time termination benefit either when the employee accepted the offer or over their remaining period of service based on the agreed retirement date.  We anticipate that the Voluntary Retirement Incentive Program will be substantially complete by the end of 2027. Additional pre-tax restructuring costs related to the program are expected to be $3.1 million in the remainder of 2024, $0.4 million in 2025, and $0.1 million in 2026 for an aggregate cost of approximately $6.2 million.

Activity for the six months ended June 30, 2024 related to the voluntary retirement incentive program workforce reduction consisted of the following (in thousands):

Exit activity liability at December 31, 2023	$	—
Restructuring and integration costs:
Amounts provided for during 2024 (a)		2,589
Stock-based compensation		166
Cash payments		(128	)
Exit activity liability at June 30, 2024	$	2,627

(a) Restructuring and integration expenses incurred during the six months ended June 30, 2024 consist of $1.1 million in our Vehicle Control segment, $0.2 million in our Temperature Control segment, $0.4 million in our Engineered Solutions segment and $0.9 million in our Other segment.

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. We anticipate that the Cost Reduction Initiative will be substantially completed by the end of 2024. Additional restructuring costs related to the initiative are expected to be immaterial.

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STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Activity for the six months ended June 30, 2024 related to the cost reduction initiative consisted of the following (in thousands):

	Workforce Reduction			Other Exit Costs			Total
Exit activity liability at December 31, 2023	$	1,729		$	—		$	1,729
Restructuring and integration costs:
Amounts provided for during 2024 (a)		(46	)		208			162
Cash payments		(949	)		(208	)		(1,157	)
Foreign currency exchange rate changes		(24	)		—			(24	)
Exit activity liability at June 30, 2024	$	710		$	—		$	710

(a) Restructuring and integration expenses incurred during the six months ended June 30, 2024 consist of $52,000 in our Vehicle Control segment, $75,000 in our Temperature Control segment and $35,000 in our Engineered Solutions segment.

Restructuring and integration activities are included within “sundry payables and accrued expenses” and “other accrued liabilities” in the consolidated balance sheet.

Note 5.   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 accounted for as a sale.

Pursuant to these agreements, we sold $230.1 million and $400.9 million of receivables during the three and six months ended June 30, 2024, respectively, and $211.6 million and $382.5 million for the comparable periods in 2023. Receivables presented at financial institutions and not yet collected as of June 30, 2024 and December 31, 2023 were approximately $14.4 million and $4.5 million, respectively, and remained in our accounts receivable balance as of that date. 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 $13.4 million and $23.4 million related to the sale of receivables was included in selling, general and administrative expense in our consolidated statements of operations for the three and six months ended June 30, 2024, respectively, and $12.4 million and $21.5 million for the comparable periods in 2023.

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, or delays or failures in collecting trade accounts receivable. 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.

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STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 6.   Inventories

Inventories, which are stated at the lower of cost (determined by means of the first-in, first-out method) and net realizable value, consist of the following:

	June 30, 2024		December 31, 2023
	(In thousands)
Finished goods	$	310,310	$	302,557
Work in process		15,094		18,503
Raw materials		182,779		186,015
Subtotal		508,183		507,075
Unreturned customer inventories		18,119		18,240
Total inventories	$	526,302	$	525,315

Note 7.   Acquired Intangible Assets

Acquired identifiable intangible assets consist of the following:

	June 30, 2024			December 31, 2023
	(In thousands)
Customer relationships	$	159,824		$	159,641
Patents, developed technology and intellectual property		14,123			14,123
Trademarks and trade names		8,880			8,880
Non-compete agreements		3,308			3,295
Supply agreements		800			800
Leaseholds		160			160
Total acquired intangible assets		187,095			186,899
Less: Accumulated amortization (a)		(100,379	)		(95,681	)
Net acquired intangible assets	$	86,716		$	91,218

(a) Applies to all intangible assets, except for trademarks and trade names totaling $2.6 million, which have indefinite useful lives and, as such, are not being amortized.

Total amortization expense for acquired intangible assets was $2.1 million and $4.3 million for the three and six months ended June 30, 2024, respectively, and $2.1 million and $4.3 million for the comparable periods in 2023. Based on the current estimated useful lives assigned to our intangible assets, amortization expense is estimated to be $4.1 million for the remainder of 2024, $8.5 million in 2025, $8.5 million in 2026, $8.5 million in 2027 and $54.5 million in the aggregate for the years 2028 through 2041.

Note 8.   Leases

We have operating and finance leases for our manufacturing facilities, warehouses, office space, automobiles, and certain equipment.  Our leases have remaining lease terms of up to ten years, some of which may include one or more five-year renewal options.  We have 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.

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STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables provide quantitative disclosures related to our operating leases and include all operating leases acquired from the date of acquisition (in thousands):

Balance Sheet Information	June 30, 2024				December 31, 2023
Assets
Operating lease right-of-use assets		$	99,121			$	100,065
Liabilities
Sundry payables and accrued expenses		$	17,212			$	17,139
Noncurrent operating lease liabilities			88,820				88,974
Total operating lease liabilities		$	106,032			$	106,113
Weighted Average Remaining Lease Term	8.1 Years				8.3 Years
Weighted Average Discount Rate			4.9	%			4.8	%

	Three Months Ended June 30,				Six Months Ended June 30,
Lease Expense	2024		2023		2024		2023
Lease expense	$	4,852	$	3,776	$	9,672	$	6,885
Variable and other lease expense (a)		628		511		1,408		1,283
Total lease costs	$	5,480	$	4,287	$	11,080	$	8,168

(a) Variable and other lease expense relate 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 are not material.

		Six Months Ended June 30,
		2024		2023
Supplemental Cash Flow Information
Cash paid for the amounts included in the measurement of lease liabilities	$	8,801	$	5,476
Right-of-use assets obtained in exchange for new lease obligations (a)	$	6,674	$	30,830

(a) Includes $4.7 million of right-of-use assets related to the lease modification and extension for our manufacturing facility in Bialystok, Poland during the six months ended June 30, 2024, and $27.8 million of right-of-use assets related to the lease modification and extension for our distribution center and office in Lewisville, Texas during the six months ended June 30, 2023.

Minimum Lease Payments

At June 30, 2024, we are obligated to make minimum lease payments through 2034, under operating leases, which are as follows (in thousands):

2024	$	9,344
2025		16,919
2026		15,554
2027		14,317
2028		12,605
Thereafter		62,086
Total lease payments	$	130,825
Less: Interest		(24,793	)
Present value of lease liabilities	$	106,032

15

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 9.   Credit Facilities and Long-Term Debt

Total debt outstanding is summarized as follows:

	June 30, 2024		December 31, 2023
	(In thousands)
Credit facility – term loan due 2027	$	90,000	$	92,500
Credit facility – revolver due 2027		118,000		63,500
Other		192		211
Total debt	$	208,192	$	156,211
Current maturities of debt	$	5,030	$	5,029
Long-term debt		203,162		151,182
Total debt	$	208,192	$	156,211

Term Loan and Revolving Credit Facility

In June 2022, the Company entered into a five-year Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (the “Credit Agreement”) which matures on June 1, 2027. The Credit Agreement provides for a $500 million credit facility comprised of a $100 million term loan facility (the “Term A-1 Loan”) and a $400 million multi-currency revolving credit facility available in U.S. dollars, euros, British pound sterling, Swiss francs, Canadian dollars and other currencies as agreed to by the administrative agent and the lenders (the “revolving facility”). 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.

Borrowings under the Credit Agreement were used to repay all outstanding borrowings under the 2015 Credit Agreement, and are used for other general corporate purposes of the Company and its subsidiaries.  The Term A-1 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.  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 lenders not currently party to the Credit Agreement, increase the revolving facility 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) any voluntary prepayment of term loans, plus (z) any amount that, after giving effect to the increase, 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 Secured Overnight Financing Rate ("SOFR") plus 0.10% plus a margin, or an alternate base rate plus a 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 1.10%. The Term A-1 Loan was made at one-month Term SOFR. The margin for benchmark borrowings ranges from 1.0% to 2.0%, and the 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 six months for Term SOFR borrowings.  Interest is payable at the end of the selected interest period, but no less frequently than quarterly.

16

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.  The Company entered into an interest rate swap agreement with Wells Fargo Bank, N.A., Co-Syndication Agent and lender concurrently with the Credit Agreement.

Outstanding borrowings at June 30, 2024 under the Credit Agreement were $208 million, consisting of current borrowings of $5 million and long-term debt of $203 million; while outstanding borrowings at December 31, 2023 were $156 million, consisting of current borrowings of $5 million and long-term debt of $151 million.  Letters of credit outstanding under the Credit Agreement were $2.3 million at both June 30, 2024 and December 31, 2023.

