| 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 aftermarket, non-aftermarket, industrial equipment and original equipment markets; 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 and environmental matters (including, without limitation, those related to asbestos-related contingent liabilities and remediation costs at certain properties); the effects of a widespread public health crisis, including the coronavirus (COVID-19) pandemic; the effects of disruptions in the supply chain caused by the COVID-19 pandemic, Russia’s invasion of the Ukraine and resultant sanctions imposed by the U.S. and other governments; climate-related risks, such as physical and transition 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 utilized in the maintenance, repair and service of vehicles in the automotive aftermarket industry. In addition, we continue to increase our supplier capabilities with a complementary focus on specialized original equipment parts for manufacturers across multiple industries such as agriculture, heavy duty, and construction equipment. We believe that our extensive design and engineering capabilities have afforded us opportunities to expand our product coverage in our aftermarket business and enter newer specialized markets that require application-specific knowledge, such as those mentioned above.
We are organized into two operating segments. Each segment is focused on different product categories and with providing our customers with full-line coverage of its products, a full suite of complementary services that are tailored to our customers’ business needs, and with driving end-user demand for our products. We sell our products primarily to automotive aftermarket retailers, program distribution groups, warehouse distributors, original equipment manufacturers and original equipment service part operations in the United States, Canada, Europe, Asia, Mexico and other Latin American countries.
Overview of Financial Performance
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 September 30, 2022 and 2021.
| | | Three Months Ended September 30, | |
| (In thousands, except per share data) | | 2022 | | | 2021 | |
| | | | | | | |
| Net sales | | $ | 381,373 | | | $ | 370,310 | |
| Gross profit | | | 106,784 | | | | 105,205 | |
| Gross profit % | | | 28 | % | | | 28.4 | % |
| Operating income | | | 33,615 | | | | 38,538 | |
| Operating income % | | | 8.8 | % | | | 10.4 | % |
| Earnings from continuing operations before income taxes | | | 31,472 | | | | 38,666 | |
| Provision for income taxes | | | 8,280 | | | | 9,481 | |
| Earnings from continuing operations | | | 23,192 | | | | 29,185 | |
| Loss from discontinued operations, net of income taxes | | | (14,294 | ) | | | (5,122 | ) |
| Net earnings | | | 8,898 | | | | 24,063 | |
| Net earnings (loss) attributable to noncontrolling interest | | | 52 | | | | 13 | |
| Net earnings attributable to SMP | | | 8,846 | | | | 24,050 | |
| Per share data attributable to SMP – Diluted: | | | | | | | | |
| Earnings from continuing operations | | $ | 1.06 | | | $ | 1.29 | |
| Discontinued operations | | | (0.66 | ) | | | (0.22 | ) |
| Net earnings per common share | | $ | 0.40 | | | $ | 1.07 | |
Consolidated net sales for the three months ended September 30, 2022 were $381.4 million, an increase of $11.1 million, or 3% compared to net sales of $370.3 million in the same period in 2021. Net sales increased in both our Engine Management and Temperature Control segments against strong net sales in the comparable period of 2021.
Engine Management net sales were favorably impacted by continued strong customer demand and price increases implemented in 2022, while Temperature Control segment’s strength in net sales reflects the impact of price increases, the continued strong customer demand fueled by healthy customer POS sales, and record heat across the country.
Gross margin as a percentage of net sales for the three months ended September 30, 2022 was 28% as compared to 28.4% for the comparable period in 2021. Compared to the third quarter of 2021, gross margins at Engine Management decreased 0.8 percentage points from 27% to 26.2%, while gross margins at Temperature Control increased 0.4 percentage points from 28.4% to 28.8%.
Engine Management’s gross margins were negatively impacted by inflationary cost increases in certain raw materials, labor and transportation expense, which were somewhat offset by increased pricing, and some higher freight expense resulting from higher inventory balances. The gross margin percentage increase at Temperature Control reflects the impact of seasonal volumes, customer mix and increased pricing, which more than offset the impact of inflationary cost increases in raw materials, labor and transportation and higher freight and related expenses from higher inventory levels.
Operating margin as a percentage of net sales for the three months ended September 30, 2022 was 8.8% as compared to 10.4% for the comparable period in 2021. Included in our operating margin were selling, general and administrative expenses (“SG&A”) of $73.2 million, or 19.2% of net sales for the three months ended September 30, 2022 compared to $66.5 million, or 18% of net sales, for the same period in 2021. The higher SG&A expenses in 2022 resulted principally from higher interest rate related costs incurred in our supply chain financing arrangements.
Overall, our core automotive aftermarket business demand remains strong, and we continue to make major strides into new complementary markets with upside potential.
New $500 Million Credit Facility
In June 2022, we entered into a new Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (the “Credit Agreement”). The Credit Agreement provides for a $500 million credit facility comprised of a $100 million term loan facility (the “term loan”) and a $400 million multi-currency revolving credit facility (the “revolving facility”). Concurrently with our entry into the Credit Agreement, we also entered into a seven year interest rate swap agreement with Wells Fargo Bank, N.A., Co-Syndication Agent and lender under the Credit Agreement on $100 million of borrowings under the Credit Agreement to manage exposure to interest rate changes. The interest rate swap agreement matures in May 2029.
