STANDARD MOTOR PRODUCTS, INC. (SMP)

ITEM 7.           MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 each of the fiscal years in the two-year period ended December 31, 2024. Discussion and analysis of our financial condition and results of operations for fiscal year 2023, and comparisons of fiscal years 2023 and 2022 can be found in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Consolidated net sales for 2024 were $1,463.8 million, a increase of $105.6 million, or 7.8% compared to net sales of $1,358.3 million in 2023. The increase in net sales in 2024 reflects the impact of multiple factors including:

•strong demand in our Temperature Control operating segment primarily reflecting the impact of warmer year-over-year seasonal weather conditions,

•net sales of $35.7 million for the period from acquisition to December 31, 2024 in our new segment, Nissens Automotive, created with the acquisition of Nissens Automotive, a leading European supplier of thermal management and engine efficiency products for the automotive aftermarket, on November 1, 2024,

•stable demand in our Vehicle Control aftermarket segment across our major product groups, and

•a slight increase in net sales in our Engineered Solutions operating segment with growth from business wins and successful cross-selling efforts offset by slowing customer production in the fourth quarter.

Gross margin as a percentage of net sales in 2024 was 28.9% as compared to 28.6% in 2023. Overall, the gross margin increase as a percentage of sales in 2024 primarily reflects the positive impact of higher sales volumes leading to higher fixed manufacturing cost absorption, improved operating performance including the impact of cost control measures, and increased pricing, which more than offset lingering inflationary increases in certain materials and labor costs. We anticipate that the ongoing benefits from our cost-savings initiatives and strong gross margins in our newly acquired operating segment, Nissens Automotive, will mitigate continued pressure on margins resulting from inflationary headwinds. While our business in U.S. markets could be impacted by additional tariffs, we expect to mitigate the impact with a combination of price increases and cost reduction efforts.

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Operating margin as a percentage of net sales in 2024 was 5.5% as compared to 6.8% in 2023. Included in our operating margin were selling, general and administrative expenses of $335.1 million, or 22.9% of net sales in 2024 compared to $293.6 million, or 21.6% of net sales in 2023. The $41.5 million increase in selling, general and administrative expenses in 2024 is principally due to (i) $14.3 million of selling, general and administrative expenses for Nissens Automotive as the results of our new operating segment are consolidated into our financial statements for the two months from the close of the acquisition, (ii) higher distribution and freight expenses in our legacy business primarily due to higher sales, (iii) costs associated with our acquisition of Nissens Automotive, and (iv) increased rent and incremental expenses as we transition away from our Edwardsville, Kansas distribution center to our new distribution facility in Shawnee, Kansas. The new larger distribution center will integrate new distribution technologies including a mechanized material handling system designed to deliver improved logistics capabilities, operational efficiencies, as well as enhanced employee, customer and supplier experiences and is expect to be fully operational later in 2025. We will incur additional costs in 2025 during the phase-in period while we operate the two facilities.

Overall, our core automotive aftermarket business remains strong, and we are both excited and optimistic for the growth potential in our newly acquired operating segment, Nissens Automotive and the long-term growth potential of the complementary markets served in our Engineered Solutions operating segment.

Separation Program

During the second quarter of 2024 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. During the third quarter of 2024, we expanded the program to include involuntary separations. We recorded expenses of $7.1 million in 2024, with additional expenses to be recorded of approximately $0.6 million in 2025, and $0.1 million in 2026 for an aggregate cost of approximately $7.7 million. It is anticipated that the overall separation program will reduce operating expenses in 2025. Expenses incurred pursuant to the program are recorded in restructuring and integration expenses in our statement of operations.

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Results of Operations

Sales. Consolidated net sales for 2024 were $1,463.8 million, an increase of $105.6 million, or 7.8%, compared to $1,358.3 million in 2023, with the majority of our net sales to customers located in the United States. Consolidated net sales increased in all our operating segments when compared to the prior fiscal year.

The following table summarizes consolidated net sales by segment and by major product group within each segment for the years ended December 31, 2024 and 2023 (in thousands):

Vehicle Control’s net sales for 2024 increased $24.6 million, or 3.3%, to $762.6 million compared to $737.9 million in 2023. Demand in the Vehicle Control segment remained relatively stable across our major product groups.

Temperature Control’s net sales for 2024 increased $42.3 million, or 12.5%, to $380.1 million compared to $337.8 million in 2023. The higher year-over-year Temperature Control net sales reflects higher customer demand due to the impact of warmer seasonal weather conditions in the U.S. compared to 2023. Demand for our Temperature Control products may vary significantly with summer weather conditions and customer inventory levels.

Engineered Solutions’ net sales for 2024 increased $2.9 million, or 1%, to $285.5 million compared to $282.6 million in 2023. Overall, net sales in our Engineered Solutions operating segment showed year-over-year improvement driven by new

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business wins as well as successful cross-selling efforts, partly offset by slowing customer production schedules in the fourth quarter.

Net sales of $35.7 million, or 2.4% of total SMP's net sales, for our newly acquired operating segment, Nissens Automotive, are included in our consolidated results for the two months from the closing date of the acquisition. We expect Nissens Automotive's net sales to follow a similar annual seasonal pattern as the Temperature Control segment, as demand for many of Nissens Automotive's products increase with warmer weather. We also expect to benefit from revenue synergies resulting from the acquisition starting in 2026 and beyond.

Gross Margins. Gross margins, as a percentage of consolidated net sales, increased to 28.9% for 2024, compared to 28.6% for 2023. The following table summarizes gross margins by segment for the years ended December 31, 2024 and 2023, respectively (in thousands):

Compared to 2023, gross margin percentage decreased from 32.3% to 32.0% at Vehicle Control, increased from 28.4% to 31.0% at Temperature Control, and decreased from 19.4% to 17.5% at Engineered Solutions. Gross margin percentage for the Nissens Automotive segment was 32.2% for the two months from the closing date of the acquisition.

The gross margin percentage in our Vehicle Control operating segment remained relatively flat reflecting higher sales volume and higher fixed cost absorption due to higher production levels than those achieved in 2023, partially offset by inflationary cost increases.

The gross margin percentage increase in our Temperature Control operating segment reflected higher sales volume, some increased pricing, improved operating performance from cost savings initiatives, and favorable fixed cost absorption due to higher production levels than those achieved in 2023.

The gross margin percentage decrease at our Engineered Solutions operating segment is driven primarily by cost inflation and an unfavorable customer sales mix, partially offset by some higher pricing. We expect some pressure on demand into 2025 for our Engineered Solutions products as production schedules at customers slow.

The gross margin percentage at our Nissens Automotive operating segment was negatively impacted by $3.1 million of amortization for inventory fair value adjustments related to the application of accounting for business combinations. Amortization of the remaining inventory fair value adjustment will continue through Q2 2025.

While we anticipate continued margin pressure resulting from inflationary headwinds and a competitive market environment, we believe that our cost savings and product rationalization initiatives should mitigate much of this impact to our gross margins as well as, cost synergies related to our acquisition of Nissens Automotive. While our business in U.S. markets could be impacted by additional tariffs, we expect to mitigate the impact with a combination of price increases and cost reduction efforts.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $41.5 million to $335.1 million, or 22.9% of consolidated net sales in 2024, as compared to $293.6 million, or 21.6% of consolidated net sales in 2023. Excluding the $14.3 million impact of including Nissens Automotive into our financial statements for the two months from the acquisition date, the increase in selling, general and administrative expenses is principally due to the impact of (i) $10.5 million higher distribution and freight expenses in our legacy business primarily due to higher sales, (ii) $10.3 million of costs associated with our acquisition of Nissens Automotive, including $2.3 million of derivative losses on

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forward foreign exchange contract used to economically hedge the purchase price, and (iii) $4.6 million of increased rent and incremental expenses as we transition away from our Edwardsville, Kansas distribution center to our new distribution facility in Shawnee, Kansas.

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Restructuring and Integration Expenses. Restructuring and integration expenses were $7.7 million in 2024 compared to $2.6 million in 2023. Restructuring and integration expenses incurred in 2024 relate primarily to the Separation Program announced in the second quarter of 2024, and expanded to encompass involuntary separations in the third quarter of 2024, as part of our commitment to optimizing our cost structure and providing professional development opportunities to our employees. We anticipate that the program will be substantially complete by the end of 2027. Restructuring and integration expenses in 2024 consist of $7.3 million of costs related to workforce reductions and severance costs, and $0.4 million for the relocation of machinery and equipment; while 2023 expenses primarily related to the Cost Reduction Initiative consist of $2 million of costs related to workforce reductions and severance costs, and $0.7 million for the relocation of machinery and equipment.

Operating Income. Operating income was $80.6 million, or 5.5%, of consolidated net sales in 2024, compared to $92.7 million, or 6.8%, of consolidated net sales in 2023. The year-over-year decrease in operating income of $12.1 million is primarily the result of higher selling, general and administrative expenses, including costs associated with the acquisition of Nissens Automotive, and higher restructuring and integration expenses, partially offset, by the impact of higher net sales and improved gross margin percentage.

Other Non-Operating Income, Net. Other non-operating income, net was $6.9 million in 2024, compared to $2.3 million 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 $0.7 million in 2023.

Interest Expense. Interest expense increased to $13.5 million in 2024, compared to $13.3 million in 2023. The year-over-year increase in interest expense reflects the impact of higher average outstanding balances due to borrowings under our 2024 Credit Agreement to fund our acquisition of Nissens Automotive, partly offset by slightly lower year-over-year average interest rates on our credit facilities, including the impact of our interest swap agreements. We expect interest expense to increase in 2025 due to higher overall outstanding balances under our 2024 Credit Agreement connected to our acquisition of Nissens Automotive.

Income Tax Provision. The income tax provision for 2024 was $19.4 million at an effective tax rate of 26.2%, compared to $18.4 million at an effective tax rate of 22.5% in 2023. The higher effective tax rate in 2024 compared to 2023 reflects the impact of non-deductible transaction costs associated with our acquisition of Nissens Automotive, an increase in earnings from international as compared to U.S. operations, and the effective tax rate impact of lower year-over-year pre-tax income.