At June 30, 2024, the weighted average interest rate under our Credit Agreement was 5.7%, which consisted of $208 million in borrowings under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100 million of borrowings. 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. During the six months ended June 30, 2024, our average daily alternative base rate loan balance was $1 million, compared to a balance of $0.2 million for the six months ended June 30, 2023 and a balance of $0.1 million for the year ended December 31, 2023.

The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets.  The Credit Agreement also contains customary events of default.

In May 2024, the Company entered into Amendment No. 1 to the Credit Agreement to transition from the Canadian Dollar Offered Rate (“CDOR”) to the Canadian Overnight Repo Rate Average (“CORRA”) for benchmark borrowings denominated in Canadian dollars.

In July 2024, the Company entered into Amendment No. 2 to the Credit Agreement, to provide for a new $125 million term loan (the “Term A-2 Loan”) and the use of funds available under the existing revolving facility to finance the acquisition of AX V Nissens III APS and its subsidiaries (“Nissens Automotive”) and related transaction costs. For additional information on our agreement to acquire Nissens Automotive see Note 19, “Subsequent Event”. The Term A-2 Loan matures five years after it is funded on the closing of the acquisition, and amortizes in quarterly installments of 1.25% in each of the first and second year, quarterly installments of 1.875% in the third year, and quarterly installments of 2.50% in each of the fourth and fifth year.

Polish Overdraft Facility

In 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 Polish zloty 30 million (approximately $7.5 million) if borrowings are solely in Polish zloty, or up to 85% of the Polish zloty 30 million limit (approximately $6.4 million) if borrowings are in euros and/or U.S. dollars. The overdraft facility had an original 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. The facility automatically renewed in June 2024 to a September 2024 maturity date. 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 June 30, 2024 and December 31, 2023.

17

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Maturities of Debt

As of June 30, 2024, maturities of debt through 2027, assuming no prepayments, are as follows (in thousands):

	Revolving Credit Facility		Term A-1 Loan			Polish Overdraft Facility and Other Debt			Total
Remainder of 2024	$	—	$	2,500		$	14		$	2,514
2025		—		5,000			31			5,031
2026		—		7,500			47			7,547
2027		118,000		75,000			100			193,100
Total	$	118,000	$	90,000		$	192		$	208,192
Less: current maturities		—		(5,000	)		(30	)		(5,030	)
Long-term debt	$	118,000	$	85,000		$	162		$	203,162

Deferred Financing Costs

We have deferred financing costs related to our term loan and revolving credit facilities of approximately $1.3 million and $1.6 million as of June 30, 2024 and December 31, 2023, respectively.  Deferred financing costs as of June 30, 2024, assuming no prepayments, are being amortized in the amounts of $0.2 million for the remainder of 2024, $0.5 million in 2025, $0.5 million in 2026 and $0.1 million in 2027.

Note 10.  Accumulated Other Comprehensive Income Attributable to SMP

Changes in Accumulated Other Comprehensive Income by Component (in thousands)

	Three Months Ended June 30, 2024
	Foreign Currency Translation			Unrealized derivative gains (losses)			Unrecognized Postretirement Benefit Costs (Credit)			Total
Balance at March 31, 2024	$	(10,117	)	$	4,290		$	21		$	(5,806	)
Other comprehensive income (loss) before reclassifications		(3,733	)		573	(a)		—			(3,160	)
Amounts reclassified from accumulated other comprehensive income		—			(494	)		(2	)		(496	)
Other comprehensive income (loss), net		(3,733	)		79			(2	)		(3,656	)
Balance at June 30, 2024	$	(13,850	)	$	4,369		$	19		$	(9,462	)

18

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Six Months Ended June 30, 2024
	Foreign Currency Translation			Unrealized derivative gains (losses)			Unrecognized Postretirement Benefit Costs (Credit)			Total
Balance at December 31, 2023	$	(8,897	)	$	2,899		$	24		$	(5,974	)
Other comprehensive income (loss) before reclassifications		(4,953	)		2,461	(a)		—			(2,492	)
Amounts reclassified from accumulated other comprehensive income		—			(991	)		(5	)		(996	)
Other comprehensive income (loss), net		(4,953	)		1,470			(5	)		(3,488	)
Balance at June 30, 2024	$	(13,850	)	$	4,369		$	19		$	(9,462	)

(a) Consists of the unrecognized gain relating to the change in fair value of the cash flow interest rate hedge of $0.1 million ($0.1 million, net of tax) and $2 million ($1.5 million, net of tax) in the three and six months ended June 30, 2024, respectively, and cash settlement receipts of $0.7 million ($0.5 million, net of tax) and $1.3 million ($1 million, net of tax) in the three and six months ended June 30, 2024, respectively.

Reclassifications Out of Accumulated Other Comprehensive Income (in thousands)

	Three Months Ended			Six Months Ended
	June 30, 2024			June 30, 2024
Derivative cash flow hedge:
Unrecognized loss (a)	$	(668	)	$	(1,339	)
Postretirement benefit plans:
Unrecognized loss (b)		(4	)		(9	)
Total before income tax		(672	)		(1,348	)
Income tax benefit		(176	)		(352	)
Total reclassifications attributable to SMP	$	(496	)	$	(996	)

(a) 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.

(b) Unrecognized accumulated other comprehensive income (loss) related to our postretirement benefit plans is reclassified to earnings and included in the computation of net periodic postretirement benefit costs, which are included in other non-operating income, net in our consolidated statements of operations (see Note 12, “Employee Benefits,” for additional information).

Note 11.  Stock-Based Compensation Plans

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 cost is recognized in the consolidated statement of operations over the period during which an employee is required to provide service in exchange for the award.

Restricted and Performance Stock Grants

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 under the Amended and Restated 2016 Omnibus Incentive Plan (“Plan”).  Shares issued under the Plan that are cancelled, forfeited or expire by their terms are eligible to be granted again under the Plan.

19

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As part of the Plan, we currently grant shares of restricted stock to eligible employees and our independent directors and performance-based shares 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 60 and 63, and become fully vested on or within approximately two months of an executive reaching the age 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 on our evaluation of historical and expected future turnover.

Our restricted and performance-based share activity was as follows for the six months ended June 30, 2024:

	Shares			Weighted Average Grant Date Fair Value Per Share
Balance at December 31, 2023		880,976		$	29.48
Granted		6,775			27.64
Vested		(35,609	)		28.77
Forfeited		(29,225	)		29.86
Balance at June 30, 2024		822,917		$	29.48

We recorded compensation expense related to restricted shares and performance-based shares of $3 million ($2.3 million, net of tax) and $3.2 million ($2.4 million, net of tax) for the six months ended June 30, 2024 and 2023, respectively. The unrecognized compensation expense related to our restricted and performance-based shares was $9.9 million at June 30, 2024, and is expected to be recognized as they vest over a weighted average period of 3.67 years and 0.83 years for employees and directors, respectively.

Note 12.  Employee Benefits

We provide certain medical and dental care benefits to 13 former U.S. union employees.  The postretirement medical and dental benefit obligation to the former union employees as of June 30, 2024, and the related net periodic benefit cost for the plan for the three and six months ended June 30, 2024 and 2023 were not material.

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 2024, we made company contributions to the plan of $0.5 million related to calendar year 2023.

We also have an Employee Stock Ownership Plan and Trust 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 their fiduciary duties.  During the six months ended June 30, 2024, we contributed to the trust an additional 68,700 shares from our treasury and released 68,700 shares from the trust leaving 200 shares remaining in the trust as of June 30, 2024.

20

STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 13.  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.

The fair value of the interest rate swap agreement as of June 30, 2024 and December 31, 2023 was an asset of $5.9 million and $3.9 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.

Note 14.  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.

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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 June 30, 2024 and December 31, 2023 (in thousands):

		June 30, 2024				December 31, 2023
	Fair Value Hierarchy Level	Fair Value		Carrying Amount		Fair Value		Carrying Amount
Cash and cash equivalents (a)	1, 2	$	26,156	$	26,156	$	32,526	$	32,526
Deferred compensation	1		25,799		25,799		23,893		23,893
Short term borrowings	2		5,030		5,030		5,029		5,029
Long-term debt	2		203,162		203,162		151,182		151,182
Cash flow interest rate swap	2		5,926		5,926		3,939		3,939
Long-term investments	2		7,573		7,573		7,468		7,468

(a) As of June 30, 2024 cash and cash equivalents consist solely of cash of $26.2 million, which is classified as Level 1 under the fair value hierarchy.  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 equivalents consist of certificates of deposit with original maturities of three months, or less. These securities are accounted for as held-to-maturity and recorded at amortized cost, which approximates their fair values at June 30, 2024.  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 June 30, 2024.