Borrowings under the Credit Agreement were used to repay all outstanding borrowings under the existing 2015 Credit Agreement, and pay certain fees and expenses incurred in connection with the Credit Agreement, with future borrowings used for other general corporate purposes of the Company and its subsidiaries. The term loan amortizes in quarterly installments of 1.25% in each of the first four years, and quarterly installments of 2.5% in the fifth year of the Credit Agreement. The Credit Agreement matures on June 1, 2027. The Company may request up to two one-year extensions of the maturity date.
Impact of Russia’s Invasion of the Ukraine
Russia’s invasion of the Ukraine, and the resultant sanctions imposed by the U.S. and other governments, have created risks, uncertainties and disruptions impacting business continuity, liquidity and asset values not only in the Ukraine and Russia, but in markets worldwide. Significant price increases have occurred in gas and energy markets, as well as in other commodities. Although we have no facilities or business operations in either the Ukraine or Russia, have historically had only minor sales to customers in Russia, which we have subsequently discontinued, and have not experienced additional significant disruptions in the supply chain, the inherent risks and uncertainties surrounding the invasion are being closely monitored. We have manufacturing and distribution facilities in Bialystok, Poland and Pecel, Hungary. Our facility in Bialystok, Poland does not use natural gas in its production process, or for heating, and, as such, is not impacted by Russia’s decision to halt the export of all natural gas to Poland and Bulgaria. While we have not been impacted by the war to date, there can be no assurances that any escalation of the invasion will not have an adverse impact on our business, financial condition and results of operations.
Impact of Global Supply Chain Disruption and Inflation
Disruptions in the global economy have impeded global supply chains, resulted in longer lead times and delays in procuring component parts and raw materials, and resulted in inflationary cost increases in certain raw materials, labor and transportation. In response to the global supply chain volatility and inflationary cost increases, we have taken, and continue to take, several actions to mitigate the impact by working closely with our suppliers and customers to minimize any potential adverse impacts on our business, including implementing cost savings initiatives and the pass through of higher costs to our customers in the form of price increases, and increasing inventory levels to minimize the obvious disruptions from out-of-stock raw materials and components to ensure higher fill rates with our customers. We believe that we have also benefited from our geographically diversified manufacturing footprint and our strategy to bring more product manufacturing in-house, especially with respect to product availability and fill rates. We expect these inflationary trends to continue for some time, and while we believe that we will be able to somewhat offset the impact, there can be no assurances that unforeseen future events in the global supply chain affecting the availability of materials and components, and/or increasing commodity pricing, will not have an adverse effect on our business, financial condition and results of operations.
Environmental, Social, & Governance (“ESG”)
Our Company was founded in 1919 on the values of integrity, common decency and respect for others. These values continue to this day and 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 increased focus on many important environmental, social and governance issues, such as environmental stewardship and our efforts to identify and implement practices that reduce our environmental impact while achieving our business goals; our attention to diversity, equity and inclusion, employee development, retention, and health and safety; and our community engagement initiatives, to name a few.
We have made significant strides with respect to our ESG initiatives, building awareness of the environmental impact of our operations, and challenging ourselves to reduce our impact by reducing our usage of energy and water, reducing our generation of waste, increasing our recycling efforts and reducing our greenhouse gas emissions (“GHG”), with the ambition of achieving net-zero GHG emissions by 2050. With each year, we intend to further our commitment to improving our environmental stewardship and finding ways to give back to our communities. Information on our ESG initiatives can be found on our corporate website at ir.smpcorp.com under “Environmental & Social Responsibility” and at smpcares.smpcorp.com. Information on our corporate websites regarding our ESG initiatives are referenced for general information only and are not incorporated by reference in this Report.
Interim Results of Operations
Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021
Sales. Consolidated net sales for the three months ended September 30, 2022 were $381.4 million, an increase of $11.1 million, or 3%, compared to $370.3 million in the same period of 2021, with the majority of our net sales to customers located in the United States. Consolidated net sales increased in both our Engine Management and Temperature Control Segments.
The following table summarizes consolidated net sales by segment and by major product group within each segment for the three months ended September 30, 2022 and 2021 (in thousands):
| | | Three Months Ended September 30, | |
| | | 2022 | | | 2021 | |
| Engine Management: | | | | | | |
| Ignition, Emission Control, Fuel and Safety Related System Products | | $ | 215,021 | | | $ | 208,443 | |
| Wire and Cable | | | | | | | | |
Total Engine Management
| | | | | | | | |
| | | | | | | | | |
| Temperature Control: | | | | | | | | |
Compressors
| | | 78,211 | | | | 75,080 | |
| Other Climate Control Parts | | | | | | | | |
Total Temperature Control
| | | | | | | | |
| | | | | | | | |
| All Other | | | | | | | | |
| | | | | | | | |
| Total | | | | | | | | |
Engine Management’s net sales increased $4.6 million, or 1.9%, to $251.7 million for the three months ended September 30, 2022. Net sales in ignition, emission control, fuel and safety related system products for the three months ended September 30, 2022 were $215 million, an increase of $6.6 million, or 3.2%, compared to $208.4 million in the same period of 2021. Net sales in the wire and cable product group for the three months ended September 30, 2022 were $36.7 million, a decrease of $2 million, or 5.1%, compared to $38.7 million in the three months ended September 30, 2021. Engine Management’s increase in net sales for the third quarter of 2022 compared to the same period in 2021 reflects the impact of strong customer demand and price increases implemented in 2022, which were implemented to pass through inflationary increases in raw materials, distribution and labor costs.