Loss From Discontinued Operations. Loss from discontinued operations, net of income tax, reflects information contained in the actuarial studies performed as of August 31, 2024 and 2023, as well as other available information, and legal expenses and other costs associated with our asbestos-related liability. During the years ended December 31, 2024 and 2023, we recorded a net loss of $26.1 million and $29 million from discontinued operations, respectively. The loss from discontinued operations for the year ended December 31, 2024 and 2023 includes (i) a $29.3 million and $23.8 million pre-tax provision, respectively, to increase our indemnity liability in line with the 2024 and 2023 actuarial studies; (ii) legal and other miscellaneous expenses, before taxes, of $4.8 million and $4.9 million for 2024 and 2023, respectively, and (iii) a $10.5 million pre-tax provision in 2023 related to a breach of contract legal proceeding. As discussed more fully in Note 23 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements in Item 8 of this Report, we are responsible for certain future liabilities relating to alleged exposure to asbestos containing products.

Net Earnings Attributable to Noncontrolling Interest. 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 $1.0 million and $0.2 million during the years ended December 31, 2024 and 2023, respectively. For additional information on the Gwo Yng step acquisition, see Note 2, “Business Combinations,” in the Notes to Consolidated Financial Statements in Item 8 of this Report.

Restructuring and Integration Programs

For a detailed discussion on the restructuring and integration costs, see Note 3, “Restructuring and Integration Expenses,” of the Notes to Consolidated Financial Statements in Item 8 of this Report.

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Liquidity and Capital Resources

Our primary cash requirements include working capital, capital expenditures, 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 agreements (in thousands).

Operating Activities. During 2024, cash provided by operating activities was $76.7 million as compared to cash provided by operating activities of $144.3 million in 2023.

Net earnings during 2024 were $28.5 million compared to $34.4 million in 2023. The decrease in cash provided by operating activities resulted primarily from an increase in inventories of $36.9 million compared to a decrease of $29.5 million in the prior year, as well as increases in other working capital accounts primarily due to higher net sales and preparation for pre-season orders in our Temperature Control segment, and lower 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 $418.7 million in 2024 as compared to $25.7 million in 2023. Investing activities during 2024 primarily consisted of (i) $372.5 million of cash paid for the acquisition of 100% of the shares of Nissens Automotive, net of cash acquired of $24.6 million, and (ii) capital expenditures of $44 million. The year-over-year increase in capital expenditures primarily 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.

Cash used in investing activities during 2023 primarily consisted of (i) the payment of $4.0 million for our acquisition of an additional 15% equity interest in Foshan GWO YNG SMP Vehicle Climate Control & Cooling Products Co., Ltd. (“Gwo Yng”) and (ii) capital expenditures of $28.6 million, partially offset by $6.8 million of cash acquired in the Gwo Yng step acquisition.

Financing Activities. Cash provided by financing activities was $349.5 million in 2024 as compared to cash used in financing activities of $109.6 million in 2023. In September 2024, the Company refinanced its existing 2022 Credit Agreement with a new five-year Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (“2024 Credit Agreement”). Borrowings under the 2024 Credit Agreement were used to repay all outstanding borrowings under the 2022 Credit Agreement and to finance the Company's acquisition of Nissens Automotive and related transaction costs, and will be used for general corporate purposes of the Company and its subsidiaries.

During 2024, we (i) increased our borrowings under our 2024 Credit Agreement by $392 million, (ii) paid dividends to SMP shareholders of $25.3 million, and (iii) made cash payments for the repurchase of shares of our common stock of $10.4 million. These activities were funded with cash provided by our operating activities, in addition to borrowings under our 2024 Credit Agreement.

During 2023, we (i) reduced our borrowings under our 2022 Credit Agreement by $83.5 million; and (ii) paid dividends of $25.2 million and $0.7 million to SMP shareholders and shareholders of our noncontrolling interests, respectively. Cash provided by our operating activities was used to reduce our borrowings under our 2022 Credit Agreement, fund our investing activities and pay dividends.

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Quarterly dividends were paid at a rate of $0.29 in 2024 and 2023.

Liquidity

Our primary sources of funds are ongoing net cash flows from operating activities and availability under our 2024 Credit Agreement (as detailed below).

In May 2024 and July 2024, the Company amended it's then-existing Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders ("2022 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 and to provide for a new $125 million term loan and the use of funds available under the revolving credit facility to finance the acquisition of Nissens Automotive and related transaction costs. For additional information on our agreement to acquire Nissens Automotive see Note 2, “Business Combinations,” in the Notes to Consolidated Financial Statements in Item 8 of this Report.

In September 2024, the Company refinanced its existing 2022 Credit Agreement with a new five-year Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (“2024 Credit Agreement”). The 2024 Credit Agreement matures on September 16, 2029 and provides for an approximately $750 million credit facility, comprised of (i) a $430 million multi-currency revolving credit facility ("global tranche"); (ii) a $10 million multi-currency revolving credit facility, available to one or more wholly-owned Danish subsidiaries of the Company ("Danish tranche"); (iii) a $200 million delayed draw term loan facility in U.S. dollars; and (iv) a 100 million euros delayed draw term loan facility. The revolving credit facility has a $25 million sublimit for the issuance of letters of credit, and a $30 million sublimit for the borrowing of swingline loans.

Borrowings under the 2024 Credit Agreement were used to repay all outstanding borrowings under the 2022 Credit Agreement and to finance the Company's acquisition of Nissens Automotive and related transaction costs, and will be used for general corporate purposes of the Company and its subsidiaries. The term loans amortize in quarterly installments of 1.25% in each of the first two years following the funding, 1.875% for the next year, and 2.50% in each quarter thereafter. The Company may request up to two one-year extensions of the maturity date.

The Company may, subject to customary conditions, increase the global tranche or obtain incremental term loans in an aggregate amount not to exceed (x) the greater of (i) $168 million and (ii) 100% of consolidated EBITDA 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 2024 Credit Agreement) does not exceed 2.75 to 1.00. The Company may also, subject to customary conditions, request to increase the Danish tranche by up to $5 million.

Borrowings bear interest at the applicable interest rate index selected by the Company based on the particular currency borrowed plus a credit spread adjustment depending on the index, and a margin ranging from 1.25% to 2.25% per annum 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 depending on the index. Interest is payable at the end of the selected interest period, but no less frequently than quarterly.

The Company may prepay the borrowings, in whole or in part, at any time without premium or penalty, subject to certain conditions.

The Company’s obligations under the 2024 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.

Outstanding borrowings at December 31, 2024 under the 2024 Credit Agreement were $545.4 million, net of deferred financing costs, consisting of current borrowings of $25.2 million and long-term debt of $520.1 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 $2.5 million and $2.3 million at December 31, 2024 and 2023, respectively.

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To manage the interest rate risk on the 2024 Credit Agreement, the Company has entered into interest rate swap agreements designated as cash flow hedges of a portion of the borrowings under the 2024 Credit Agreement to swap floating rate interest to a fixed rate. For additional information see Note 17, "Derivative Financial Instruments" of the Notes to Consolidated Financial Statements in Item 8 of this Report.

At December 31, 2024, the weighted average interest rate on borrowings under the 2024 Credit Agreement was 5.6%, primarily consisting of Term SOFR for borrowings in U.S. dollars and EURIBOR for borrowings in euros, adjusted for the impact of the interest rate swap agreement on $100 million of the U.S. dollar borrowings. At December 31, 2023, the weighted average interest rate under our 2022 Credit Agreement was 5.0%, under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100 million of borrowings. During the year ended December 31, 2024, our average daily alternative base rate loan balance was $0.7 million, compared to a balance of $0.1 million for the year ended December 31, 2023.

The 2024 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 2024 Credit Agreement also contains customary events of default.

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 $7.3 million) if borrowings are solely in Polish zloty, or up to 85% of the Polish zloty 30 million limit (approximately $6.2 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 December 2024 to a March 2025 maturity date. Borrowings under the amended overdraft facility will bear interest at a rate equal to (i) the one month Warsaw Interbank Offered Rate (“WIBOR”) + 1.0% for borrowings in Polish zloty, (ii) the one month Euro Interbank Offered Rate (“EURIBOR”) + 1.0% for borrowings in Euros, and (iii) the Mid-Point of the Fed Target Range + 1.25% for borrowings in U.S dollars. Borrowings under the overdraft facility are guaranteed by Standard Motor Products, Inc., the ultimate parent company. There were no borrowings outstanding under the overdraft facility at both December 31, 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 $884.7 million and $830.8 million of receivables for the years ended December 31, 2024 and 2023, respectively. Receivables presented at financial institutions and not yet collected as of December 31, 2024 and December 31, 2023 were approximately $5.8 million and $4.5 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 $48.5 million, $46 million and $32 million related to the sale of receivables is included in selling, general and administrative expenses in our consolidated statements of operations for the years ended December 31, 2024, 2023 and 2022, respectively.

To the extent that these arrangements are terminated, our financial condition, results of operations, cash flows and liquidity could be adversely affected by extended payment terms, delays or failures in collecting trade accounts receivables. The utility of the supply chain financing arrangements also depends upon a benchmark reference rate for the purpose of determining the discount rate applicable to each arrangement. If the benchmark reference rate increases significantly, we may be negatively impacted as we may not be able to pass these added costs on to our customers, which could have a material and adverse effect upon our financial condition, results of operations and cash flows.

In January 2023, one of our customers filed a petition for bankruptcy and we recorded a $7 million pre-tax charge in selling, general and administrative expenses in our consolidated statement of operations during the year ended December 31, 2022 to reduce our accounts receivable balance to our estimated recovery.

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 under the program from time to time, in the open market or through private

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transactions, as market conditions warrant. To date, there have been 321,229 shares repurchased for a total cost of $10.4 million, all of which occurred during the first half of 2024. As of December 2023 there had been no repurchases of our common stock under the program.

Material Cash Commitments

Material cash commitments as of December 31, 2024 consist of required cash payments to service our outstanding borrowings of $545.4 million under our 2024 Credit Agreement with JPMorgan Chase Bank, N.A., as agent and the future minimum cash requirements of $144.8 million through 2034 under operating leases. All of our other cash commitments as of December 31, 2024 are not material. For additional information related to our material cash commitments, see Note 7, “Leases,” and Note 11, “Credit Facilities and Long-Term Debt,” of the Notes to Consolidated Financial Statements in Item 8 of this Report.

We anticipate that our cash flow from operations, available cash, and available borrowings under our 2024 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 2024 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 2024 Credit Agreement, our business could be adversely affected.

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

Critical Accounting Policies and Estimates

We have identified the two accounting policies and estimates below 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. For a detailed discussion on the application of these and other accounting policies, see Note 1, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Item 8 of this Report.