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STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 15.  Earnings Per 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):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
Net earnings (loss) attributable to SMP
Continuing operations	$	17,980		$	18,358		$	27,843		$	31,056
Discontinued operations		(917	)		(9,221	)		(1,956	)		(10,001	)
Net earnings attributable to SMP	$	17,063		$	9,137		$	25,887		$	21,055
Basic net earnings (loss) per common share attributable to SMP
Continuing operations	$	0.83		$	0.85		$	1.27		$	1.43
Discontinued operations	$	(0.05	)	$	(0.43	)	$	(0.09	)	$	(0.46	)
Diluted net earnings (loss) per common share attributable to SMP
Continuing operations	$	0.81		$	0.83		$	1.25		$	1.40
Discontinued operations	$	(0.04	)	$	(0.42	)	$	(0.09	)	$	(0.45	)
Weighted average common shares outstanding, basic		21,768			21,689			21,846			21,650
Dilutive effect of restricted stock and performance-based stock		418			494			432			490
Weighted average common shares outstanding, diluted		22,186			22,183			22,278			22,140

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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):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Restricted and performance-based shares		290		273		286		286

Note 16.  Industry Segments

Our business is organized into three operating segments, Vehicle Control, Temperature Control and Engineered Solutions, each of which focuses on a specific line of business.  Our automotive aftermarket business is comprised of two operating segments, Vehicle Control and Temperature Control, while our Engineered Solutions operating segment offers a broad array of conventional and future-oriented technologies.

The following tables show our net sales and operating income for each reportable operating segment (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
Net Sales (a)
Vehicle Control	$	188,741		$	183,789		$	374,265		$	368,366
Temperature Control		124,481			97,074			196,089			169,480
Engineered Solutions		76,607			72,212			150,878			143,257
Other		—			—			—			—
Consolidated	$	389,829		$	353,075		$	721,232		$	681,103
Operating Income
Vehicle Control	$	15,116		$	19,273		$	30,656		$	36,648
Temperature Control		13,197			5,800			15,228			7,884
Engineered Solutions		5,812			6,163			8,044			11,810
Other		(9,139	)		(4,058	)		(14,323	)		(8,418	)
Consolidated	$	24,986		$	27,178		$	39,605		$	47,924

(a) There are no intersegment sales among our Vehicle Control, Temperature Control and Engineered Solutions operating segments.

For the disaggregation of our net sales from contracts with customers by major product group and geographic area within each of our operating segments, see Note 17, “Net Sales.”

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STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 17.  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 automotive 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 core automotive 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.

The following table summarizes consolidated net sales by major product group within each operating segment for the three and six months ended June 30, 2024 and 2023 (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Vehicle Control
Engine Management (Ignition, Emissions and Fuel Delivery)	$	115,529	$	113,589	$	231,614	$	229,672
Electrical and Safety		57,128		52,867		109,535		104,671
Wire Sets and Other		16,084		17,333		33,116		34,023
Total Vehicle Control		188,741		183,789		374,265		368,366
Temperature Control
AC System Components		99,970		72,730		149,930		123,528
Other Thermal Components		24,511		24,344		46,159		45,952
Total Temperature Control		124,481		97,074		196,089		169,480
Engineered Solutions
Commercial Vehicle		23,483		20,225		46,391		40,457
Construction/Agriculture		9,473		11,138		19,549		22,830
Light Vehicle		24,686		23,981		46,489		47,000
All Other		18,965		16,868		38,449		32,970
Total Engineered Solutions		76,607		72,212		150,878		143,257
Other		—		—		—		—
Total	$	389,829	$	353,075	$	721,232	$	681,103

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables provide disaggregation of net sales information by geographic area within each operating segment for the three and six months ended June 30, 2024 and 2023 (in thousands):

Three months ended June 30, 2024	Vehicle Control		Temperature Control		Engineered Solutions		Other		Total
United States	$	167,899	$	117,632	$	40,949	$	—	$	326,480
Canada		8,681		6,585		8,497		—		23,763
Europe		261		35		13,878		—		14,174
Mexico		10,795		4		2,723		—		13,522
Asia		27		154		9,644		—		9,825
Other foreign		1,078		71		916		—		2,065
Total	$	188,741	$	124,481	$	76,607	$	—	$	389,829

Three months ended June 30, 2023	Vehicle Control		Temperature Control		Engineered Solutions		Other		Total
United States	$	165,198	$	92,099	$	44,565	$	—	$	301,862
Canada		8,834		4,926		6,126		—		19,886
Europe		248		—		14,914		—		15,162
Mexico		8,179		18		2,038		—		10,235
Asia		88		—		4,273		—		4,361
Other foreign		1,242		31		296		—		1,569
Total	$	183,789	$	97,074	$	72,212	$	—	$	353,075

Six months ended June 30, 2024	Vehicle Control		Temperature Control		Engineered Solutions		Other		Total
United States	$	332,720	$	182,297	$	81,403	$	—	$	596,420
Canada		17,839		13,217		16,679		—		47,735
Europe		544		51		28,084		—		28,679
Mexico		20,815		9		4,930		—		25,754
Asia		128		295		18,205		—		18,628
Other foreign		2,219		220		1,577		—		4,016
Total	$	374,265	$	196,089	$	150,878	$	—	$	721,232

Six months ended June 30, 2023	Vehicle Control		Temperature Control		Engineered Solutions		Other		Total
United States	$	331,610	$	161,670	$	88,771	$	—	$	582,051
Canada		17,164		7,681		11,364		—		36,209
Europe		446		—		29,998		—		30,444
Mexico		16,766		18		3,806		—		20,590
Asia		150		20		8,327		—		8,497
Other foreign		2,230		91		991		—		3,312
Total	$	368,366	$	169,480	$	143,257	$	—	$	681,103

Note 18.  Commitments and Contingencies

Asbestos

In 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 June 30, 2024, approximately 1,500 cases were outstanding for which we may be responsible for any related liabilities.  Since inception in September 2001 through June 30, 2024, the amounts paid for settled claims and awards of asbestos-related damages, including interest, were approximately $80.3 million.  We do not have insurance coverage for the indemnity and defense costs associated with the claims we face.

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STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 pending claims; (4) an analysis of our settlements and awards of asbestos-related damages to date; and (5) an analysis of closed claims with pay ratios and lag patterns in order to develop average future settlement values.  Based on the information contained in the actuarial study and all other available information considered by us, we have concluded that no amount within the range of settlement payments and awards of asbestos-related damages was more likely than any other and, therefore, in assessing our asbestos liability we compare the low end of the range to our recorded liability to determine if an adjustment is required.

In accordance with our policy to perform an annual actuarial evaluation in the third quarter of each year, an actuarial study was performed as of August 31, 2023.  The 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 $5.2 million and $4.5 million for the six months ended June 30, 2024 and 2023, 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.

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STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Other Litigation

We are currently involved in various other legal claims and legal proceedings (some of which may involve substantial amounts), including claims related to commercial disputes, product liability, employment, and environmental.  Although these legal claims and legal proceedings are subject to inherent uncertainties, based on our understanding and evaluation of the relevant facts and circumstances, we believe that the ultimate outcome of these matters will not, either individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations.  We may at any time determine that settling any of these matters is in our best interests, which settlement may include substantial payments.  Although we cannot currently predict the specific amount of any liability that may ultimately arise with respect to any of these matters, we will record provisions when the liability is considered probable and reasonably estimable.  Significant judgment is required in both the determination of probability and the determination as to whether an exposure can be reasonably estimated.  As additional information becomes available, we reassess our potential liability related to these matters. Such revisions of the potential liabilities could have a material adverse effect on our business, financial condition or results of operations.

Warranties

We generally warrant our products against certain manufacturing and other defects.  These product warranties are provided for specific periods of time of the product depending on the nature of the product. The accrued product warranty costs are based primarily on historical experience of actual warranty claims and included in accrued customer returns.

The following table provides the changes in our product warranties (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
Balance, beginning of period	$	23,092		$	20,600		$	21,134		$	19,667
Liabilities accrued for current year sales		37,003			30,047			65,680			55,840
Settlements of warranty claims		(32,552	)		(27,061	)		(59,271	)		(51,921	)
Balance, end of period	$	27,543		$	23,586		$	27,543		$	23,586

Note 19. Subsequent Event

In July 2024, we entered into an agreement to acquire Nissens Automotive, for €360 million (approximately $388 million) in cash, subject to adjustment at closing.  We expect to fund the entire purchase price and related transaction costs with borrowings under our Credit Agreement.  For additional information on our Credit Agreement see Note 9, “Credit Facilities and Long-Term Debt”.  The transaction is expected to be completed by the end of 2024, subject to regulatory approval and customary closing requirements.