Temperature Control’s net sales increased $3.9 million, or 3.3%, to $123 million for the three months ended September 30, 2022. Net sales in the compressors product group for the three months ended September 30, 2022 were $78.2 million, an increase of $3.1 million, or 4.2%, compared to $75.1 million in the same period of 2021. Net sales in the other climate control parts product group for the three months ended September 30, 2022 were $44.8 million, an increase of $0.8 million, or 1.8%, compared to $44 million in the three months ended September 30, 2021. Temperature Control’s increase in net sales for the third quarter of 2022 compared to the same period in 2021 reflects the impact of continued strong customer demand, fueled by record heat across the country in 2022, and the impact of price increases, which were implemented to pass through inflationary increases in raw materials, distribution and labor costs. Full year results will be dependent upon ongoing weather conditions and customer inventory levels.
Gross Margins. Gross margins, as a percentage of consolidated net sales, decreased to 28% in the third quarter of 2022, compared to 28.4% in the third quarter of 2021. The following table summarizes gross margins by segment for the three months ended September 30, 2022 and 2021, respectively (in thousands):
Three Months Ended September 30, | | Engine Management | | | Temperature Control | | | Other | | | Total | |
| 2022 | | | | | | | | | | | | |
| Net sales | | $ | 251,741 | | | $ | 122,991 | | | $ | 6,641 | | | $ | 381,373 | |
| Gross margins | | | 66,026 | | | | 35,415 | | | | 5,343 | | | | 106,784 | |
| Gross margin percentage | | | 26.2 | % | | | 28.8 | % | | | — | | | | 28 | % |
| | | | | | | | | | | | | | | | | |
| 2021 | | | | | | | | | | | | | | | | |
| Net sales | | $ | 247,151 | | | $ | 119,075 | | | $ | 4,084 | | | $ | 370,310 | |
| Gross margins | | | 66,714 | | | | 33,815 | | | | 4,676 | | | | 105,205 | |
| Gross margin percentage | | | 27 | % | | | 28.4 | % | | | — | | | | 28.4 | % |
Compared to the third quarter of 2021, gross margins at Engine Management decreased 0.8 percentage points from 27% to 26.2%, while gross margins at Temperature Control increased 0.4 percentage points from 28.4% to 28.8%. The gross margin percentage decrease in Engine Management compared to the prior year primarily reflects the impact of inflationary cost increases in raw materials, labor and transportation, which were somewhat offset by increased pricing, and higher freight and related expenses resulting from higher inventory levels; while the gross margin percentage increase in Temperature Control reflects the positive impact seasonal volumes, customer mix and increased pricing, which more than offset the impact of inflationary cost increases in raw materials, labor and transportation and higher freight and related expenses resulting from higher inventory levels. While we anticipate continued margin pressures at both Engine Management and Temperature Control resulting from inflationary cost increases, we believe that our annual cost initiatives, and our ability to pass through higher prices to our customers, will help to mitigate the impact of the inflationary increases on our margins.
Selling, General and Administrative Expenses. Selling, general and administrative expenses (“SG&A”) were $73.2 million, or 19.2% of consolidated net sales, in the third quarter of 2022, as compared to $66.5 million, or 18% of consolidated net sales, in the third quarter of 2021. The $6.7 million increase in SG&A expenses as compared to the third quarter of 2021 is principally due to higher interest rate related costs incurred in our supply chain financing arrangements.
Restructuring and Integration Expenses. Restructuring and integration expenses of $166,000 in third quarter of 2021 related to the relocation, in our Engine Management Segment, of certain inventory, machinery, and equipment, acquired in our March 2021 soot sensor acquisition, to our facilities in Independence, Kansas and Bialystok, Poland. The soot sensor product line relocation has been substantially completed.
Operating Income. Operating income was $33.6 million, or 8.8% of consolidated net sales, in the third quarter of 2022, compared to $38.5 million, or 10.4% of consolidated net sales, in the third quarter of 2021. The year-over-year decrease in operating income of $4.9 million is primarily the result of higher SG&A expenses driven by the increased interest rate costs incurred in our supply chain financing arrangements, and to a lesser extent by the impact of lower gross margins as a percentage of consolidated net sales offset, in part, by marginally higher consolidated net sales.
Other Non-Operating Income (Expense), Net. Other non-operating income, net was $1.5 million in the third quarter of 2022, compared to $0.8 million in the third quarter of 2021. The year-over-year increase in other non-operating income, net results the favorable impact of changes in foreign currency exchange rates.
Interest Expense. Interest expense increased to $3.7 million in the third quarter of 2022, compared to $0.7 million in the third quarter of 2021. The year-over-year increase in interest expense reflects the impact of higher average outstanding borrowings in the third quarter of 2022 when compared to the third quarter of 2021, and higher year-over-year average interest rates on our credit facilities.
Income Tax Provision. The income tax provision in the third quarter of 2022 was $8.3 million at an effective tax rate of 26.3% compared to $9.5 million at an effective tax rate of 24.5% for the same period in 2021. The higher effective tax rate in the third quarter of 2022 compared to the comparable period in 2021 results primarily from the income tax provision impact related to the exercise of restricted stock.