The 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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Valuation of Long‑Lived and Intangible Assets and Goodwill

The company accounts for business combinations using the acquisition method and accordingly, the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree are generally recorded at their acquisition date fair values. At acquisition, we estimate and record the fair value of purchased intangible assets, which primarily consist of customer relationships, trademarks and trade names, and patents, developed technology and intellectual property. Intangible assets acquired through business combinations are subject to potential adjustments within the measurement period, which is up to one year from the acquisition date.

Valuing intangible assets requires the use of significant estimates and assumptions. Significant estimates and assumptions used in valuing customer relationships include but are not limited to: (i) forecasted revenues attributable to existing customers; (ii) forecasted margins; (iii) customer attrition rates; and (iv) the discount rate. Identifiable intangible assets with finite lives are amortized over their useful lives generally on a straight-line basis.

Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. The primary drivers that generate goodwill are the value of synergies between the acquired entities and the company and the acquired assembled workforce, neither of which qualifies as a separately identifiable intangible asset. Goodwill and certain other intangible assets having indefinite lives are not amortized to earnings, but instead are subject to periodic testing for impairment. Intangible assets determined to have definite lives are amortized over their remaining useful lives. We believe that the fair value of acquired identifiable net assets, including intangible assets, are based upon reasonable estimates and assumptions.

We assess long‑lived assets, identifiable intangible assets and goodwill for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. With respect to goodwill and identifiable intangible assets having indefinite lives, we test for impairment on an annual basis or in interim periods if an event occurs or circumstances change that may indicate the fair value is below its carrying amount. Factors we consider important, which could trigger an impairment review, include the following: (a) significant underperformance relative to expected historical or projected future operating results; (b) significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and (c) significant negative industry or economic trends. We review the fair values using the discounted cash flows method and market multiples.

When performing our evaluation of goodwill for impairment, if we conclude qualitatively that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then a quantitative impairment test would not be required. If we are unable to reach this conclusion, then we would perform a quantitative impairment test. In performing the quantitative impairment test, the fair value of the reporting unit is compared to its carrying amount. A charge for impairment is recognized by the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

Identifiable intangible assets having indefinite lives are reviewed for impairment on an annual basis using a methodology similar with that used to evaluate goodwill. Intangible assets having definite lives and other long-lived assets are reviewed for impairment whenever events such as product discontinuance, plant closures, product dispositions or other changes in circumstances indicate that the carrying amount may not be recoverable. In reviewing intangible assets having definite lives and other long-lived assets for impairment, we compare the carrying value of such assets to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference between the assets fair value and their carrying value.

There are inherent assumptions and estimates used in developing future cash flows requiring our judgment in applying these assumptions and estimates to the analysis of identifiable intangibles and long‑lived asset impairment including projecting revenues, interest rates, tax rates and the cost of capital. Many of the factors used in assessing fair value are outside our control and it is reasonably likely that assumptions and estimates will change in future periods. These changes can result in future impairments. In the event our planning assumptions were modified resulting in impairment to our assets, we would be required to include an expense in our statement of operations, which could materially impact our business, financial condition and results of operations.

Asbestos Litigation

In evaluating our potential asbestos-related liability, we have considered various factors including, among other things, an actuarial study of the asbestos related liabilities performed by an independent actuarial firm, our settlement amounts and whether there are any co-defendants, the jurisdiction in which lawsuits are filed, and the status and results of such claims.

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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: (i) historical data available from publicly available studies; (ii) an analysis of our recent claims history to estimate likely filing rates into the future; (iii) an analysis of our currently pending claims; (iv) an analysis of our settlements and awards of asbestos-related damages to date; and (v) an analysis of closed claims with pay ratios and lag patterns in order to develop average future settlement values. Based on the information contained in the actuarial study and all other available information considered by us, we have concluded that no amount within the range of settlement payments and awards of asbestos-related damages was more likely than any other and, therefore, in assessing our asbestos liability we compare the low end of the range to our recorded liability to determine if an adjustment is required. Future legal costs are expensed as incurred and reported in earnings (loss) from discontinued operations in the accompanying statement of operations.

We plan to perform an annual actuarial evaluation during the third quarter of each year for the foreseeable future and whenever events or changes in circumstances indicate that additional provisions may be necessary. Given the uncertainties associated with projecting such matters into the future and other factors outside our control, we can give no assurance that additional provisions will not be required. We will continue to monitor events and changes in circumstances surrounding these potential liabilities in determining whether to perform additional actuarial evaluations and whether additional provisions may be necessary. 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. See Note 23, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements in Item 8 of this Report for additional information.

Recently Issued Accounting Pronouncements

For a detailed discussion on recently issued accounting pronouncements and their impact on our consolidated financial statements, see Note 1, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Item 8 of this Report.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 each of the fiscal years in the three-year period ended December 31, 2023.

Consolidated net sales for 2023 were $1,358.3 million, a decrease of $13.5 million, or 1% compared to net sales of $1,371.8 million in 2022; while consolidated net sales for 2022 increased $73 million, or 5.6%, compared to net sales of
$1,298.8 million in 2021.  Consolidated net sales decreased in our Vehicle Control and Temperature Control operating segments, while net sales in our Engineered Solutions operating segment increased when compared to the comparable period in the
prior year.

Our net sales performance in 2023 reflects the impact of multiple factors including:

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Gross margins as a percentage of net sales in 2023 was 28.6% as compared to 27.9% in 2022.  The gross margin percentages in 2023 increased year-over-year in each of our Vehicle Control, Temperature Control and Engineered Solutions operating
segments.  Overall, the gross margin increase as a percentage of sales in 2023 reflects the positive impact of increased pricing, improved operating performance, and the favorable customer sales mix in Engineered Solutions, which more than offset
ongoing inflationary increases in certain raw materials, labor and transportation costs, as well as the lower fixed cost absorption due to lower production levels than those achieved in 2022 as we worked down inventory levels, and the weakening
of the U.S. dollar on our international operations.  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.

Operating margin as a percentage of net sales in 2023 was 6.8% as compared to 7.6% in 2022.  Included in our operating margin were selling, general and administrative expenses (“SG&A”) of $293.6 million, or 21.6% of net sales in 2023,
$276.6 million, or 20.2% of net sales in 2022, and $247.5 million, or 19.1% of net sales in 2021.  The higher SG&A expenses in 2023 is principally due to the impact of (1) higher interest rate related costs of $14 million incurred in our
supply chain financing arrangements and (2) higher distribution costs, all of which more than offset the positive 2023 comparative impact of the $7 million charge recorded in 2022 to reduce our outstanding accounts receivable balance from a
customer that filed for bankruptcy in the first quarter of 2023 to our estimated recoverable amount.  Excluding the impact of the incremental interest rate costs incurred in our supply chain financing arrangements, SG&A expenses in the year
ended December 31, 2023 were 20.6% of consolidated net sales, just slightly higher than the percentage in the comparable prior year period.

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

New Distribution Facility in Shawnee, Kansas

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

Impact of Russia’s Invasion of the Ukraine

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.

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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.

Comparison of Results of Operations For Fiscal Years 2023 and 2022

Sales.  Consolidated net sales for 2023 were $1,358.3 million, a decrease of $13.5 million, or 1%, compared to $1,371.8 million in the same
period of 2022, with the majority of our net sales to customers located in the United States.  Consolidated net sales decreased in our Vehicle Control and Temperature Control operating segments, while net sales in our Engineered Solutions
operating segment increased when compared to the comparable period in the prior year.

The following table summarizes consolidated net sales by segment and by major product group within each segment for the years ended December 31, 2023 and 2022 (in thousands):

Vehicle Control’s net sales for the year ended December 31, 2023 decreased $12.7 million, or 1.7%, to $737.9 million compared to $750.6 million in the same period of 2022.  The decrease in net sales in our Vehicle Control operating segment
reflects the impact of lower sales to a customer that filed for bankruptcy in the first quarter of 2023, as well as the negative impact of lower customer pipeline orders in 2023 and softer fourth quarter sales.

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Temperature Control’s net sales for the year ended December 31, 2023 decreased $13.4 million, or 3.8%, to $337.8 million compared to $351.2 million in the same period of 2022.  The lower year-over-year Temperature Control net sales reflects
the impact of a slow start to the season caused by a rainy spring and cool early summer temperatures across key markets which negatively impacted first and second quarter 2023 net sales.  After the slow start to the season, demand increased
significantly in the third quarter of 2023 as summer temperatures increased.  The result was strong third quarter 2023 net sales, which was not enough to offset the slow start to the season. Demand for our Temperature Control products may vary
significantly with summer weather conditions and customer inventory levels.

Engineered Solutions’ net sales for the year ended December 31, 2023 increased $12.6 million, or 4.7%, to $282.6 million compared to $270 million in the same period of 2022.  Overall, net sales in our Engineered Solutions operating segment
showed year-over-year improvement driven by strong demand and new business wins, and we continue to be optimistic about the long-term growth potential of the complementary markets served in our newly created Engineered Solutions operating
segment.

Gross Margins.  Gross margins, as a percentage of consolidated net sales, increased to 28.6% for 2023, compared to 27.9% for 2022.  The following table summarizes gross margins by
segment for the years ended December 31, 2023 and 2022, respectively (in thousands):

Compared to 2022, gross margins at Vehicle Control increased 1.4 percentage points from 30.9% to 32.3%. Gross margins at Temperature Control increased 0.2 percentage points from 28.2% to 28.4%, and gross margins at Engineered Solutions
increased 0.4 percentage points from 19% to 19.4%.

The gross margin percentage increase in our Vehicle Control operating segment reflects the positive impact of increased pricing and operating performance, which more than offset increases in material and labor costs, as well as the lower fixed
cost absorption due to lower production levels than those achieved in the same period in 2022.  The gross margin percentage increase in our Temperature Control operating segment reflects the impact increased pricing and operating performance;
while the gross margin percentage increase at our Engineered Solutions operating segment is driven primarily by favorable customer sales mix and increased pricing.  All of our operating segments were negatively impacted by the ongoing
inflationary cost increases in certain raw materials, labor and transportation expenses.  While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost savings initiatives coupled with our
ability to pass through higher prices to our customers should help to offset much of this impact to our gross margins.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses (“SG&A”) increased to $293.6 million, or 21.6% of consolidated net sales in 2023, as
compared to $276.6 million, or 20.2% of consolidated net sales in 2022.  The $17 million increase in SG&A expenses as compared to 2022 is principally due to the impact of (1) higher interest related costs of $14 million incurred in our supply
chain financing arrangements and (2) higher distribution cost, all of which more than offset the positive 2023 comparative impact of the $7 million charge recorded in 2022 to reduce our outstanding accounts receivable balance from one of our
customers that filed a petition for bankruptcy in January 2023 to our estimated recovery amount.  Excluding the impact of the incremental interest rate costs incurred in our supply chain financing arrangements, SG&A expenses in 2023 were
20.6% of consolidated net sales, slightly higher than the percentage in the comparable prior year period.