Nissens Automotive is a leading European manufacturer and distributor of aftermarket engine cooling and air conditioning products with a growing array of vehicle control technologies.  Nissens Automotive is headquartered in Denmark, with manufacturing facilities in Slovakia and Denmark, and warehouses and distribution centers across multiple countries, primarily in Europe. Nissens Automotive employs approximately 530 employees worldwide.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Forward-looking statements in this Report are indicated by words such as “anticipates,” “expects,” “believes,” “intends,” “plans,” “estimates,” “projects,” “strategies” and similar expressions. These statements represent our expectations based on current information and assumptions and are inherently subject to risks and uncertainties.  Our actual results could differ materially from those which are anticipated or projected as a result of certain risks and uncertainties, including, but not limited to, changes or loss in business relationships with our major customers and in the timing, size and continuation of our customers’ programs; changes in our supply chain financing arrangements, such as changes in terms, termination of contracts and/or the impact of rising interest rates; the ability of our customers to achieve their projected sales; competitive product and pricing pressures; increases in production or material costs, including procurement costs resulting from higher tariffs, and inflationary cost increases in raw materials, labor and transportation, that cannot be recouped in product pricing; the performance of the automotive aftermarket and/or other end-markets that we supply; changes in the product mix and distribution channel mix; economic and market conditions; successful integration of acquired businesses; our ability to achieve benefits from our cost savings initiatives; product liability matters (including, without limitation, those related to asbestos-related contingent liabilities); the effects of disruptions in the supply chain caused by geopolitical risks; as well as other risks and uncertainties, such as those described under Risk Factors, Quantitative and Qualitative Disclosures About Market Risk and those detailed herein and from time to time in the filings of the Company with the SEC. Forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. In addition, historical information should not be considered as an indicator of future performance.  The following discussion should be read in conjunction with the unaudited consolidated financial statements, including the notes thereto, included elsewhere in this Report.

Overview

We are 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 business is organized into three operating segments.  Our automotive aftermarket business 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.  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 America countries.

Our Vehicle Control operating segment services our core automotive aftermarket customers, deriving its sales from three major product groups:– (1) Ignition, Emissions & Fuel Delivery, which includes the traditional internal combustion engine (ICE) dependent categories; (2) Electrical & Safety, which includes powertrain neutral vehicle technologies such as electrical switches/relays, safety related products such as anti-lock brake and vehicle speed sensors, tire pressure monitoring, park assist sensors, and advanced driver assistance components; and (3) Wire Sets & Other, which includes spark plug wire sets and other related products, and are product categories we have noted to be in secular decline based upon product life cycle.

Our Temperature Control operating segment services our core automotive aftermarket customers with thermal products, and is poised to benefit from the broader adoption of air conditioning and other thermal systems.  These systems will provide passenger comfort regardless of the vehicles’ powertrain, and are being developed to cool batteries and other products used on electric vehicles.  Segment offerings include sales from thermal products in the aftermarket business under two major product groups:– (1) AC System Components, which includes compressors, connecting lines, heat exchangers, and expansion devices; and (2) Other Thermal Components, which includes parts that provide engine, transmission, electric drive motor, and battery temperature management.

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Our Engineered Solutions operating 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.  Segment offerings include product categories that offer a broad array of conventional and future-oriented technologies, including those that are specific to vehicle electrification as well as those that are powertrain-neutral.

Overview of Financial Performance

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto. This discussion summarizes the significant factors affecting our results of operations and the financial condition of our business during the three months ended June 30, 2024 and 2023.

	Three Months Ended
	June 30,
(In thousands, except per share data)	2024			2023
Net sales	$	389,829		$	353,075
Gross profit		111,447			101,269
Gross profit %		28.6	%		28.7	%
Operating income		24,986			27,178
Operating income %		6.4	%		7.7	%
Earnings from continuing operations before income taxes		24,433			24,697
Provision for income taxes		6,109			6,289
Earnings from continuing operations		18,324			18,408
Loss from discontinued operations, net of income taxes		(917	)		(9,221	)
Net earnings		17,407			9,187
Net earnings attributable to noncontrolling interest		344			50
Net earnings attributable to SMP		17,063			9,137
Per share data attributable to SMP – Diluted:
Earnings from continuing operations	$	0.81		$	0.83
Discontinued operations		(0.04	)		(0.42	)
Net earnings per common share	$	0.77		$	0.41

Consolidated net sales for the three months ended June 30, 2024 were $389.8 million, an increase of $36.7 million, or 10.4%, compared to net sales of $353.1 million in the same period in 2023.  Net sales increased in all our operating segments, when compared to the comparable period in the prior year.

The increase in net sales in the three months ended June 30, 2024 when compared to the comparable period in the prior year reflects the impact of multiple factors including:

• stable demand in the automotive aftermarket business across our major product groups,

• warmer year-over-year weather conditions along with the timing of early season customer orders in our Temperature Control operating segment in 2024, and

• strong customer demand in our Engineered Solutions operating segment with successful results from our cross-selling efforts.

Gross margins as a percentage of net sales decreased very slightly to 28.6% in the second quarter of 2024 compared to 28.7% in the second quarter of 2023.  The gross margin percentage in our Temperature Control segment increased year-over-year, while the gross margin percentage decreased in both our Vehicle Control and Engineered Solutions segments.  The gross margin percentage increase in our Temperature Control segment results from the impact of higher sales volumes, customer mix and the impact of cost control measures, while the gross margin percentage decrease in our Vehicle Control segment reflects the lingering inflationary increase in material and labor costs.  Although Engineered Solutions’ gross margin percentages improved from levels reported in the first quarter of 2024, the Engineered Solutions’ gross margin percentage continued to be negatively impacted by inflationary cost increases.  While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost savings initiatives coupled with customer pricing should help to offset this impact to our gross margins.

30

Operating margin as a percentage of net sales for the three months ended June 30, 2024 decreased to 6.4% as compared to 7.7% for the same period in 2023.  Included in our operating margin were selling, general and administrative expenses of $83.9 million, or 21.5% of net sales for the three months ended June 30, 2024 compared to $73.8 million, or 20.9% of net sales, for the same period in 2023. The $10.1 million increase in selling, general and administrative expenses in the second quarter of 2024 as compared to the second quarter of 2023 is principally due to (1) $2.4 million of due diligence, legal and other professional fees related to our planned acquisition of Nissens Automotive, (2) increased rent and incremental expenses of approximately $1.3 million as we transition away from our Edwardsville, Kansas distribution center to our new distribution facility in Shawnee, Kansas, (3) higher interest related costs of $0.9 million incurred in our supply chain financing arrangements, and (4) higher distribution and freight costs of $3.1 million related to higher sales.

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

New Distribution Facility in Shawnee, Kansas

In May 2023, we signed a lease for a new distribution facility in Shawnee, Kansas with a lease commencement date of July 1, 2023.  The new facility will expand our total distribution network square footage to meet our growing demands in the automotive aftermarket industry.  The new 575,000 square foot facility will replace our current 363,000 square foot facility in Edwardsville, Kansas, and integrate state-of-the-art technologies to deliver improved logistics capabilities, operational efficiencies, as well as enhanced employee, customer and supplier experiences.  The new facility is located just five miles away from our Edwardsville facility, enabling us to retain our existing workforce avoiding the additional costs of hiring and training.  The facility will have a phased opening that began in 2024 and will be fully operational in early 2025.  We will incur additional costs in 2024 and 2025 during the phase-in period while we operate the two facilities.

Voluntary Retirement Incentive Program

During the second quarter of 2024, as part of our commitment to optimize our cost structure and provide professional development opportunities to our employees, we offered a voluntary incentive package of severance and other benefit enhancements to eligible employees in the United States and Canada.  The offer period ended on June 14, 2024.  During the second quarter of 2024 we recorded expenses of $2.6 million, with additional expenses to be recorded of approximately $3.1 million in the remainder of 2024, $0.4 million in 2025, and $0.1 million in 2026 for an aggregate cost of approximately $6.2 million.  It is anticipated that the voluntary retirement incentive program will reduce operating expenses beginning in the second half of 2024.  Expenses incurred pursuant to the program are recorded in restructuring and integration expenses in our statement of operations.

We continue to look for opportunities to reduce our operating cost structure to remain competitive while continuing to grow our business.

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Impact of Global Supply Chain Disruption and Inflation

Disruptions in the global economy have impeded global supply chains, resulted in longer lead times and delays in procuring component parts and raw materials, and resulted in inflationary cost increases in certain raw materials, labor and transportation.  In response to the global supply chain volatility and inflationary cost increases, we have taken, and continue to take, several actions to mitigate the impact by working closely with our suppliers and customers to minimize any potential adverse impacts on our business, including implementing cost savings initiatives and the pass through of higher costs to our customers in the form of price increases, and maintaining inventory at levels to minimize potential disruptions from out-of-stock raw materials and components to ensure higher fill rates with our customers.  We believe that we have also benefited from our geographically diversified manufacturing footprint and our strategy to bring more product manufacturing in-house, especially with respect to product availability and fill rates.  We expect these inflationary trends to continue for some time, and while we believe that we will be able to somewhat offset the impact, there can be no assurances that unforeseen future events in the global supply chain affecting the availability of materials and components, and/or increasing commodity pricing, will not have an adverse effect on our business, financial condition and results of operations.