Loss from Discontinued Operations. Loss from discontinued operations, net of income tax, during the third quarter of 2022 and 2021, reflects information contained in the actuarial studies performed as of August 31, 2022 and 2021, other information available and considered by us, and legal expenses associated with our asbestos related liability. During the third quarter of 2022 and 2021, the loss from discontinued operations, net of tax was $14.3 million and $5.1 million, respectively. The loss from discontinued operations for the third quarter of 2022 and 2021 includes an $18.5 million and a $5.3 million pre-tax provision, respectively, to increase our indemnity liability in line with the August 31, 2022 and 2021 actuarial studies. 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. In May 2021, we acquired the Trombetta business for $111.7 million. As part of the acquisition, we acquired a 70% ownership in a joint venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”). Net earnings attributable to the noncontrolling interest of $52,000 and $13,000 during the three months ended September 30, 2022 and 2021, respectively, represents 30% of the net earnings of Trombetta Asia, Ltd.
Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021
Sales. Consolidated net sales for the nine months ended September 30, 2022 were $1,063.6 million, an increase of $74.7 million, or 7.6%, compared to $988.9 million in the same period of 2021, with the majority of our net sales to customers in the United States. Consolidated net sales increased in both our Engine Management and Temperature Control Segments.
The following table summarizes consolidated net sales by segment and by major product group within each segment for the nine months ended September 30, 2022 and 2021 (in thousands):
| | | Nine Months Ended September 30, | |
| | | 2022 | | | 2021 | |
| Engine Management: | | | | | | |
| Ignition, Emission Control, Fuel and Safety Related System Products | | $ | 618,198 | | | $ | 574,595 | |
| Wire and Cable | | | | | | | | |
Total Engine Management
| | | | | | | | |
| | | | | | | | | |
| Temperature Control: | | | | | | | | |
Compressors
| | | 193,551 | | | | 178,031 | |
| Other Climate Control Parts | | | | | | | | |
Total Temperature Control
| | | | | | | | |
| | | | | | | | |
| All Other | | | | | | | | |
| | | | | | | | | |
| Total | | | | | | | | |
Engine Management’s net sales increased $40.5 million, or 5.8%, to $732.9 million for the first nine months of 2022. Net sales in ignition, emission control, fuel and safety related system products for the nine months ended September 30, 2022 were $618.2 million, an increase of $43.6 million, or 7.6%, compared to $574.6 million in the same period of 2021. Net sales in the wire and cable product group for the nine months ended September 30, 2022 were $114.7 million, a decrease of $3.1 million, or 2.6%, compared to $117.8 million in the nine months ended September 30, 2021. Engine Management’s increase in net sales for the first nine months of 2022 compared to the same period in 2021 reflects the impact of the positive contribution of incremental sales from our soot sensor, Trombetta and Stabil acquisitions, strong customer demand and price increases implemented in 2022, which were implemented to pass through inflationary increases in raw materials, distribution and labor costs.
Incremental net sales from our soot sensor, Trombetta and Stabil acquisitions of $44.6 million were included in the net sales of the ignition, emission control, fuel and safety related system products group for the nine months ended September 30, 2022. Compared to the nine months ended September 30, 2021, excluding the incremental net sales from the acquisitions, net sales in the ignition, emission control, fuel and safety related product group were essentially flat and Engine Management net sales decreased $4.1 million.
Temperature Control’s net sales increased $30.7 million, or 10.7%, to $318.7 million for the first nine months of 2022. Net sales in the compressors product group for the nine months ended September 30, 2022 were $193.6 million, an increase of $15.6 million, or 8.7%, compared to $178 million in the same period of 2021. Net sales in the other climate control parts product group for the nine months ended September 30, 2022 were $125.2 million, an increase of $15.2 million, or 13.8%, compared to $110 million in the nine months ended September 30, 2021. Temperature Control’s increase in net sales for the nine months ended September 30, 2022 compared to the same period in 2021 reflects the impact of continued strong customer demand, fueled by record heat across the country in 2022 and the replenishment of customer inventory levels after very warm summer conditions in 2021, and the impact of price increases, which were implemented to pass through inflationary increases in raw materials, distribution and labor costs. Full year results will be dependent upon ongoing weather conditions and customer inventory levels.