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Restructuring and Integration Expenses.  Restructuring and integration expenses were $2.6 million in 2023 compared to restructuring and integration expenses of $1.9 million in 2022.
Restructuring and integration expenses in 2023 consists of (1) the $2.5 million of costs incurred in our 2022 cost reduction initiative, and (2) the $0.1 million increase in environmental cleanup costs for ongoing remediation in connection with
the prior closure of our manufacturing operations at our Long Island City, New York location; while 2022 expenses consists of (1) costs of $1.5 million incurred in our 2022 cost reduction initiative, (2) relocation expenses of $0.2 million of
certain inventory, machinery, and equipment acquired in our 2021 soot sensor acquisition to our facilities in Independence, Kansas and Bialystok, Poland, and (3) the $0.2 million increase in environmental cleanup costs for ongoing remediation in
connection with the prior closure of our manufacturing operations at our Long Island City, New York location.

During the fourth quarter of 2022, to further our ongoing efforts to improve operating efficiencies and reduce costs, we announced plans for a reduction in our sales force, and initiated plans to relocate certain product lines from our
Independence, Kansas manufacturing facility and from our St. Thomas, Canada manufacturing facility to our manufacturing facilities in Reynosa, Mexico.  Total restructuring and integration expenses related to the initiative were $2.5 million and
$1.5 million 2023 and 2022, respectively.  Expenses related to the initiative for the year ended December 31, 2023 consist of (1) expenses of approximately $0.7 million related to a further sales force reduction, (2) expenses of $1.3 million of
employee severance and bonuses related to our product line relocations, and (3) expenses of $0.5 million related to the relocation of machinery and equipment to our manufacturing facilities in Reynosa, Mexico.  Expenses related to the initiative
for the year ended December 31, 2022 consist of (1) expenses of $0.9 million related to our sales force reduction, and (2) expenses of $0.6 million consisting of employee severance related to our product line relocations.  Additional
restructuring costs related to the initiative, and expected to be incurred, are approximately $0.5 million.  We anticipate that the Cost Reduction Initiative will be completed by the end of the second quarter of 2024.

Operating Income.  Operating income was $92.7 million, or 6.8%, of consolidated net sales in 2023, compared to $104.1 million, or 7.6%, of consolidated net sales in 2022.  The
year-over-year decrease in operating income of $11.4 million is the result of lower net sales, higher SG&A expenses, consisting primarily of higher interest rate related costs of $14 million incurred in our supply chain financing
arrangements, and higher restructuring and integration expenses offset, in part, by higher gross margins as a percentage of sales.

Other Non-Operating Income (Expense), Net.  Other non-operating income, net was $2.3 million in 2023, compared to $4.8 million in 2022.  The year-over-year decrease in other
non-operating income, net results from the decrease in year-over-year equity income from our joint ventures, and the unfavorable impact of changes in foreign currency exchange rates.  The decline in equity income from our joint ventures is due,
in part, to lower production levels related to inventory reduction plans, and the impact of our acquisition of an additional 15% equity interest in Gwo Yng.  Commencing in July 2023, on the date of our 15% increase in equity interest, the
financial results of Gwo Yng were no longer accounted for under the equity method of accounting.  Instead, Gwo Yng’s financial results were reported on a consolidated basis, resulting in lower joint venture equity income.

Interest Expense.  Interest expense increased to $13.3 million in 2023, compared to $10.6 million in 2022.  The year-over-year increase in interest expense reflects the impact of
higher year-over-year average interest rates on our credit facilities when compared to 2022, which more than offset the impact of lower average outstanding balances.

Income Tax Provision.  The income tax provision for 2023 was $18.4 million at an effective tax rate of 22.5%, compared to $25.2 million at an
effective tax rate of 25.6% in 2022.  The lower effective tax rate in 2023 compared to 2022 reflects the impact of lower state and local income taxes due to changes in state laws, rates and filing methodologies, changes in foreign and domestic
mix, and the effective rate impact of lower year-over-year pre-tax income.

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Loss From Discontinued Operations.  Loss from discontinued operations, net of income tax, reflects information contained in the actuarial studies performed as of August 31, 2023 and
2022, as well as other information available and considered by us, and legal expenses and other costs associated with our asbestos-related liability.  During the years ended December 31, 2023 and 2022, we recorded a net loss of $29 million and
$17.7 million from discontinued operations, respectively.  The loss from discontinued operations for the year ended December 31, 2023 and 2022 includes (1) a $23.8 million and $18.5 million pre-tax provision, respectively, to increase our
indemnity liability in line with the 2023 and 2022 actuarial studies; (2) legal and other miscellaneous expenses, before taxes, of $4.9 million and $5.4 million for 2023 and 2022, respectively, and (3) a $10.5 million pre-tax provision in 2023
related to a breach of contract legal proceeding.  As discussed more fully in Note 23 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements in Item 8 of this Report, we are responsible for certain future liabilities
relating to alleged exposure to asbestos containing products.

Net Earnings Attributable to Noncontrolling Interest.  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 $204,000 and $84,000 during the years ended December 31, 2023 and 2022, respectively. For additional information on the Gwo Yng step acquisition, see Note 2, “Business Acquisitions and Investments,” in the notes to our consolidated
financial statements (unaudited).

Comparison of Results of Operations For Fiscal Years 2022 and 2021

Sales.  Consolidated net sales for 2022 were $1,371.8 million, an increase of $73 million, or 5.6%, compared to $1,298.8 million in the same
period of 2022, with the majority of our net sales to customers located in the United States.  Consolidated net sales increased across all of 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 years ended December 31, 2022 and 2021 (in thousands):

Vehicle Control’s net sales for the year ended December 31, 2022 increased $13.2 million, or 1.8%, to $750.6 million compared to $737.4 million in the same period of 2021.  The increase in net sales in our Vehicle Control operating segment
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.

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Temperature Control’s net sales for the year ended December 31, 2022 increased $27.1 million, or 8.4%, to $351.2 million compared to $324.1 million in the same period of 2021.  The increase in net sales in our Temperature Control segment
reflects the impact of continued strong customer demand, with the elevated demand we saw in 2021 holding firm, fueled by record heat across the country in 2022 and the replenishment of customer inventory levels after very warm summer conditions
in 2021, and the impact of price increases, which were implemented to pass through inflationary increases in raw materials, distribution and labor costs.  Demand for our Temperature Control products may vary significantly with summer weather
conditions and customer inventory levels.

Engineered Solutions’ net sales for the year ended December 31, 2022 increased $32.7 million, or 13.8%, to $270 million compared to $237.3 million in the same period of 2021.  The increase in net sales in our Engineered Solutions operating
segment reflects the impact of the positive contribution of incremental sales from our soot sensor, Trombetta and Stabil acquisitions of $44.6 million.  Compared to the year ended December 31, 2021, excluding the incremental net sales from the
acquisitions, Engineered Solutions net sales decreased $11.9 million, or 5%.

Gross Margins.  Gross margins, as a percentage of consolidated net sales, decreased to 27.9% for 2022, compared to 29% for 2021.  The following table summarizes gross margins by
segment for the years ended December 31, 2022 and 2021, respectively (in thousands):

Compared to 2021, gross margins at Vehicle Control decreased 1.5 percentage points from 32.4% to 30.9%, gross margins at Temperature Control decreased 0.1 percentage points from 28.3% to 28.2%, and gross margins at Engineered Solutions
decreased 1.6 percentage points from 19.6% to 19%.

The gross margin percentage decrease in Vehicle Control 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, and higher freight and related expenses resulting from higher inventory levels. The slight gross margin percentage decrease in Temperature Control compared to the prior year
reflects the impact of inflationary cost increases in raw materials, labor and transportation, and higher freight and related expenses resulting from higher inventory levels, which were offset by seasonal volume, customer mix and increased
pricing.  The gross margin percentage decrease in Engineered Solutions compared to the prior year reflects the impact of inflationary cost increases in raw materials, labor and transportation.  While we anticipate continued margin pressures
across all of our segments resulting from inflationary cost increases, we believe that our annual cost initiatives, and our ability to pass through higher prices to our customers, will help to offset the impact of the inflationary increases on
our margins.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses (“SG&A”) increased to $276.6 million, or 20.2% of consolidated net sales in 2022, as
compared to $247.5 million, or 19.1% of consolidated net sales in 2021.  The $29.1 million increase in SG&A expenses as compared to 2021 is principally due to the impact of (1) higher interest related costs of $20.6 million incurred in our
supply chain financing arrangements, (2) the impact of the $7 million charge recorded in 2022 to reduce our outstanding accounts receivable balance from one of our customers that filed a petition for bankruptcy in January 2023 to our estimated
recovery amount, (3) incremental expenses of $7.2 million from our soot sensor, Trombetta and Stabil acquisitions, including amortization of intangible assets acquired, and (4) inflationary cost increases resulting in higher distribution and
freight costs.  SG&A expenses in 2022 were favorably impacted by the higher mix of non-aftermarket parts sales from recent acquisitions, which have a different profile than our aftermarket business with lower SG&A expenses as a percentage
of sales.

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Restructuring and Integration Expenses.  Restructuring and integration expenses were $1.9 million in 2022 compared to restructuring and integration expenses of $0.4 million in 2021.
Restructuring and integration expenses incurred in 2022 of $1.9 million related to (1) severance costs of $0.9 million in connection with a reduction in our sales force, (2) expenses of $0.6 million consisting of employee severance costs related
to our product line relocations from our Independence, Kansas manufacturing facility and from our St. Thomas, Canada manufacturing facility to our manufacturing facilities in Reynosa, Mexico, (3) relocation expenses of $0.2 million of certain
inventory, machinery, and equipment acquired in our 2021 soot sensor acquisition to our facilities in Independence, Kansas and Bialystok, Poland, and (4) the $0.2 million increase in environmental cleanup costs for ongoing monitoring and
remediation in connection with the prior closure of our manufacturing operations at our Long Island City, New York location.

Restructuring and integration expenses incurred in 2021 of $0.4 million related to the relocation of certain inventory, machinery, and equipment acquired in our 2021 soot sensor acquisition to our facilities in Independence, Kansas and
Bialystok, Poland.  The soot sensor product line relocation has been completed.