Sustainability

Our Company was founded in 1919 on the values of integrity, common decency and respect for others.  These values are embodied in our Code of Ethics, which has been adopted by the Board of Directors of the Company to serve as a statement of principles to guide our decision-making and reinforce our commitment to these values in all aspects of our business.  These values also serve as the foundation for our continued focus on many important sustainability issues.

We have made significant strides with respect to our sustainability initiatives, building awareness of the environmental impact of our operations, and challenging ourselves to reduce our impact by reducing our usage of energy and water, reducing our generation of waste, increasing our recycling efforts and reducing our Scope 1 and Scope 2 greenhouse gas emissions. Additionally, we believe our product offering contributes to a greener car parc through several key product categories that are critical components in automotive systems designed to improve fuel economy and reduce harmful emissions, such as fuel injectors, exhaust gas recirculation valves, sensors and tubes, and evaporative emission control system components. We also bring to market alternative energy products, which utilize cleaner burning fuels or are designed for electric or hybrid electric vehicles, and we remanufacture key categories within our product portfolio, such as air conditioning compressors, diesel injectors and diesel pumps, through processes that save energy and reduce waste.

With each year, we intend to further our commitment to sustainability initiatives, improving our environmental stewardship, finding ways to give back to our communities, and enhancing the diversity and inclusion of our workforce while offering opportunities for development.  Information on our sustainability initiatives can be found in our most current sustainability report and on our corporate website at ir.smpcorp.com under “Sustainability” and at smpcares.smpcorp.com.  Information in our sustainability report and on our corporate websites regarding our sustainability initiatives are referenced for general information only and are not incorporated by reference in this Report.

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Interim Results of Operations

Comparison of the Three Months Ended June 30, 2024 to the Three Months Ended June 30, 2023

Sales.  Consolidated net sales for the three months ended June 30, 2024 were $389.8 million, an increase of $36.7 million, or 10.4%, compared to $353.1 million in the same period of 2023, with the majority of our net sales to customers located in the United States.  Net sales increased in all our operating segments, when compared to the comparable period in the prior year.

The following table summarizes consolidated net sales by segment and by major product group within each segment for the three months ended June 30, 2024 and 2023 (in thousands):

	Three Months Ended
	June 30,
	2024		2023
Vehicle Control
Engine Management (Ignition, Emissions and Fuel Delivery)	$	115,529	$	113,589
Electrical and Safety		57,128		52,867
Wire Sets and Other		16,084		17,333
Total Vehicle Control		188,741		183,789
Temperature Control
AC System Components		99,970		72,730
Other Thermal Components		24,511		24,344
Total Temperature Control		124,481		97,074
Engineered Solutions
Commercial Vehicle		23,483		20,225
Construction/Agriculture		9,473		11,138
Light Vehicle		24,686		23,981
All Other		18,965		16,868
Total Engineered Solutions		76,607		72,212
Other		—		—
Total	$	389,829	$	353,075

Vehicle Control’s net sales for the three months ended June 30, 2024 increased $4.9 million, or 2.7%, to $188.7 million compared to $183.8 million in the same period of 2023.  Demand in the Vehicle Control aftermarket segment remains relatively stable across our major product groups.

Temperature Control’s net sales for the three months ended June 30, 2024 increased $27.4 million, or 28.2%, to $124.5 million compared to $97.1 million in the same period of 2023.  Temperature Control’s net sales for the second quarter of 2024 reflects the impact of the timing of early season customer orders in 2024 as compared to the second quarter of 2023.  The strong customer orders in the second quarter of 2024 reflects the impact of a warm start to the season, while the lower Temperature Control net sales in the second quarter of 2023 reflected the impact of a cooler start to the season across key markets. Overall, full year results at Temperature Control will be dependent upon summer weather conditions and customer inventory levels.

Engineered Solutions’ net sales for the three months ended June 30, 2024 increased $4.4 million, or 6.1%, to $76.6 million compared to $72.2 million in the same period of 2023.  Overall, net sales in our Engineered Solutions operating segment showed year-over-year improvement driven by strong demand with successful results from our cross-selling efforts.

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Gross Margins.  Gross margins, as a percentage of consolidated net sales, decreased very slightly to 28.6% in the second quarter of 2024, compared to 28.7% in the second quarter of 2023.  The following table summarizes gross margins by segment for the three months ended June 30, 2024 and 2023, respectively (in thousands):

Three Months Ended June 30,	Vehicle Control			Temperature Control			Engineered Solutions			Other		Total
2024
Net sales	$	188,741		$	124,481		$	76,607		$	—	$	389,829
Gross margins		59,969			36,609			14,869			—		111,447
Gross margin percentage		31.8	%		29.4	%		19.4	%		—		28.6	%
2023
Net sales	$	183,789		$	97,074		$	72,212		$	—	$	353,075
Gross margins		60,109			26,512			14,648			—		101,269
Gross margin percentage		32.7	%		27.3	%		20.3	%		—		28.7	%

Compared to the second quarter of 2023, gross margins at Vehicle Control decreased 0.9 percentage points from 32.7% to 31.8%, gross margins at Temperature Control increased 2.1 percentage points from 27.3% to 29.4%, and gross margins at Engineered Solutions decreased 0.9 percentage points from 20.3% to 19.4%.

The gross margin percentage decrease in our Vehicle Control operating segment reflects the impact of the lingering inflationary increases in material and labor costs, which more than offset the positive impact of increased pricing and saving initiatives. The gross margin percentage increase in our Temperature Control operating segment reflects the impact of higher sales volumes, customer mix and the impact of cost control measures. Gross margins as a percentage of net sales in our Engineered Solutions operating segment decreased in the second quarter of 2024 when compared to the comparable period in 2023 driven primarily by inflationary cost increases. While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost savings initiatives coupled with our ability to pass through higher prices to our customers should help to offset much of this impact to our gross margins.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses were $83.9 million, or 21.5% of consolidated net sales, in the second quarter of 2024, as compared to $73.8 million, or 20.9% of consolidated net sales, in the second quarter of 2023.  The $10.1 million increase in selling, general and administrative expenses as compared to the second quarter of 2024 is principally due to (1) $2.4 million of due diligence, legal and other professional fees related to our planned acquisition of Nissens Automotive, (2) increased rent and incremental expenses of approximately $1.3 million as we transition away from our Edwardsville, Kansas distribution center to our new distribution facility in Shawnee, Kansas, (3) higher interest related costs of $0.9 million incurred in our supply chain financing arrangements, and (4) higher distribution and freight costs of $3.1 million related to higher sales.

Restructuring and Integration Expenses.  Restructuring and integration expenses were $2.6 million for the three months ended June 30, 2024 compared to $0.3 million in the same period of 2023.  Restructuring and integration expenses incurred in the second quarter of 2024 relate primarily to a voluntary retirement incentive program offered to eligible employees as part of our commitment to optimizing our cost structure and providing professional development opportunities to our employees.  Expenses in the second quarter of 2024 of approximately $2.6 million related to the program consists of severance and other benefit enhancements.

Restructuring and integration expenses of $0.3 million in the second quarter of 2023 relate to the Cost Reduction Initiative announced in the fourth quarter of 2024. We anticipate that the Cost Reduction Initiative will be substantially completed by the end of 2024.

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Operating Income.  Operating income was $25 million, or 6.4% of consolidated net sales, in the second quarter of 2024, compared to $27.2 million, or 7.7% of consolidated net sales, in the second quarter of 2023.  The year-over-year decrease in operating income of $2.2 million is primarily the result of slightly lower gross margins as a percentage of net sales, higher selling, general and administrative expenses, including incremental distribution expansion costs and due diligence, legal and other professional fees related to our planned acquisition of Nissens Automotive, and higher restructuring and integration expenses, offset, in part, by the impact of higher net sales.

Other Non-Operating Income, Net.  Other non-operating income, net was $2.2 million in the second quarter of 2024, compared to $0.8 million in the second quarter of 2023.  The year-over-year increase in other non-operating income, net results from the increase in year-over-year equity income from our joint ventures and the favorable impact of changes in foreign currency exchange rates.  Equity income from our joint ventures increased irrespective of the year-over-year decline in the equity income of Gwo Yng, reflecting the impact of our acquisition of an additional 15% equity interest in Gwo Yng in July 2023.  Commencing on the date of our equity interest increase, the financial results of Gwo Yng were no longer accounted for under the equity method of accounting.  Instead, Gwo Yng’s financial results are reported on a consolidated basis, resulting in lower joint venture equity income.  As such, other non-operating income, net includes equity income of Gwo Yng of $0.4 million in the second quarter of 2023.