Gross Margins. Gross margins, as a percentage of consolidated net sales, decreased to 27.5% in the first nine months of 2022, compared to 29.1% during the same period in 2021. The following table summarizes gross margins by segment for the nine months ended September 30, 2022 and 2021, respectively (in thousands):
Nine Months Ended September 30, | | Engine Management | | | Temperature Control | | | Other | | | Total | |
| 2022 | | | | | | | | | | | | |
| Net sales | | $ | 732,871 | | | $ | 318,744 | | | $ | 12,001 | | | $ | 1,063,616 | |
| Gross margins | | | 193,855 | | | | 85,965 | | | | 13,155 | | | | 292,975 | |
| Gross margin percentage | | | 26.5 | % | | | 27 | % | | | — | | | | 27.5 | % |
| | | | | | | | | | | | | | | | | |
| 2021 | | | | | | | | | | | | | | | | |
| Net sales | | $ | 692,385 | | | $ | 288,019 | | | $ | 8,535 | | | $ | 988,939 | |
| Gross margins | | | 199,231 | | | | 78,468 | | | | 10,562 | | | | 288,261 | |
| Gross margin percentage | | | 28.8 | % | | | 27.2 | % | | | — | | | | 29.1 | % |
Compared to the first nine months of 2021, gross margins at Engine Management decreased 2.3 percentage points from 28.8% to 26.5%, while gross margins at Temperature Control decreased 0.2 percentage points from 27.2% to 27%. The gross margin percentage decrease in Engine Management compared to the prior year reflects the impact of lower fixed cost absorption due to lower and more normalized production, inflationary cost increases in raw materials, labor and transportation, which were somewhat offset by increased pricing, the higher mix of non-aftermarket parts sales from recent acquisitions, which have a different profile than our aftermarket business with lower gross margins but comparable operating margin, and higher freight and related expenses resulting from higher inventory levels. The gross margin percentage decrease in Temperature Control reflects the impact of inflationary cost increases in raw materials, labor and transportation, and higher freight and related expenses resulting from higher inventory levels, which were somewhat offset by seasonal volume, customer mix and increased pricing. While we anticipate continued margin pressures at both Engine Management and Temperature Control resulting from inflationary cost increases, we believe that our annual cost initiatives, and our ability to pass through higher prices to our customers, will help to mitigate the impact of the inflationary increases on our margins.
Selling, General and Administrative Expenses. Selling, general and administrative expenses (“SG&A”) were $204.6 million, or 19.2% of consolidated net sales, in the first nine months of 2022, as compared to $183.3 million, or 18.5% of consolidated net sales in the first nine months of 2021. The $21.3 million increase in SG&A expenses as compared to the first nine months of 2021 is principally due to (1) higher interest rate related costs incurred in our supply chain financing arrangements, (2) the impact of incremental expenses of $7.2 million from our soot sensor, Trombetta and Stabil acquisitions, including amortization of intangible assets acquired, and (3) the impact of inflationary cost increases resulting in higher distribution and freight costs. SG&A expenses in the first nine months of 2022 were favorably impacted by the higher mix of non-aftermarket parts sales from recent acquisitions, which have a different profile than our aftermarket business with lower SG&A expenses as a percentage of sales.
Restructuring and Integration Expenses. Restructuring and integration expenses were $44,000 in nine months ended September 30, 2022 compared to restructuring and integration expenses of $166,000 in the same period of 2021. Restructuring and integration expenses incurred in both the nine months ended September 30, 2022 and 2021 related to the relocation, in our Engine Management Segment, of certain inventory, machinery, and equipment, acquired in our March 2021 soot sensor acquisition, to our facilities in Independence, Kansas and Bialystok, Poland. The soot sensor product line relocation has been substantially completed.
Operating Income. Operating income was $88.4 million, or 8.3% of consolidated net sales, in the nine months ended September 30, 2022, compared to $104.8 million, or 10.6% of consolidated net sales, in the nine months ended September 30, 2021. The year-over-year decrease in operating income of $16.4 million is primarily the result of higher SG&A expenses driven by the increased interest rate costs incurred in our supply chain financing arrangements, and to a lesser extent by the impact of lower gross margins as a percentage of consolidated net sales offset, in part, by higher consolidated net sales.
Other Non-Operating Income (Expense), Net. Other non-operating income, net was $4.9 million in the first nine months of 2022, compared to $2.2 million in the first nine months of 2021. The year-over-year increase in other non-operating income, net results primarily from the increase in year-over-year equity income from our joint ventures and the favorable impact of changes in foreign currency exchange rates.
Interest Expense. Interest expense increased to $6.3 million in the first nine months of 2022, compared to $1.4 million for the same period in 2021. The year-over-year increase in interest expense reflects the impact of higher average outstanding borrowings in the first nine months of 2022 when compared to first nine months of 2021, and higher year-over-year average interest rates on our credit facilities.
Income Tax Provision. The income tax provision for the nine months ended September 30, 2022 was $22.4 million at an effective tax rate of 25.7%, compared to $26.3 million at an effective tax rate of 24.9% for the same period in 2021. The higher effective tax rate in the nine months ended September 30, 2022 compared to the comparable period in 2021 results primarily from the income tax provision impact related to the exercise of restricted stock.
Loss from Discontinued Operations. Loss from discontinued operations, net of income tax, during the nine months ended September 30, 2022 and 2021, reflects information contained in the actuarial studies performed as of August 31, 2022 and 2021, other information available and considered by us, and legal expenses associated with our asbestos related liability. During the first nine months of 2022 and 2021, the loss from discontinued operations, net of tax was $17.1 million and $7.1 million, respectively. The loss from discontinued operations for the nine months ended September 30, 2022 and 2021 includes an $18.5 million and a $5.3 million pre-tax provision, respectively, to increase our indemnity liability in line with the August 31, 2022 and 2021 actuarial studies. 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. In May 2021, we acquired the Trombetta business for $111.7 million. As part of the acquisition, we acquired a 70% ownership in a joint venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”). Net earnings attributable to the noncontrolling interest of $129,000 and $32,000 during the nine months ended September 30, 2022 and 2021, respectively, represents 30% of the net earnings of Trombetta Asia, Ltd.