Operating Income.  Operating income was $104.1 million, or 7.6%, of consolidated net sales in 2022, compared to $129 million, or 9.9%, of consolidated net sales in 2021.  The
year-over-year decrease in operating income of $24.9 million is the result of higher SG&A expenses driven primarily by the increased interest rate costs incurred in our supply chain financing arrangements, and to a lesser extent by the impact
of lower gross margins as a percentage of consolidated net sales and higher restructuring and integration costs offset, in part, by higher consolidated net sales.

Other Non-Operating Income (Expense), Net.  Other non-operating income, net was $4.8 million in 2022, compared to $3.5 million in 2021.  The year-over-year increase in other
non-operating income, net results primarily from the favorable impact of changes in foreign currency exchange rates, and to a lesser extent the increase in year-over-year equity income from our joint ventures.

Interest Expense.  Interest expense increased to $10.6 million in 2022, compared to $2 million in 2021.  The year-over-year increase in interest expense reflects the impact of higher
average outstanding borrowings in 2022 when compared to 2021, and the impact of higher year-over-year average interest rates on our credit facilities.

Income Tax Provision.  The income tax provision for 2022 was $25.2 million at an effective tax rate of 25.6%, compared to $31 million at an
effective tax rate of 23.8% in 2021.  The higher effective tax rate in 2022 compared to 2021 results primarily from the income tax provision impact related to the exercise of restricted stock.

Loss From Discontinued Operations.  Loss from discontinued operations, net of income tax, reflects information contained in the actuarial studies performed as of August 31, 2022 and
2021, as well as other information available and considered by us, and legal expenses and other costs associated with our asbestos-related liability.  During the years ended December 31, 2022 and 2021, we recorded a net loss of $17.7 million and
$8.5 million from discontinued operations, respectively.  The loss from discontinued operations for the year ended December 31, 2022 and 2021 includes an $18.5 million and $5.3 million pre-tax provision, respectively, to increase our indemnity
liability in line with the 2022 and 2021 actuarial studies; and legal expenses and other miscellaneous expenses, before taxes, of $5.4 million and $6.1 million for 2022 and 2021, respectively.  As discussed more fully in Note 23 “Commitments and
Contingencies” of the Notes to Consolidated Financial Statements in Item 8 of this Report, we are responsible for certain future liabilities relating to alleged exposure to asbestos containing products.

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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 $84,000 and $68,000 during the years ended December 31, 2022 and 2021, respectively,
represents 30% of the net earnings of Trombetta Asia, Ltd.

Restructuring and Integration Programs

For a detailed discussion on the restructuring and integration costs, see Note 3, “Restructuring and Integration Expense,” of the Notes Consolidated Financial Statements in Item 8 of this Report.

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.

Operating Activities.  During 2023, cash provided by operating activities was $144.3 million compared to cash used in operating activities of $27.5 million in 2022.  The increase in
cash provided by operating activities resulted primarily from the larger year-over-year decrease in accounts receivable, the decrease in inventories compared to an increase in inventories in the prior year, the increase in accounts payable
compared to a decrease in accounts payable in the prior year, no change in prepaid expenses and other current assets compared to an increase in prepaid expenses and other current assets in the prior year, and the smaller year-over-year decrease
in sundry payables and accrued expenses offset, in part, by the decrease in net earnings.

Net earnings during 2023 were $34.4 million compared to $55.4 million in 2022.  During 2023, (1) the decrease in accounts receivable was $8 million compared to the year-over-year decrease in accounts receivable of $6.9 million in 2022; (2) the
decrease in inventories was $29.5 million compared to the year-over-year increase in inventories of $67.5 million in 2022; (3) the increase in accounts payable was $19.6 million compared to the year-over-year decrease in accounts payable of $48.6
million in 2022; (4) there was no change in prepaid expenses and other current assets compared to the year-over-year increase in prepaid expenses and other current assets of $5.5 million in 2022; and (5) the decrease in sundry payables and
accrued expenses was $4.3 million compared to the year-over-year decrease in sundry payables and accrued expenses of $29.1 million in 2022.  During 2023, we generated operating cash flow of $144.3 million by reducing our inventory to more
normalized levels while actively managing our accounts receivable and accounts payable.  We will continue to manage our working capital to maximize our operating cash flow.  Now that global supply chains have stabilized, allowing us to lower
working capital in 2023, we expect cash flows from operations will return to historical levels in 2024.

Investing Activities.  Cash used in investing activities was $25.7 million in 2023 compared to $27.8 million in 2022.  Investing activities
during 2023 consisted of (1) the payment of $4 million for our acquisition of an additional 15% equity interest in Foshan GWO YNG SMP Vehicle Climate Control & Cooling Products Co., Ltd. (“Gwo Yng”) and (2) capital expenditures of $28.6
million offset, in part, by cash acquired of $6.8 million in the Gwo Yng step acquisition.

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Investing activities during 2022 consisted of (1) the cash payment of $1.7 million for our acquisition of 100% of the capital stock of Kade Trading GmbH, a German company, (“Kade”) , net of $1 million of cash acquired and the $0.5 million
earn-out; (2) the payment of $0.2 million for our 3.55% increase in equity ownership in Foshan Che Yijia New Energy Technology Co., Ltd., (“CYJ”), a China-based joint venture that manufactures automotive electric air conditioning compressors; and
(3) capital expenditures of $26 million.

Financing Activities.  Cash used in financing activities was $109.6 million in 2023 compared to cash provided by financing activities of $55.5
million in 2022.  During 2023, we (1) reduced our borrowings under our Credit Agreement by $83.5 million; and (2) paid dividends of $25.2 million and $0.7 million to shareholders of our noncontrolling interests, respectively.  Cash provided by
our operating activities was used to reduce our borrowings under our Credit Agreement, fund our investing activities and pay dividends.

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.

Cash provided by financing activities was $55.5 million in 2022.  During 2022, we (1) increased our borrowings under our revolving credit facilities by $114.2 million; (2) reduced our borrowings under lease obligations and our Polish overdraft
facility by $2.9 million; (3) made cash payments of $2.1 million for debt issuance costs in connection with our refinancing; (4) made cash payments for the repurchase of shares of our common stock of $29.7 million; and (5) paid dividends of $23.4
million.  Cash provided by borrowings under our credit facilities were used to fund our operating activities, investing activities, reduce our borrowings under lease obligations and our Polish overdraft facility, pay debt issuance costs in
connection with the refinancing, purchase shares of our common stock and pay dividends.

Dividends of $25.2 million and $23.4 million were paid in 2023 and 2022, respectively.  Quarterly dividends were paid at a rate of $0.29 in 2023 and $0.27 in 2022.

Comparison of Liquidity and Capital Resources For Fiscal Years 2022 and 2021

For a detailed discussion of our Liquidity and Capital Resources comparison of fiscal year 2022 to fiscal year 2021, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2022.

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, we entered into a new Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (the “Credit Agreement”).  The Credit Agreement provides for a $500 million credit facility comprised of a
$100 million term loan facility (the “term loan”) and a $400 million multi-currency revolving credit facility available in U.S. Dollars, Euros, Sterling, Swiss Francs, Canadian Dollars and other currencies as agreed to by the administrative agent
and the lenders (the “revolving facility”).  The Credit Agreement replaces and refinances the existing Credit Agreement, dated as of October 28, 2015, among the Company, SMP Motor Products Ltd. and Trumpet Holdings, Inc., as borrowers, JPMorgan
Chase Bank, N.A., as administrative agent and lender, and the other lenders named therein (the “2015 Credit Agreement”).

Borrowings under the Credit Agreement were used to repay all outstanding borrowings under the 2015 Credit Agreement, and pay certain fees and expenses incurred in connection with the Credit Agreement, with future borrowings used for other
general corporate purposes of the Company and its subsidiaries.  The term loan amortizes in quarterly installments of 1.25% in each of the first four years, and quarterly installments of 2.5% in the fifth year of the Credit Agreement.  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.

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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 December 31, 2023 under the Credit Agreement were $156 million, consisting of current borrowings of $5 million and long-term debt of $151 million; while outstanding borrowings at December 31, 2022 were $239.5 million,
consisting of current borrowings of $55 million and long-term debt of $184.5 million.  Letters of credit outstanding under the Credit Agreement were $2.3 million and $2.4 million at December 31, 2023 and 2022, respectively.

At December 31, 2023, the weighted average interest rate under our Credit Agreement was 5%, which consisted of $156 million in borrowings at 5% under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100 million of
borrowings.  At December 31, 2022, the weighted average interest rate under our Credit Agreement was 5.2%, which consisted of $237 million in borrowings at 5.2% under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100
million of borrowings, and an alternative base rate borrowing of $2.5 million at 8%.  During the year ended December 31, 2023, our average daily alternative base rate loan balance was $0.1 million, compared to a balance of $5.6 million for the
year ended December 31, 2022.

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

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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 Zloty 30 million (approximately $7.6 million) if borrowings are solely in Zloty, or up to 85% of the Zloty 30 million limit
(approximately $6.5 million) if borrowings are in Euros and/or U.S. Dollars.  The overdraft facility has a maturity date in March 2024, with automatic three-month renewals until June 2027, subject to cancellation by either party, at its sole
discretion, at least 30 days prior to the commencement of the three-month renewal period.  Borrowings under the amended overdraft facility will bear interest at a rate equal to (1) the one month Warsaw Interbank Offered Rate (“WIBOR”) + 1.0% for
borrowings in Polish Zloty, (2) the one month Euro Interbank Offered Rate (“EURIBOR”) + 1.0% for borrowings in Euros, and (3) the Mid-Point of the Fed Target Range + 1.25% for borrowings in U.S Dollars.  Borrowings under the overdraft facility
are guaranteed by Standard Motor Products, Inc., the ultimate parent company.  There were no borrowings outstanding under the overdraft facility at both December 31, 2023 and December 31, 2022.

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 $830.8 million and $813.7 million of receivables for the years ended December 31, 2023 and 2022, respectively. Receivables presented at financial institutions and not yet collected as of December 31, 2023
were $4.5 million and remained in our receivable balance as of that date. There were no receivables presented at financial institutions and not yet collected as of December 31, 2022.  All receivables sold were reflected as a reduction of accounts
receivable in the consolidated balance sheet at the time of sale.  A charge in the amount of $46 million, $32 million and $11.5 million related to the sale of receivables is included in selling, general and administrative expenses in our
consolidated statements of operations for the years ended December 31, 2023, 2022 and 2021, respectively.