Interest Expense.  Interest expense decreased to $2.8 million in the second quarter of 2024, compared to $3.3 million in the second quarter of 2023.  The year-over-year decrease in interest expense reflects the impact of lower average outstanding borrowings in second quarter of 2024 when compared to the second quarter of 2023.

Income Tax Provision.  The income tax provision in the second quarter of 2024 was $6.1 million at an effective tax rate of 25.0% compared to $6.3 million at an effective tax rate of 25.5% for the same period in 2023.  The effective tax rate was essentially flat year-over-year.

Loss from Discontinued Operations.  During the second quarter of 2024 and 2023, the loss from discontinued operations, net of tax was $0.9 million and $9.2 million, respectively.  Loss from discontinued operations, net of income tax, reflects legal expenses and other costs associated with our asbestos-related liability.  During the second quarter of 2023, we recorded an $11 million pre-tax provision that arose from the May 11, 2023 court ruling in a breach of contract claim in connection with a legal proceeding with a third party. As discussed more fully in Note 18, “Commitments and Contingencies” in the notes to our consolidated financial statements (unaudited), we are responsible for certain future liabilities relating to alleged exposure to asbestos containing products.

Net Earnings Attributable to Noncontrolling Interest.  Net earnings attributable to noncontrolling interest relates to the minority shareholders’ interest in our 70% owned joint venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”) and, in our 80% ownership in Gwo Yng, commencing in July 2023 upon the completion of our step acquisition.  Net earnings attributable to the noncontrolling interest were $344,000 and $50,000 during the three months ended June 30, 2024 and 2023, respectively.

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Comparison of the Six Months Ended June 30, 2024 to the Six Months Ended June 30, 2023

Sales.  Consolidated net sales for the six months ended June 30, 2024 were $721.2 million, an increase of $40.1 million, or 5.9%, compared to $681.1 million in the same period of 2023, with the majority of our net sales to customers in the United States.  Net sales increased in all our operating segments when compared to the comparable period in the prior year.

The following table summarizes consolidated net sales by segment and by major product group within each segment for the six months ended June 30, 2024 and 2023 (in thousands):

	Six Months Ended
	June 30,
	2024		2023
Vehicle Control
Engine Management (Ignition, Emissions and Fuel Delivery)	$	231,614	$	229,672
Electrical and Safety		109,535		104,671
Wire Sets and Other		33,116		34,023
Total Vehicle Control		374,265		368,366
Temperature Control
AC System Components		149,930		123,528
Other Thermal Components		46,159		45,952
Total Temperature Control		196,089		169,480
Engineered Solutions
Commercial Vehicle		46,391		40,457
Construction/Agriculture		19,549		22,830
Light Vehicle		46,489		47,000
All Other		38,449		32,970
Total Engineered Solutions		150,878		143,257
Other		—		—
Total	$	721,232	$	681,103

Vehicle Control’s net sales for the six months ended June 30, 2024 increased $5.9 million, or 1.6%, to $374.3 million compared to $368.4 million in the same period of 2023.  Demand in the Vehicle Control aftermarket segment remains relatively stable across our major product groups.

Temperature Control’s net sales for the six months ended June 30, 2024 increased $26.6 million, or 15.7%, to $196.1 million compared to $169.5 million in the same period of 2023.  Temperature Control’s net sales for the first six months of 2024 reflect the impact of the timing of pre and early season customer orders in 2024 as compared to the first six months of 2023, and the impact of strong second quarter 2024 net sales when compared to the comparable prior period.  The strong net sales in the second quarter of 2024 reflects the impact of a warm start to the season compared to lower net sales in the second quarter of 2023 resulting from the impact of a cooler start to the season across all markets.  Overall, full year results at Temperature Control will be dependent upon summer weather conditions and customer inventory levels.

Engineered Solutions’ net sales for the six months ended June 30, 2024 increased $7.6 million, or 5.3%, to $150.9 million compared to $143.3 million in the same period of 2023.  Overall, net sales in our Engineered Solutions operating segment showed a year-over-year improvement driven by strong demand with successful results from our cross-selling efforts.

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Gross Margins.  Gross margins, as a percentage of consolidated net sales, decreased to 27.9% in the first six months of 2024, compared to 28.3% during the same period in 2023.  The following table summarizes gross margins by segment for the six months ended June 30, 2024 and 2023, respectively (in thousands):

Six Months Ended June 30,	Vehicle Control			Temperature Control			Engineered Solutions			Other		Total
2024
Net sales	$	374,265		$	196,089		$	150,878		$	—	$	721,232
Gross margins		118,868			56,298			25,803			—		200,969
Gross margin percentage		31.8	%		28.7	%		17.1	%		—		27.9	%
2023
Net sales	$	368,366		$	169,480		$	143,257		$	—	$	681,103
Gross margins		118,581			45,667			28,288			—		192,536
Gross margin percentage		32.2	%		26.9	%		19.7	%		—		28.3	%

Compared to the first six months of 2023, gross margins at Vehicle Control decreased 0.4 percentage points from 32.2% to 31.8%, gross margins at Temperature Control increased 1.8 percentage points from 26.9% to 28.7%, and gross margins at Engineered Solutions decreased 2.6 percentage points from 19.7% to 17.1%.

The gross margin percentage decrease in our Vehicle Control operating segment reflects the impact of the lingering inflationary increases in material and labor costs, which more than offset the positive impact of pricing and saving initiatives. The gross margin percentage increase in our Temperature Control operating segment reflects the impact of higher sales volumes, customer mix and the impact of cost control measures. Gross margins as a percentage of net sales in our Engineered Solutions operating segment decreased in the second quarter of 2024 when compared to the comparable period in 2023 driven primarily by unfavorable customer sales mix and inflationary cost increases. While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost savings initiatives coupled with our ability to pass through higher prices to our customers should help to offset much of this impact to our gross margins.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses were $158.6 million, or 22.0% of consolidated net sales, in the first six months of 2024, as compared to $143.5 million, or 21.1% of consolidated net sales in the first six months of 2023.  The $15.1 million increase in selling, general and administrative expenses as compared to the first six months of 2023 is principally due to (1) $2.3 million of due diligence, legal and other professional fees related to our planned acquisition of Nissens Automotive, (2) increased rent and incremental expenses of approximately $2.4 million as we transition away from our Edwardsville, Kansas distribution center to our new distribution facility in Shawnee, Kansas, (3) higher interest related costs of $1.9 million incurred in our supply chain financing arrangements and (4) higher distribution and freight costs of $5.4 million related to higher sales.

Restructuring and Integration Expenses.  Restructuring and integration expenses were $2.8 million in the six months ended June 30, 2024 compared to $1.2 million in the comparable period of 2023.  Restructuring and integration expenses incurred in the first six months of 2024 relate primarily to a voluntary retirement incentive program offered to eligible employees as part of our commitment to optimizing our cost structure and provide professional development opportunities to our employees.  Expenses in the first six months of 2024 of approximately $2.6 million related to the program consists of severance and other benefit enhancements.

Restructuring and integration expenses of $1.2 million in the six months ended June 30, 2023 relate to the Cost Reduction Initiative announced in the fourth quarter of 2024. We anticipate that the Cost Reduction Initiative will be substantially completed by the end of 2024.

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Operating Income.  Operating income was $39.6 million, or 5.5% of consolidated net sales, in the six months ended June 30, 2024, compared to $47.9 million, or 7% of consolidated net sales, in the six months ended June 30, 2023.  The year-over-year decrease in operating income of $8.3 million is primarily the result of lower gross margins as a percentage of net sales, higher selling, general and administrative expenses, including the incremental distribution expansion costs and due diligence, legal and other professional fees related to our planned acquisition of Nissens Automotive, and higher restructuring and integration expenses, offset, in part, by the impact of higher net sales.

Other Non-Operating Income, Net.  Other non-operating income, net was $3 million in the six months of 2024, compared to $1 million for the same period in 2023.  The year-over-year increase in other non-operating income, net results from the increase in year-over-year equity income from our joint ventures and the favorable impact of changes in foreign currency exchange rates.  Equity income from our joint ventures increased irrespective of the year-over-year decline in the equity income of Gwo Yng, reflecting the impact of our acquisition of an additional 15% equity interest in Gwo Yng in July 2023.  Commencing on the date of our equity interest increase, the financial results of Gwo Yng were no longer accounted for under the equity method of accounting.  Instead, Gwo Yng’s financial results are reported on a consolidated basis.  As such, other non-operating income, net includes equity income of Gwo Yng of $0.6 million in the first six months of 2023.