Restructuring and Integration Programs
All of our restructuring and integration programs have been substantially completed. 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).
Liquidity and Capital Resources
Operating Activities. During the first nine months of 2022, cash used in operating activities was $75.5 million compared to cash provided by operating activities of $79.1 million in the same period of 2021. The increase in cash used in operating activities resulted primarily from the decrease in net earnings, the larger year-over-year increase in accounts receivable, the larger year-over-year increase in inventories, the decrease in accounts payable compared to a year-over-year increase in accounts payable, increase in prepaid expenses and other current assets compared to a year-over-year decrease in prepaid expenses and other current assets, a smaller year-over-year increase in sundry payables and accrued expenses.
Net earnings during the first nine months of 2022 were $47.5 million compared to $72.2 million in the first nine months of 2021. During the first nine months of 2022, (1) the increase in accounts receivable was $51.9 million compared to the year-over-year increase in accounts receivable of $15.3 million in 2021; (2) the increase in inventories was $75.3 million compared to the year-over-year increase in inventories of $52.7 million in 2021; (3) the decrease in accounts payable was $31.8 million compared to the year-over-year increase in accounts payable of $24.2 million in 2021; (4) the increase in prepaid expenses and other current assets was $6.3 million compared to the year-over-year decrease in prepaid expenses and other current assets of $2.3 million in 2021; and (5) the increase in sundry payables and accrued expenses was $3.8 million compared to the year-over-year increase in sundry payables and accrued expenses of $18.9 million in 2021. The increase in inventories during the first nine months of 2022 reflects actions taken to meet ongoing customer demand, the impact of materials inflation, and higher safety stocks of raw materials given the volatility in the supply chain; while the year-over-year comparative increase in receivables during the first nine months of 2022 reflects the impact of $50 million of receivables presented at financial institutions pursuant to our supply chain financing arrangements on December 31, 2020 sold in the first quarter of 2021. We continue to actively manage our working capital to maximize our operating cash flow.
Investing Activities. Cash used in investing activities was $19.5 million in the first nine months of 2022, compared to $144 million in the same period of 2021. Investing activities during the first nine months of 2022 consisted of capital expenditures of $19.5 million; while investing activities during the first nine months of 2021 consisted of (1) the payment of $15.4 million, net of $0.9 million of cash acquired, for our acquisition of 100% of the capital stock of Stabil Operative Group GmbH, a German company, (“Stabil”); (2) the payment of $107.1 million, net of $4.6 million of cash acquired, for our acquisition of 100% of the capital stock of Trumpet Holdings, Inc., a Delaware corporation, (“Trombetta”); (3) the payment of $2.1 million for our acquisition of certain assets of the soot sensor product lines from Stoneridge, Inc.; and (4) capital expenditures of $19.4 million.
Financing Activities. Cash provided by financing activities was $92 million in the first nine months of 2022 as compared to $79.1 million in the same period of 2021. In June 2022, we entered into a new credit agreement with JPMorgan Chase Bank, N.A., as agent. The new credit agreement provides for a $500 million credit facility comprised of a $100 million term loan facility and a $400 million revolving credit facility. Borrowings under the new credit facility were used to repay all outstanding borrowings under the then existing revolving credit facility, and certain fees and expenses incurred in connection with the refinancing.
During the first nine months of 2022, we (1) increased our borrowings under our credit facilities by $141.5 million; (2) made cash payments of $2.1 million for debt issuance costs in connection with our refinancing; (3) made cash payments for the repurchase of shares of our common stock of $29.7 million; and (4) paid dividends of $17.6 million. Cash provided by borrowings under our credit facilities were used to fund our operating activities, investing activities, payment of debt issuance costs, purchase shares of our common stock and pay dividends.
During the first nine months of 2021, we (1) increased our borrowings under our revolving credit facility by $118.9 million; (2) increased our borrowings under lease obligations and our Polish overdraft facility by $2.9 million; (3) made cash payments for the repurchase of shares of our common stock of $26.5 million; and (4) paid dividends of $16.7 million. Cash provided by operating activities, along with borrowings under our revolving credit agreement, lease obligations and Polish overdraft facility were used to fund our investing activities, purchase shares of our common stock and pay dividends.
Dividends of $17.6 million and $16.7 million were paid in 2022 and 2021, respectively. In February 2022, our Board of Directors voted to increase our quarterly dividend from $0.25 per share in 2021 to $0.27 per share in 2022.
Liquidity.
Our primary cash requirements include working capital, capital expenditures, regular quarterly dividends, stock repurchases, principal and interest payments on indebtedness and acquisitions. 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, Standard Motor Products, Inc. (the “Company”) entered into a new Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (the “Credit Agreement”). The Credit Agreement provides for a $500 million credit facility comprised of a $100 million term loan facility (the “term loan”) and a $400 million multi-currency revolving credit facility available in U.S. Dollars, Euros, Sterling, Swiss Francs, Canadian Dollars and other currencies as agreed to by the administrative agent and the lenders (the “revolving facility”). The Credit Agreement replaces and refinances the existing Credit Agreement, dated as of October 28, 2015, among the Company, SMP Motor Products Ltd. and Trumpet Holdings, Inc., as borrowers, JPMorgan Chase Bank, N.A., as administrative agent and lender, and the other lenders named therein (the “2015 Credit Agreement”).