To the extent that these arrangements are terminated, our financial condition, results of operations, cash flows and liquidity could be adversely affected by extended payment terms, delays or failures in collecting trade accounts receivables.
The utility of the supply chain financing arrangements also depends upon a benchmark reference rate for the purpose of determining the discount rate applicable to each arrangement. If the benchmark reference rate increases significantly, we may
be negatively impacted as we may not be able to pass these added costs on to our customers, which could have a material and adverse effect upon our financial condition, results of operations and cash flows.

In January 2023, one of our customers filed a petition for bankruptcy.  In connection with the bankruptcy filing, we evaluated our potential risk and exposure as related to our outstanding accounts receivable balance from the customer as of
December 31, 2022, and estimated our anticipated recovery.  As a result of our evaluation, we recorded a $7 million pre-tax charge during the year ended December 31, 2022 to reduce our accounts receivable balance to our estimated recovery.  The
$7 million pre-tax charge was included in selling, general and administrative expenses in our consolidated statement of operations.  The bankruptcy court proceedings have continued into 2023.  Although the courts have named us a “critical
supplier,” the funds allocated to us have not yet been determined and, as such, we have not recorded an adjustment to the $7 million pre-tax charge previously recorded.

In March 2020, our Board of Directors authorized the purchase of up to $20 million of our common stock under a stock repurchase program.  Stock repurchases under this program during the year ended December 31, 2021 were 150,273 shares of our
common stock at a total cost of $6.5 million thereby completing the 2020 Board of Directors authorization.

In February 2021, our Board of Directors authorized the purchase of up to an additional $20 million of our common stock under a stock repurchase program.  Stock repurchases under this program during the year ended December 31, 2021 were
464,992 shares of our common stock at a total cost of $20 million, thereby completing the February 2021 Board of Directors authorization.

In October 2021, our Board of Directors authorized the purchase of up to an additional $30 million of our common stock under a stock repurchase program.  Stock repurchases under this program, during the year ended December 31, 2021 and 2022
were 7,000 and 692,067 shares of our common stock, respectively, at a total cost of $0.3 million and $29.7 million, respectively, thereby completing the October 2021 Board of Directors authorization.

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In July 2022, our Board of Directors authorized the purchase of up to an additional $30 million of our common stock under a new stock repurchase program. Stock will be purchased under the program from time to time, in the open market or
through private transactions, as market conditions warrant.  To date, there have been no repurchases of our common stock under the program.

Material Cash Commitments

Material cash commitments as of December 31, 2023 consist of required cash payments to service our outstanding borrowings of $156 million under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent and the future minimum cash
requirements of $131.7 million through 2034 under operating leases.  All of our other cash commitments as of December 31, 2023 are not material.  For additional information related to our material cash commitments, see Note 7, “Leases,” and Note
11, “Credit Facilities and Long-Term Debt,” of the Notes to Consolidated Financial Statements in Item 8 of this Report.

We anticipate that our cash flow from operations, available cash, and available borrowings under our 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 this Report.

Critical Accounting Policies and Estimates

We have identified the two accounting policies and estimates below 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.  For a detailed discussion
on the application of these and other accounting policies, see Note 1, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Item 8 of this Report.

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

Valuation of Long‑Lived and Intangible Assets and Goodwill

At acquisition, we estimate and record the fair value of purchased intangible assets, which primarily consist of customer relationships, trademarks and trade names, patents, developed technology and intellectual property, and non-compete
agreements.  Intangible assets acquired through business combinations are subject to potential adjustments within the measurement period, which is up to one year from the acquisition date.  Valuing intangible assets requires the use of
significant estimates and assumptions.  As related to valuing customer relationships, significant estimates and assumptions used include but are not limited to: (1) forecasted revenues attributable to existing customers; (2) forecasted earnings
before interest and taxes (“EBIT”) margins; (3) customer attrition rates; and (4) the discount rate.  Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations.  Goodwill and
certain other intangible assets having indefinite lives are not amortized to earnings, but instead are subject to periodic testing for impairment.  Intangible assets determined to have definite lives are amortized over their remaining useful
lives.  We believe that the fair value of acquired identifiable net assets, including intangible assets, are based upon reasonable estimates and assumptions.

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We assess the impairment of long‑lived assets, identifiable intangibles assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  With respect to goodwill and identifiable
intangible assets having indefinite lives, we test for impairment on an annual basis or in interim periods if an event occurs or circumstances change that may indicate the fair value is below its carrying amount.  Factors we consider important,
which could trigger an impairment review, include the following: (a) significant underperformance relative to expected historical or projected future operating results; (b) significant changes in the manner of our use of the acquired assets or
the strategy for our overall business; and (c) significant negative industry or economic trends.  We review the fair values using the discounted cash flows method and market multiples.

When performing our evaluation of goodwill for impairment, if we conclude qualitatively that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then a quantitative impairment test would
not be required.  If we are unable to reach this conclusion, then we would perform a goodwill quantitative impairment test.  In performing the quantitative test, the fair value of the reporting unit is compared to its carrying amount.  A charge
for impairment is recognized by the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

Identifiable intangible assets having indefinite lives are reviewed for impairment on an annual basis using a methodology similar with that used to evaluate goodwill.  Intangible assets having definite lives and other long-lived assets are
reviewed for impairment whenever events such as product discontinuance, plant closures, product dispositions or other changes in circumstances indicate that the carrying amount may not be recoverable.  In reviewing for impairment, we compare the
carrying value of such assets to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition.  When the estimated undiscounted future cash flows are less than their carrying amount, an
impairment loss is recognized equal to the difference between the assets fair value and their carrying value.

There are inherent assumptions and estimates used in developing future cash flows requiring our judgment in applying these assumptions and estimates to the analysis of identifiable intangibles and long‑lived asset impairment including
projecting revenues, interest rates, tax rates and the cost of capital.  Many of the factors used in assessing fair value are outside our control and it is reasonably likely that assumptions and estimates will change in future periods.  These
changes can result in future impairments.  In the event our planning assumptions were modified resulting in impairment to our assets, we would be required to include an expense in our statement of operations, which could materially impact our
business, financial condition and results of operations.

Asbestos Litigation

In evaluating our potential asbestos-related liability, we have considered various factors including, among other things, an actuarial study of the asbestos related liabilities performed by an independent actuarial firm, our settlement amounts
and whether there are any co-defendants, the jurisdiction in which lawsuits are filed, and the status and results of such claims.  As is our accounting policy, we consider the advice of actuarial consultants with experience in assessing
asbestos-related liabilities to estimate our potential claim liability; and perform an actuarial evaluation in the third quarter of each year and whenever events or changes in circumstances indicate that additional provisions may be necessary.
The methodology used to project asbestos-related liabilities and costs in our actuarial study considered: (1) historical data available from publicly available studies; (2) an analysis of our recent claims history to estimate likely filing rates
into the future; (3) an analysis of our currently pending claims; (4) an analysis of our settlements and awards of asbestos-related damages to date; and (5) an analysis of closed claims with pay ratios and lag patterns in order to develop average
future settlement values.  Based on the information contained in the actuarial study and all other available information considered by us, we have concluded that no amount within the range of settlement payments and awards of asbestos-related
damages was more likely than any other and, therefore, in assessing our asbestos liability we compare the low end of the range to our recorded liability to determine if an adjustment is required.  Future legal costs are expensed as incurred and
reported in earnings (loss) from discontinued operations in the accompanying statement of operations.

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We plan to perform an annual actuarial evaluation during the third quarter of each year for the foreseeable future and whenever events or changes in circumstances indicate that additional provisions may be necessary. Given the uncertainties
associated with projecting such matters into the future and other factors outside our control, we can give no assurance that additional provisions will not be required. We will continue to monitor events and changes in circumstances surrounding
these potential liabilities in determining whether to perform additional actuarial evaluations and whether additional provisions may be necessary, which will reported in earnings (loss) from discontinued operations in the accompanying statement
of operations.  At the present time, however, we do not believe that any additional provisions would be reasonably likely to have a material adverse effect on our liquidity or consolidated financial position.  See Note 23, “Commitments and
Contingencies,” of the Notes to Consolidated Financial Statements in Item 8 of this Report for additional information.

Recently Issued Accounting Pronouncements

For a detailed discussion on recently issued accounting pronouncements and their impact on our consolidated financial statements, see Note 1, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 each of the fiscal years in the three-year period ended December 31, 2022.

Consolidated net sales for 2022 were $1,371.8 million, an increase of $73 million, or 5.6% compared to net sales of $1,298.8 million in 2021, and an increase of $170.2 million, or 15.1%, compared to net sales of $1,128.6 million in 2020.
Consolidated net sales increased in both our Engine Management and Temperature Control Segments.

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

Gross margins as a percentage of net sales in 2022 was 27.9% as compared to 29% in 2021 and 29.8% in 2020.  Although the gross margin percentage decreased in 2022, gross margin dollars increased in 2022 to $382.5 million compared to $376.9
million in 2021 and $336.7 in 2020.  The gross margin decrease as a percentage of sales in 2022 reflects the impact of lower fixed cost absorption due to lower and more normalized production, inflationary cost increases in raw materials, labor
and transportation, which were somewhat offset by increased pricing, the higher mix of non-aftermarket parts sales from recent acquisitions, which have a different profile than our aftermarket business with lower gross margins but comparable
operating margin, and higher freight and related expenses resulting from higher inventory levels.  While we anticipate continued margin pressure resulting from inflationary cost increases, we believe that our annual cost initiatives and our
ability to pass through higher prices to our customers, will help to mitigate the impact of the inflationary increases on our margins.

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Operating margin as a percentage of net sales in 2022 was 7.6% as compared to 9.9% in 2021 and 9.6% in 2020.  Included in our operating margin were selling, general and administrative expenses (“SG&A”) of $276.6 million, or 20.2% of net
sales in 2022, $247.5 million, or 19.1% of net sales in 2021, and $224.7 million, or 19.9% of net sales in 2020.  The higher SG&A expenses in 2022 is principally due to the impact of (1) higher interest rate related costs of $20.6 million
incurred in our supply chain financing arrangements, (2) the impact of the $7 million charge recorded in 2022 to reduce our outstanding accounts receivable balance from one of our customers that filed a petition for bankruptcy in January 2023 to
our estimated recovery amount, (3) incremental expenses of $7.2 million from our soot sensor, Trombetta and Stabil acquisitions, including amortization of intangible assets acquired, and (4) inflationary cost increases resulting in higher
distribution and freight costs.  SG&A expenses in 2022 were favorably impacted by the higher mix of non-aftermarket parts sales from recent acquisitions, which have a different profile than our aftermarket business with lower SG&A
expenses as a percentage of sales.