Interest Expense.  Interest expense decreased to $4.8 million in the six months of 2024, compared to $7.1 million for the same period in 2023.  The year-over-year decrease in interest expense reflects the impact of lower average outstanding borrowings during the six months ended June 30, 2024 when compared to the comparable period of 2023.

Income Tax Provision.  The income tax provision for the six months ended June 30, 2024 was $9.5 million at an effective tax rate of 25.0%, compared to $10.7 million at an effective tax rate of 25.5% for the same period in 2023. The effective tax rate was essentially flat year-over-year.

Loss from Discontinued Operations.  During the first six months of 2024 and 2023, the loss from discontinued operations, net of tax was $2 million and $10 million, respectively.  Loss from discontinued operations, net of income tax, reflects legal expenses and other costs associated with our asbestos-related liability.  During the first six months of 2023, we recorded an $11 million pre-tax provision that arose from the May 11, 2023 court ruling in a breach of contract claim in connection with a legal proceeding with a third party. As discussed more fully in Note 18, “Commitments and Contingencies” in the notes to our consolidated financial statements (unaudited), we are responsible for certain future liabilities relating to alleged exposure to asbestos containing products.

Net Earnings Attributable to Noncontrolling Interest.  Net earnings attributable to noncontrolling interest relates to the minority shareholders’ interest in our 70% owned joint venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”) and, in our 80% ownership in Gwo Yng, commencing in July 2023 upon the completion of our step acquisition.  Net earnings attributable to the noncontrolling interest were $510,000 and $89,000 during the six months ended June 30, 2024 and 2023, respectively.

Restructuring and Integration Programs

For a detailed discussion on the restructuring and integration costs, see Note 4, “Restructuring and Integration Expenses,” of the notes to our consolidated financial statements (unaudited).

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Liquidity and Capital Resources

Our primary cash requirements include working capital, capital expenditures, regular quarterly dividends, stock repurchases, principal and interest payments on indebtedness and acquisitions. The following table summarizes our primary sources of funds including ongoing net cash flows from operating activities and availability under our Credit Agreement.

	June 30,					December 31,
(In thousands)	2024			2023		2023
Operating cash flows	$	(10,139	)	$	39,370	$	144,260
Total debt	$	208,192		$	223,216	$	156,211
Cash		26,156			23,019		32,526
Net debt	$	182,036		$	200,197	$	123,685
Remaining borrowing capacity	$	279,680		$	269,631	$	334,180
Total liquidity		305,836			292,650		366,706

Operating Activities. During the first six months of 2024, cash used in operating activities was $10.1 million compared to cash provided by operating activities of $39.4 million in the same period of 2023. The increase in cash used in operating activities resulted primarily from the larger year-over-year increase in accounts receivable of $81.1 million compared to an increase in accounts receivable of $48.3 million in the same period of 2023, and the increase in inventories of $3.6 million compared to a decrease in inventories of $30.9 million in the same period of 2023, offset, in part, by the larger year-over-year increase in sundry payables and accrued expenses of $30 million compared to an increase of $2.8 million in the same period of 2023 and by the increase in net earnings.

During the year ended December 31, 2023, we generated significant operating cash flow by reducing our inventory to more normalized levels while actively managing our accounts receivable and accounts payable. We continue to actively manage our working capital to maximize our operating cash flow.

Investing Activities.  Cash used in investing activities was $22.9 million in the first six months of 2024, compared to $9.4 million in the same period of 2023.  Investing activities during the first six months of 2024 and 2023 primarily consisted of capital expenditures of $22.9 million and $9.5 million, respectively.  The year-over-year increase in capital expenditures relates to the implementation of upgraded automation equipment, racking and other equipment, as we invest in the start-up of our new distribution facility in Shawnee, Kansas.

Financing Activities.  Cash provided by financing activities was $28.5 million in the first six months of 2024 as compared to $29.1 million in the same period of 2023.  During the first six months of 2024, we (1) increased our borrowings under our Credit Agreement by $52 million; (2) paid dividends to SMP shareholders of $12.7 million; and (3) made cash payments for the repurchase of shares of our common stock of $10.4 million. Cash provided by borrowings under our Credit Agreement in the six months ended June 30, 2024 was used to fund our operating activities, investing activities, pay dividends, and repurchase shares of our common stock.

During the first six months of 2023, we (1) reduced our borrowings under our Credit Agreement by $16.5 million; and (2) paid dividends to SMP shareholders of $12.5 million. Cash provided by our operating activities was used to reduce our borrowings under our Credit Agreement, fund our investing activities and pay dividends.

Quarterly dividends to SMP shareholders were paid at a rate of $0.29 in both 2024 and 2023.

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Liquidity.

Our primary sources of funds are ongoing net cash flows from operating activities and availability under our Credit Agreement (as detailed below).

In June 2022, the Company entered into a five-year Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (the “Credit Agreement”) which matures on June 1, 2027.  The Credit Agreement provides for a $500 million credit facility comprised of a $100 million term loan facility (the “Term A-1 Loan”) and a $400 million multi-currency revolving credit facility available in U.S. dollars, euros, British pound sterling, Swiss francs, Canadian dollars and other currencies as agreed to by the administrative agent and the lenders (the “revolving facility”).  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.

Borrowings under the Credit Agreement were used to repay all outstanding borrowings under the 2015 Credit Agreement, and are used for other general corporate purposes of the Company and its subsidiaries.  The Term A-1 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.  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 lenders not currently party to the Credit Agreement, increase the revolving facility 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) any voluntary prepayment of term loans, plus (z) any amount that, after giving effect to the increase, 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 a margin, or an alternate base rate plus a 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 1.10%. The Term A-1 Loan was made at one-month Term SOFR.  The margin for benchmark borrowings ranges from 1.0% to 2.0%, and the 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 six months for Term SOFR borrowings.  Interest is payable at the end of the selected interest period, but no less frequently than quarterly.

The Company’s obligations under the Credit Agreement are guaranteed by its material domestic subsidiaries (each, a “Guarantor”), and secured by a first priority perfected security interest in substantially all of the existing and future personal property of the Company and each Guarantor, subject to certain exceptions.  The collateral security described above also secures certain banking services obligations and interest rate swaps and currency or other hedging obligations of the Company owing to any of the then existing lenders or any affiliates thereof.  The Company entered into an interest rate swap agreement with Wells Fargo Bank, N.A., Co-Syndication Agent and lender concurrently with the Credit Agreement.

Outstanding borrowings at June 30, 2024 under the Credit Agreement were $208 million, consisting of current borrowings of $5 million and long-term debt of $203 million; while outstanding borrowings at December 31, 2023 were $156 million, consisting of current borrowings of $5 million and long-term debt of $151 million.  Letters of credit outstanding under the Credit Agreement were $2.3 million at both June 30, 2024 and December 31, 2023.

At June 30, 2024, the weighted average interest rate under our Credit Agreement was 5.7%, which consisted of $208 million in borrowings under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100 million of borrowings.  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.   During the six months ended June 30, 2024, our average daily alternative base rate loan balance was $1 million, compared to a balance of $0.2 million for the six months ended June 30, 2023 and a balance of $0.1 million for the year ended December 31, 2023.

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The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets.  The Credit Agreement also contains customary events of default.

In May 2024, the Company entered into Amendment No. 1 to the Credit Agreement to transition from CDOR to CORRA for benchmark borrowings denominated in Canadian dollars.

In July 2024, the Company entered into Amendment No. 2 to the Credit Agreement, to provide for a new $125 million term loan (the “Term A-2 Loan”) and the use of funds available under the existing revolving facility to finance the acquisition of Nissens Automotive and related transaction costs. The Term A-2 Loan matures five years after it is funded on the closing of the acquisition, and amortizes in quarterly installments of 1.25% in each of the first and second year, quarterly installments of 1.875% in the third year, and quarterly installments of 2.50% in each of the fourth and fifth year.

In 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 Polish zloty 30 million (approximately $7.5 million) if borrowings are solely in Polish zloty, or up to 85% of the Polish zloty 30 million limit (approximately $6.4 million) if borrowings are in euros and/or U.S. dollars.  The overdraft facility had an original 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. The facility automatically renewed in June 2024 to a September 2024 maturity date.  Borrowings under the amended overdraft facility will bear interest at a rate equal to (1) the one month WIBOR + 1.0% for borrowings in Polish zloty, (2) the one month 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 June 30, 2024 and December 31, 2023.

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

Pursuant to these agreements, we sold $230.1 million and $400.9 million of receivables during the three and six months ended June 30, 2024, respectively, and $211.6 million and $382.5 million for the comparable periods in 2023.  Receivables presented at financial institutions and not yet collected as of June 30, 2024 and December 31, 2023 were approximately $14.4 million and $4.5 million, respectively, and remained in our accounts receivable balance as of that date.  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 $13.4 million and $23.4 million related to the sale of receivables was included in selling, general and administrative expense in our consolidated statements of operations for the three and six months ended June 30, 2024, respectively, and $12.4 million and $21.5 million for the comparable periods in 2023.