Borrowings under the Credit Agreement were used to repay all outstanding borrowings under the 2015 Credit Agreement, and pay certain fees and expenses incurred in connection with the Credit Agreement, with future borrowings used for other general corporate purposes of the Company and its subsidiaries. The term loan amortizes in quarterly installments of 1.25% in each of the first four years, and quarterly installments of 2.5% in the fifth year of the Credit Agreement. The revolving facility has a $25 million sub-limit for the issuance of letters of credit and a $25 million sub-limit for the borrowing of swingline loans. The maturity date is June 1, 2027. The Company may request up to two one-year extensions of the maturity date.
The Company may, upon the agreement of one or more of then existing lenders or of additional financial institutions not currently party to the Credit Agreement, increase the revolving facility commitments or obtain incremental term loans by an aggregate amount not to exceed (x) the greater of (i) $168 million or (ii) 100% of consolidated EBITDA (as defined in the Credit Agreement) for the four fiscal quarters ended most recently before such date, plus (y) the amount of any voluntary prepayment of term loans, plus (z) an unlimited amount so long as, immediately after giving effect thereto, the pro forma First Lien Net Leverage Ratio (as defined in the Credit Agreement) does not exceed 2.5 to 1.0.
Term loan and revolver facility borrowings in U.S. Dollars bear interest, at the Company’s election, at a rate per annum equal to Term SOFR plus 0.10% plus an applicable margin, or an alternate base rate plus an applicable margin, where the alternate base rate is the greater of the prime rate, the federal funds effective rate plus 0.50%, and one-month Term SOFR plus 0.10% plus 1.00%. Term loan borrowings are being made at one-month Term SOFR. The applicable margin for the term benchmark borrowings ranges from 1.0% to 2.0%, and the applicable margin for alternate base rate borrowings ranges from 0% to 1.0%, in each case, based on the total net leverage ratio of the Company and its restricted subsidiaries. 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. Concurrently with the Company’s entry into the Credit Agreement, the Company also entered into a seven year interest rate swap agreement with Wells Fargo Bank, N.A., Co-Syndication Agent and lender under the Credit Agreement, on $100 million of borrowings under the Credit Agreement. The interest rate swap agreement matures in May 2029.
Outstanding borrowings at September 30, 2022 under the Credit Agreement were $268.5 million, consisting of current borrowings of $57.1 million and long-term debt of $211.4 million; while outstanding borrowings at December 31, 2021 under the 2015 Credit Agreement were $125.3 million, consisting of current borrowings. Letters of credit outstanding under the Credit Agreement were $2.4 million at September 30, 2022, and $2.6 million under the 2015 Credit Agreement at December 31, 2021. Borrowings at December 31, 2021 under the 2015 Credit Agreement have been classified as current liabilities based upon accounting rules and certain provisions in the agreement.
At September 30, 2022, the weighted average interest rate under our Credit Agreement was 4.4%, which consisted of $268 million in borrowings at 4.4% under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100 million of borrowings, and an alternative base rate borrowing of $0.5 million at 6.8%. At December 31, 2021, the weighted average interest rate on our 2015 Credit Agreement was 1.4%, which consisted of $125 million in direct borrowings at 1.4% and alternative base rate loan of $0.3 million at 3.5%. During the nine months ended September 30, 2022, our average daily alternative base rate loan balance was $7.5 million, compared to a balance of $1 million for the nine months ended September 30, 2021 and a balance of $1 million for the year ended December 31, 2021.
The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets. The Credit Agreement also contains customary events of default.
In February 2022, our Polish subsidiary, SMP Poland sp. z.o.o., amended its overdraft facility with HSBC Continental Europe (Spolka Akcyjna) Oddzial w Polsce, formerly HSBC France (Spolka Akcyjna) Oddzial w Polsce. The amended overdraft facility provides for borrowings of up to Zloty 30 million (approximately $6.1 million). Availability under the amended facility commenced in March 2022, with automatic three-month renewals until June 2027, subject to cancellation by either party, at its sole discretion, at least 30 days prior to the commencement of the three-month renewal period. Borrowings under the overdraft facility will bear interest at a rate equal to WIBOR + 1.5% and are guaranteed by Standard Motor Products, Inc., the ultimate parent company. At September 30, 2022 and December 31, 2021, borrowings under the overdraft facility were Zloty 4.9 million (approximately $1 million) and Zloty 12.3 million (approximately $3 million), respectively.
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 being accounted for as a sale.
Pursuant to these agreements, we sold $236.3 million and $610.4 million of receivables during the three months and nine months ended September 30, 2022, respectively, and $232.5 million and $626.9 million for the comparable periods in 2021. Receivables presented at financial institutions and not yet collected as of September 30, 2022 and December 31, 2021 were approximately $9.8 million and $1.3 million, respectively, and remained in our accounts receivable balance for those periods. All receivables sold were reflected as a reduction of accounts receivable in the consolidated balance sheet at the time of sale. A charge in the amount of $10.6 million and $21.8 million related to the sale of receivables was included in selling, general and administrative expense in our consolidated statements of operations for the three months and nine months ended September 30, 2022, respectively, and $3 million and $8.7 million for the comparable periods in 2021.