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

New $500 Million Credit Facility

In June 2022, we entered into a new Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (the “Credit Agreement”). The Credit Agreement provides for a $500 million credit facility comprised of a
$100 million term loan facility (the “term loan”) and a $400 million multi-currency revolving credit facility (the “revolving facility”). Concurrently with our entry into the Credit Agreement, we also entered into a seven year interest rate swap
agreement with Wells Fargo Bank, N.A., Co-Syndication Agent and lender under the Credit Agreement on $100 million of borrowings under the Credit Agreement to manage exposure to interest rate changes. The interest rate swap agreement matures in
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.

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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 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. Additional information on our ESG initiatives can be found under the heading, “Environmental, Social and Governance (ESG) and Human Capital,” in Part I, Item 1 of this
Report, and on our corporate website at ir.smpcorp.com under “Environmental & Social Responsibility” and at smpcares.smpcorp.com. Information on our
corporate websites regarding our ESG initiatives are referenced for general information only and are not incorporated by reference in this Report.

Comparison of Results of Operations For Fiscal Years 2022 and 2021

Sales.  Consolidated net sales for 2022 were $1,371.8 million, an increase of $73 million, or 5.6%, compared to $1,298.8 million in the same
period of 2021, with the majority of our net sales to customers located in the United States.  Consolidated net sales increased in both our Engine Management and Temperature Control Segments.

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

Engine Management’s net sales increased $37.3 million, or 4%, to $975.2 million for the year ended December 31, 2022.  Net sales in ignition, emission control, fuel and safety related system products for the year ended December 31, 2022 were
$824.7 million, an increase of $38.2 million, or 4.9%, compared to $786.5 million in the same period of 2021.  Net sales in the wire and cable product group for the year ended December 31, 2022 were $150.6 million, an decrease of $0.8 million, or
0.5%, compared to $151.4 million in the same period of 2021.  Engine Management’s increase in net sales for the year ended December 31, 2022 compared to the same period in 2021, reflects the impact of the positive contribution of incremental
sales from our soot sensor, Trombetta and Stabil acquisitions, strong customer demand, and price increases implemented in 2022, which were implemented to pass through inflationary increases in raw materials, distribution and labor costs.

Incremental net sales from our soot sensor, Trombetta and Stabil acquisitions of $44.6 million were included in the net sales of the ignition, emission control, fuel and safety related system product group for the year ended December 31,
2022.  Compared to the year ended December 31, 2021, excluding the incremental net sales from the acquisitions, net sales in the ignition, emission control, fuel and safety related product group decreased $6.4 million, or 0.8%, and Engine
Management net sales decreased $7.3 million, or 0.8%.

Temperature Control’s net sales increased $33.9 million, or 9.7%, to $382.3 million for the year ended December 31, 2022.  Net sales in the compressors product group for the year ended December 31, 2022 were $222.5 million, an increase of
$15.8 million, or 7.6%, compared to $206.7 million in the same period of 2021.  Net sales in the other climate control parts group for the year ended December 31, 2022 were $159.8 million, an increase of $18.1 million, or 12.7%, compared to
$141.7 million for the year ended December 31, 2021.  Temperature Control’s increase in net sales for the year ended December 31, 2022, when compared to the same period in 2021, reflects the impact of continued strong customer demand, with the
elevated demand we saw in 2021 holding firm, fueled by record heat across the country in 2022 and the replenishment of customer inventory levels after very warm summer conditions in 2021, and the impact of price increases, which were implemented
to pass through inflationary increases in raw materials, distribution and labor costs.  Demand for our Temperature Control products may vary significantly with summer weather conditions and customer inventory levels.

Gross Margins.  Gross margins, as a percentage of consolidated net sales, decreased to 27.9% for 2022, compared to 29% for 2021.  The following table summarizes gross margins by
segment for the years ended December 31, 2022 and 2021, respectively (in thousands):

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Compared to 2021, gross margins at Engine Management decreased 1.5 percentage points from 28.5% to 27%, while gross margins at Temperature Control decreased 0.5 percentage points from 27.3% to 26.8%.  The gross margin percentage decrease in
Engine Management compared to the prior year reflects the impact of lower fixed cost absorption due to lower and more normalized production, inflationary cost increases in raw materials, labor and transportation, which were somewhat offset by
increased pricing, the higher mix of non-aftermarket parts sales from recent acquisitions, which have a different profile than our aftermarket business with lower gross margins but comparable operating margin, and higher freight and related
expenses resulting from higher inventory levels.

The gross margin percentage decrease in Temperature Control compared to the prior year reflects the impact of inflationary cost increases in raw materials, labor and transportation, and higher freight and related expenses resulting from higher
inventory levels, which were somewhat offset by seasonal volume, customer mix and increased pricing.  While we anticipate continued margin pressures at both Engine Management and Temperature Control resulting from inflationary cost increases, we
believe that our annual cost initiatives, and our ability to pass through higher prices to our customers, will help to offset the impact of the inflationary increases on our margins.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses (“SG&A”) increased to $276.6 million, or 20.2% of consolidated net sales in 2022, as
compared to $247.5 million, or 19.1% of consolidated net sales in 2021.  The $29.1 million increase in SG&A expenses as compared to 2021 is principally due to the impact of (1) higher interest related costs of $20.6 million incurred in our
supply chain financing arrangements, (2) the impact of the $7 million charge recorded in 2022 to reduce our outstanding accounts receivable balance from one of our customers that filed a petition for bankruptcy in January 2023 to our estimated
recovery amount, (3) incremental expenses of $7.2 million from our soot sensor, Trombetta and Stabil acquisitions, including amortization of intangible assets acquired, and (4) inflationary cost increases resulting in higher distribution and
freight costs.  SG&A expenses in 2022 were favorably impacted by the higher mix of non-aftermarket parts sales from recent acquisitions, which have a different profile than our aftermarket business with lower SG&A expenses as a percentage
of sales.

Restructuring and Integration Expenses.  Restructuring and integration expenses were $1.9 million in 2022 compared to restructuring and integration expenses of $0.4 million in 2021.
Restructuring and integration expenses incurred in 2022 of $1.9 million related to (1) severance costs of approximately $0.9 million in connection with a reduction in our sales force, (2) expenses of approximately $0.6 million consisting of
employee severance costs related to our product line relocations from our Independence, Kansas manufacturing facility in our Engine Management Segment and from our St. Thomas, Canada manufacturing facility in our Temperature Control Segment to
our manufacturing facilities in Reynosa, Mexico, (3) relocation expenses of approximately $0.1 million in our Engine Management Segment of certain inventory, machinery, and equipment acquired in our 2021 soot sensor acquisition to our facilities
in Independence, Kansas and Bialystok, Poland, and (4) the $0.2 million increase in environmental cleanup costs for ongoing monitoring and remediation in connection with the prior closure of our manufacturing operations at our Long Island City,
New York location.

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Restructuring and integration expenses incurred in 2021 of $0.4 million related to relocation in our Engine Management Segment of certain inventory, machinery, and equipment acquired in our 2021 soot sensor acquisition to our facilities in
Independence, Kansas and Bialystok, Poland.  The soot sensor product line relocation has been substantially completed.

Operating Income.  Operating income was $104.1 million, or 7.6%, of consolidated net sales in 2022, compared to $129 million, or 9.9%, of consolidated net sales in 2021.  The
year-over-year decrease in operating income of $24.9 million is the result of higher SG&A expenses driven primarily by the increased interest rate costs incurred in our supply chain financing arrangements, and to a lesser extent by the impact
of lower gross margins as a percentage of consolidated net sales and higher restructuring and integration costs offset, in part, by higher consolidated net sales.

Other Non-Operating Income (Expense), Net.  Other non-operating income, net was $4.8 million in 2022, compared to $3.5 million in 2021.  The year-over-year increase in other
non-operating income, net results primarily from the favorable impact of changes in foreign currency exchange rates, and to a lesser extent the increase in year-over-year equity income from our joint ventures.

Interest Expense.  Interest expense increased to $10.6 million in 2022, compared to $2 million in 2021.  The year-over-year increase in interest expense reflects the impact of higher
average outstanding borrowings in 2022 when compared to 2021, and the impact of higher year-over-year average interest rates on our credit facilities.

Income Tax Provision.  The income tax provision for 2022 was $25.2 million at an effective tax rate of 25.6%, compared to $31 million at an
effective tax rate of 23.8% in 2021.  The higher effective tax rate in 2022 compared to 2021 results primarily from the income tax provision impact related to the exercise of restricted stock.

Loss From Discontinued Operations.  Loss from discontinued operations, net of income tax, reflects information contained in the actuarial studies performed as of August 31, 2022 and
2021, as well as other information available and considered by us, and legal expenses and other costs associated with our asbestos-related liability.  During the years ended December 31, 2022 and 2021, we recorded a net loss of $17.7 million and
$8.5 million from discontinued operations, respectively.  The loss from discontinued operations for the year ended December 31, 2022 and 2021 includes an $18.5 million and $5.3 million pre-tax provision, respectively, to increase our indemnity
liability in line with the 2022 and 2021 actuarial studies; and legal expenses and other miscellaneous expenses, before taxes, of $5.4 million and $6.1 million for 2022 and 2021, respectively.  As discussed more fully in Note 23 “Commitments and
Contingencies” of the Notes to Consolidated Financial Statements in Item 8 of this Report, we are responsible for certain future liabilities relating to alleged exposure to asbestos containing products.

Net Earnings Attributable to Noncontrolling Interest.  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 $84,000 and $68,000 during the years ended December 31, 2022 and 2021, respectively,
represents 30% of the net earnings of Trombetta Asia, Ltd.

Comparison of Results of Operations For Fiscal Years 2021 and 2020

For a detailed discussion on the comparison of fiscal year 2021 to fiscal year 2020, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2021.

Restructuring and Integration Programs

For a detailed discussion on the restructuring and integration costs, see Note 3, “Restructuring and Integration Expense,” of the Notes Consolidated Financial Statements in Item 8 of this Report.

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Liquidity and Capital Resources

Operating Activities.  During 2022, cash used in operating activities was $27.5 million compared to cash provided by operating activities of $85.6 million in 2021.  The increase in
cash used in operating activities resulted primarily from the decrease in net earnings, the smaller year-over-year decrease in accounts receivable, the decrease in accounts payable compared to a year-over-year increase in accounts payable,  the
larger year-over-year increase in prepaid expenses and other current assets, and the decrease in sundry payables and accrued expenses compared to a year-over-year increase in sundry payables and accrued expenses offset, in part, by the smaller
year-over-year increase in inventories.