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, or 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.

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In July 2022, our Board of Directors authorized the purchase of up to $30 million of our common stock under a stock repurchase program.  Stock will be purchased from time to time in the open market, or through private transactions, as market conditions warrant. Under this program, during the three and six months ended June 30, 2024, we repurchased 241,307 and 321,229 shares of our common stock at a total cost of $7.8 million and $10.4 million, respectively.  As of June 30, 2024, there was approximately $19.6 million available for future stock purchases under the program.  From the end of the second quarter through July 30, 2024, there have been no additional repurchases of our common stock under the program.

Material Cash Commitments

Material cash commitments as of June 30, 2024 consist of required cash payments to service our outstanding borrowings of $208 million under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, the future minimum cash requirements of $130.8 million through 2034 under operating leases, and expected future cash payments relating to our restructuring activities of $6.3 million with approximately $2.6 million paid in the remainder of 2024, approximately $3.3 million in 2025 and approximately $0.4 million thereafter.  All of our other cash commitments as of June 30, 2024 are not material.  For additional information related to our material cash commitments, see Note 4, “Restructuring and Integration Expenses”, Note 8, “Leases,” and Note 9, “Credit Facilities and Long-Term Debt,” in the notes to our consolidated financial statements (unaudited).

We anticipate that our cash flow from operations, available cash, and available borrowings under our Credit Agreement will be adequate to meet our future liquidity needs for at least the next twelve months.  Significant assumptions underlie this belief, including, among other things, that we will be able to mitigate the future impact, if any, of disruptions in the supply chain caused by geo-political risks, future increases in interest rates, and significant inflationary cost increases in raw materials, labor and transportation that we are unable to pass through our customers, macroeconomic uncertainty, and that there will be no material adverse developments in our business, liquidity or capital requirements.  If material adverse developments were to occur in any of these areas, there can be no assurance that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our Credit Agreement in amounts sufficient to enable us to pay the principal and interest on our indebtedness, or to fund our other liquidity needs.  In addition, if we default on any of our indebtedness, or breach any financial covenant in our Credit Agreement, our business could be adversely affected.

For further information regarding the risks in our business, refer to Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023.

Critical Accounting Policies and Estimates

We have identified the accounting policies and estimates surrounding the “Valuation of Long-Lived and Intangible Assets and Goodwill,” and “Asbestos Litigation” as critical to our business operations and the understanding of our results of operations.  The impact and any associated risks related to these policies and estimates on our business operations is discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies and estimates affect our reported and expected financial results. There have been no material changes to these and other accounting policies and estimates from the information provided in Note 1 of the Notes to our Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2023.

You should be aware that preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. We can give no assurances that actual results will not differ from those estimates.  Although we do not believe that there is a reasonable likelihood that there will be a material change in the future estimates, or in the assumptions that we use in calculating the estimates, the uncertain future effects, if any, of the 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.

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Recently Issued Accounting Pronouncements

For a detailed discussion on recently issued accounting pronouncements and their impact on our consolidated financial statements, see Note 2, “Summary of Significant Accounting Policies” of the notes to our consolidated financial statements (unaudited).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosure about Market Risk

We are exposed to market risk, primarily related to foreign currency exchange and interest rates. These exposures are actively monitored by management. Our exposure to foreign exchange rate risk is due to certain costs, revenues and borrowings being denominated in currencies other than one of our subsidiary’s functional currency. Similarly, we are exposed to market risk as the result of changes in interest rates, which may affect the cost of our financing. It is our policy and practice to use derivative financial instruments only to the extent necessary to manage exposures. We do not hold or issue derivative financial instruments for trading or speculative purposes.

Exchange Rate Risk

We have exchange rate exposure primarily with respect to the Canadian Dollar, the Euro, the British Pound, the Polish Zloty, the Hungarian Forint, the Mexican Peso, the Taiwan Dollar, the Chinese Yuan Renminbi and the Hong Kong Dollar.  As of June 30, 2024 and December 31, 2023, our monetary assets and liabilities which are subject to this exposure are immaterial, therefore, the potential immediate loss to us that would result from a hypothetical 10% change in foreign currency exchange rates would not be expected to have a material impact on our earnings or cash flows. This sensitivity analysis assumes an unfavorable 10% fluctuation in the exchange rates affecting the foreign currencies in which monetary assets and liabilities are denominated and does not take into account the incremental effect of such a change on our foreign currency denominated revenues.

Interest Rate Risk

We manage our exposure to interest rate risk through the proportion of fixed rate debt and variable rate debt in our debt portfolio. To reduce our market risk to changes in interest rates on our variable rate borrowings, and to manage a portion of our exposure to changes in interest rates, we occasionally enter into interest rate swap agreements.

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.

As of June 30, 2024, we had approximately $208 million of outstanding borrowings under our Credit Agreement, of which approximately $108 million bears interest at variable rates of interest and $100 million bears interest at fixed rates, after consideration of the interest rate swap agreement entered into in June 2022.  Additionally, we invest our excess cash in highly liquid short-term investments. Based upon our current level of borrowings under our facilities and our excess cash, the effect of a hypothetical, instantaneous and unfavorable change of 100 basis points in the interest rate may have an approximate $0.8 million annualized negative impact on our earnings or cash flows.

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In addition, 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.  During the three and six months ended June 30, 2024, we sold $230.1 million and $400.9 million of receivables, respectively.  Depending upon the level of sales of receivables pursuant these agreements, the effect of a hypothetical, instantaneous and unfavorable change of 100 basis points in the margin rate may have an approximate $2.3 million and $4 million negative impact on our earnings or cash flows during the three and six months ended June 30, 2024, respectively.  The charge related to the sale of receivables is included in selling, general and administrative expenses in our consolidated statements of operations.

Other than the aforementioned, there have been no significant changes to the information presented in Item 7A (Market Risk) of our Annual Report on Form 10-K for the year ended December 31, 2023.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.

(b) Changes in Internal Control Over Financial Reporting.

During the quarter ended June 30, 2024, we have not made any changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.  We review, document and test our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the 2013 Internal Control – Integrated Framework.  We may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business. These efforts may lead to various changes in our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information required by this Item is incorporated herein by reference to the information set forth in Item 1, “Consolidated Financial Statements” of this Report under the caption “Asbestos” appearing in Note 18, “Commitments and Contingencies,” of the notes to our consolidated financial statements (unaudited).

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information relating to the Company’s purchases of its common stock for the second quarter of 2024:

Period	Total Number of Shares Purchased (a)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)		Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs (b)
April 1 – 30, 2024		111,440	$	32.73		111,440	$	23,781,161
May 1 – 31, 2024		129,867		32.26		129,867		19,591,248
June 1 – 30, 2024		—		—		—		—
Total		241,307	$	32.48		241,307	$	19,591,248

(a) All shares were purchased through the publicly announced stock repurchase programs in open-market transactions.

(b) In July 2022, our Board of Directors authorized the purchase of up $30 million of our common stock under a stock repurchase program.  Stock will be purchased from time to time in the open market, or through private transactions, as market conditions warrant.  Under this program, during the three and six months ended June 30, 2024, we repurchased 241,307 and 321,229 shares of our common stock at a total cost of $7.8 million and $10.4 million, respectively.  As of June 30, 2024, there was approximately $19.6 million available for future stock purchases under the program.  From the end of the second quarter through July 30, 2024, there have been no additional repurchases of our common stock under the program.

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ITEM 6. EXHIBITS

Exhibit
Number
2.1*	Share Sale and Purchase Agreement, dated as of July 5, 2024, by and among Standard Motor Products, Inc., as Buyer, Axcel V K/S, as Sellers’ Representative, and the sellers named therein (incorporated by reference to the Company’s Current Report on Form 8-K filed as of July 10, 2024).
10.1	First Amendment to Credit Agreement, dated as of May 13, 2024, by and among Standard Motor Products, Inc., as Borrower, and JPMorgan Chase Bank, N.A., as Administrative Agent.
10.2	Second Amendment to Credit Agreement, dated as of July 5, 2024, by and among Standard Motor Products, Inc., as Borrower, and JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders named therein (incorporated by reference to the Company’s Current Report on Form 8-K filed as of July 10, 2024).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*	Certain schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the Securities and Exchange Commission.

101.INS**	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH**	Inline XBRL Taxonomy Extension Schema Document.
101.CAL**	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB**	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF**	Inline XBRL Taxonomy Extension Definition Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

** In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to the Original Filing shall be deemed to be “furnished” and not “filed.”

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	STANDARD MOTOR PRODUCTS, INC.
	(Registrant)
Date: August 1, 2024	/s/ Nathan R. Iles
	Nathan R. Iles
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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