To the extent that these arrangements are terminated, our financial condition, results of operations, cash flows and liquidity could be adversely affected by extended payment terms, delays or failures in collecting trade accounts receivables. The utility of the supply chain financing arrangements also depends upon the LIBOR rate, or an alternative benchmark reference rate, as it is a component of the discount rate applicable to each arrangement. If the LIBOR rate, or alternative benchmark reference rate, increases significantly, we may be negatively impacted as we may not be able to pass these added costs on to our customers, which could have a material and adverse effect upon our financial condition, results of operations and cash flows.
In October 2021, our Board of Directors authorized the purchase of up to $30 million of our common stock under a stock repurchase program. Stock repurchases under this program, during the year ended December 31, 2022 were 7,000 shares at a total cost of $0.3 million, and during the three and nine months ended September 30, 2022 were 70,182 shares and 692,067 shares of our common stock, respectively, at a total cost of $3.2 million and $29.7 million, respectively, thereby completing the October 2021 Board of Directors authorization.
In July 2022, our Board of Directors authorized the purchase of up to an additional $30 million of our common stock under a new stock repurchase program. Stock will be purchased from time to time in the open market, or through private transactions, as market conditions warrant. To date, there have been no repurchases of our common stock under the program.
Material Cash Commitments
Material cash commitments as of September 30, 2022 consist of required cash payments to service our outstanding borrowings of $268.5 million under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, and the future minimum cash requirements of $56.8 million through 2033 under operating leases. All of our other cash commitments as of September 30, 2022 are not material. For additional information related to our material cash commitments, see Note 8, “Leases,” and Note 9, “Credit Facilities and Long-Term Debt,” in the notes to our consolidated financial statements (unaudited).
We anticipate that our cash flow from operations, available cash, and available borrowings under our Credit Agreement will be adequate to meet our future liquidity needs for at least the next twelve months. Significant assumptions underlie this belief, including, among other things, that we will be able to mitigate the future impact, if any, of disruptions in the supply chain caused by the COVID-19 pandemic, Russia’s invasion of the Ukraine and resultant sanctions imposed by the U.S. and other governments, future increases in interest rates, and significant inflationary cost increases in raw materials, labor and transportation that we are unable to pass through to our customers, 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, 2021.
Critical Accounting Policies
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. Other than the addition of the “Derivative Instruments and Hedging Activities” accounting policy described in Note 2, “Summary of Significant Accounting Policies,” in the notes to our consolidated financial statements (unaudited), which has not been identified as a critical accounting policy, there have been no other material changes made to our 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, 2021.
You should be aware that preparation of our consolidated quarterly financial statements in this Report 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 disruptions in the supply chain caused by the COVID-19 pandemic, Russia’s invasion of the Ukraine and resultant sanctions imposed by the U.S. and other governments, and other unforeseen changes in the industry, or business, could materially impact the estimates, and may have a material adverse effect on our business, financial condition and results of operations.
Recently Issued Accounting Pronouncements
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 September 30, 2022 and December 31, 2021, 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 for 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, adjusted upward for the credit spread adjustment in the Credit Agreement of 0.10% and the loan margin in the Credit Agreement of 1.50% at September 30, 2022.
As of September 30, 2022, we had approximately $269.5 million of outstanding borrowings under our credit facilities, of which approximately $169.5 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 $1.5 million annualized negative impact on our earnings or cash flows.
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 months and nine months ended September 30, 2022, we sold $236.3 million and $610.4 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 $2.4 million and $6.1 million negative impact on our earnings or cash flows during the three months and nine months ended September 30, 2022, 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, 2021.
| 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 September 30, 2022, 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.
PART II – OTHER INFORMATION
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 captions “Asbestos” and “Other Litigation” 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 third quarter of 2022:
| Period | | Total Number of Shares Purchased (1) | | | Average Price Paid Per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | | Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs (2) | |
| | | | | | | | | | | | | |
| July 1 – 31, 2022 | | | 70,182 | | | $ | 45.03 | | | | 70,182 | | | $ | 30,000,000 | |
| August 1 – 31, 2022 | | | — | | | | — | | | | — | | | | 30,000,000 | |
| September 1 – 30, 2022 | | | — | | | | — | | | | — | | | | 30,000,000 | |
| Total | | | 70,182 | | | $ | 45.03 | | | | 70,182 | | | $ | 30,000,000 | |
| (1) | All shares were purchased through the publicly announced stock repurchase programs in open-market transactions. |
| (2) | In October 2021, our Board of Directors authorized the purchase of up to $30 million of our common stock under a stock repurchase program. Stock repurchases under this program, during the year ended December 31, 2022 were 7,000 shares at a total cost of $0.3 million, and during the three and nine months ended September 30, 2022 were 70,182 shares and 692,067 shares of our common stock, respectively, at a total cost of $3.2 million and $29.7 million, respectively, thereby completing the October 2021 Board of Directors authorization. |
In July 2022, our Board of Directors authorized the purchase of up to an additional $30 million of our common stock under a new stock repurchase program. To date, there have been no repurchases of our common stock under the program.
Exhibit
Number
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| Certification of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
| Certification of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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.” |
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: October 31, 2022 | /s/ Nathan R. Iles |
| | Nathan R. Iles |
| | Chief Financial Officer |
| | (Principal Financial and |
| | Accounting Officer) |
49