Net earnings during 2022 were $55.4 million compared to $91 million in 2021.  During 2022 (1) the decrease in accounts receivable was $6.9 million compared to the year-over-year decrease in accounts receivable of $28.5 million in 2021; (2) the
increase in inventories was $67.5 million compared to the year-over-year increase in inventories of $107.6 million in 2021; (3) the decrease in accounts payable was $48.6 million compared to the year-over-year increase in accounts payable of $33
million in 2021; (4) the increase in prepaid expenses and other current assets was $5.5 million compared to the year-over-year increase in prepaid expenses and other current assets of $0.8 million in 2021; and (5) the decrease in sundry payables
and accrued expenses was $29.1 million compared to the year-over-year increase in sundry payables and accrued expenses of $13.4 million in 2021.  The increase in inventories during 2022 and 2021 reflects actions taken beginning in the fourth
quarter of 2021 to meet ongoing customer demand, the impact of materials inflation, and higher safety stocks of raw materials given the volatility in the supply chain. The decrease in accounts payable in 2022 reflects the timing of payments to
vendors for inventory purchases made in the fourth quarter of 2021, as well as the timing of inventory purchases made in 2022, including the impact of a reduction in inventory purchases in the second half of the year; while the decrease in sundry
payments in 2022 reflects the impact of lower employee compensation accruals.  We continue to actively manage our working capital to maximize our operating cash flow.

Investing Activities.  Cash used in investing activities was $27.8 million in 2022 compared to $151.2 million in 2021.  Investing activities
during 2022 consisted of (1) the cash payment of $1.7 million for our acquisition of 100% of the capital stock of Kade Trading GmbH, a German company, (“Kade”) , net of $1 million of cash acquired and the $0.5 million earn-out; (2) the payment of
$0.2 million for our 3.55% increase in equity ownership in Foshan Che Yijia New Energy Technology Co., Ltd., (“CYJ”), a China-based joint venture that manufactures automotive electric air conditioning compressors; and (3) capital expenditures of
$26 million.

Investing activities in 2021 consisted of (1) the payment of $15.4 million, net of $0.9 million of cash acquired, for our acquisition of 100% of the capital stock of Stabil Operative Group GmbH, a German company, (“Stabil”); (2) the payment of
$107.1 million, net of $4.6 million of cash acquired, for our acquisition of 100% of the capital stock of Trumpet Holdings, Inc., a Delaware corporation, (“Trombetta”); (3) the payment of $2.9 million for our acquisition of certain assets of the
soot sensor product lines from Stoneridge, Inc.; and (4) capital expenditures of $25.9 million.

Financing Activities.  Cash provided by financing activities was $55.5 million in 2022 compared to $69 million in 2021. In June 2022, we
entered into a new credit agreement with JPMorgan Chase Bank, N.A., as agent. The new credit agreement provides for a $500 million credit facility comprised of a $100 million term loan facility and a $400 million revolving credit facility.
Borrowings under the new credit facility were used to repay all outstanding borrowings under the then existing revolving credit facility, and certain fees and expenses incurred in connection with the refinancing.

During 2022, we (1) increased our borrowings under our revolving credit facilities by $114.2 million; (2) reduced our borrowings under lease obligations and our Polish overdraft facility by $2.9 million; (3) made cash payments of $2.1 million
for debt issuance costs in connection with our refinancing; (4) made cash payments for the repurchase of shares of our common stock of $29.7 million; and (5) paid dividends of $23.4 million.  Cash provided by borrowings under our credit
facilities were used to fund our operating activities, investing activities, reduce our borrowings under lease obligations and our Polish overdraft facility, pay debt issuance costs in connection with the refinancing, purchase shares of our
common stock and pay dividends.

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Cash provided by financing activities was $69 million in 2021.  During 2021, we (1) increased our borrowings under our revolving credit facility by $115.3 million; (2) increased our borrowings under lease obligations and our Polish overdraft
facility by $3 million; (3) made cash payments for the repurchase of shares of our common stock of $26.8 million; and (4) paid dividends of $22.2 million.  Cash provided by operating activities, along with borrowings under our revolving credit
agreement, lease obligations and Polish overdraft facility were used to fund our investing activities, purchase shares of our common stock and pay dividends.

Dividends of $23.4 million and $22.2 million were paid in 2022 and 2021, respectively.  Quarterly dividends were paid at a rate of $0.27 in 2022 and $0.25 in 2021. In February 2023, our Board of Directors voted to increase our quarterly
dividend from $0.27 per share in 2022 to $0.29 per share in 2023.

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

For a detailed discussion of our Liquidity and Capital Resources comparison of fiscal year 2021 to fiscal year 2020, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2021.

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, we entered into a new Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders (the “Credit Agreement”).  The Credit Agreement provides for a $500 million credit facility comprised of a
$100 million term loan facility (the “term loan”) and a $400 million multi-currency revolving credit facility available in U.S. Dollars, Euros, Sterling, Swiss Francs, Canadian Dollars and other currencies as agreed to by the administrative agent
and the lenders (the “revolving facility”).  The Credit Agreement replaces and refinances the existing Credit Agreement, dated as of October 28, 2015, among the Company, SMP Motor Products Ltd. and Trumpet Holdings, Inc., as borrowers, JPMorgan
Chase Bank, N.A., as administrative agent and lender, and the other lenders named therein (the “2015 Credit Agreement”).

Borrowings under the Credit Agreement were used to repay all outstanding borrowings under the 2015 Credit Agreement, and pay certain fees and expenses incurred in connection with the Credit Agreement, with future borrowings used for other
general corporate purposes of the Company and its subsidiaries.  The term loan amortizes in quarterly installments of 1.25% in each of the first four years, and quarterly installments of 2.5% in the fifth year of the Credit Agreement.  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.

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The Company’s obligations under the Credit Agreement are guaranteed by its material domestic subsidiaries (each, a “Guarantor”), and secured by a first priority perfected security interest in substantially all of the existing and future
personal property of the Company and each Guarantor, subject to certain exceptions.  The collateral security described above also secures certain banking services obligations and interest rate swaps and currency or other hedging obligations of
the Company owing to any of the then existing lenders or any affiliates thereof.  Concurrently with the Company’s entry into the Credit Agreement, the Company also entered into a seven year interest rate swap agreement with Wells Fargo Bank,
N.A., Co-Syndication Agent and lender under the Credit Agreement, on $100 million of borrowings under the Credit Agreement.  The interest rate swap agreement matures in May 2029.

Outstanding borrowings at December 31, 2022 under the Credit Agreement were $239.5 million, consisting of current borrowings of $55 million and long-term debt of $184.5 million; while outstanding borrowings at December 31, 2021 under the 2015
Credit Agreement were $125.3 million, consisting of current borrowings.  Letters of credit outstanding under the Credit Agreement were $2.4 million at December 31, 2022, and $2.6 million under the 2015 Credit Agreement at December 31, 2021.
Borrowings at December 31, 2021 under the 2015 Credit Agreement have been classified as current liabilities based upon accounting rules and certain provisions in the agreement.

At December 31, 2022, the weighted average interest rate under our Credit Agreement was 5.2%, which consisted of $237 million in borrowings at 5.2% under Term SOFR, adjusted for the impact of the interest rate swap agreement on $100 million of
borrowings, and an alternative base rate borrowing of $2.5 million at 8%.  At December 31, 2021, the weighted average interest rate on our 2015 Credit Agreement was 1.4%, which consisted of $125 million in direct borrowings at 1.4% and
alternative base rate loan of $0.3 million at 3.5%. During the year ended December 31, 2022, our average daily alternative base rate loan balance was $5.6 million, compared to a balance of $1.1 million for the year ended December 31, 2021.

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

In October 2022, our Polish subsidiary, SMP Poland sp. z.o.o., amended its overdraft facility with HSBC Continental Europe (Spolka Akcyjna) Oddzial w Polsce to provide for borrowings under the facility in Euros and U.S. Dollars.  Under the
amended terms, the overdraft facility provides for borrowings of up to Zloty 30 million (approximately $6.8 million) if borrowings are solely in Zloty, or up to 85% of the Zloty 30 million limit (approximately $5.8 million) if borrowings are in
Euros and/or U.S. Dollars.  The overdraft facility has an initial maturity date in December 2022, with automatic three-month renewals until June 2027, subject to cancellation by either party, at its sole discretion, at least 30 days prior to the
commencement of the three-month renewal period.  Borrowings under the amended overdraft facility will bear interest at a rate equal to (1) the one month Warsaw Interbank Offered Rate (“WIBOR”) + 1.5% for borrowings in Polish Zloty, (2) the one
month Euro Interbank Offered Rate (“EURIBOR”) + 1.5% for borrowings in Euros, and (3) the Mid-Point of the Fed Target Range + 1.75% for borrowings in U.S Dollars.  Borrowings under the overdraft facility are guaranteed by Standard Motor Products,
Inc., the ultimate parent company.  At December 31, 2021, borrowings under the overdraft facility were Zloty 12.3 million (approximately $3 million).  There were no borrowings outstanding under the overdraft facility at December 31, 2022.

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

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Pursuant to these agreements, we sold $813.7 million and $818.8 million of receivables for the years ended December 31, 2022 and 2021, respectively. Receivables presented at financial institutions and not yet collected as of December 31, 2021
were $1.3 million and remained in our receivable balance as of that date. There were no receivables presented at financial institutions and not yet collected as of December 31, 2022.  All receivables sold were reflected as a reduction of accounts
receivable in the consolidated balance sheet at the time of sale. A charge in the amount of $32 million, $11.5 million and $12.2 million related to the sale of receivables is included in selling, general and administrative expenses in our
consolidated statements of operations for the years ended December 31, 2022, 2021 and 2020, respectively.

To the extent that these arrangements are terminated, our financial condition, results of operations, cash flows and liquidity could be adversely affected by extended payment terms, delays or failures in collecting trade accounts receivables.
The utility of the supply chain financing arrangements also depends upon a benchmark reference rate for the purpose of determining the discount rate applicable to each arrangement. If the benchmark reference rate increases significantly, we may
be negatively impacted as we may not be able to pass these added costs on to our customers, which could have a material and adverse effect upon our financial condition, results of operations and cash flows.

In January 2023, one of our customers filed a petition for bankruptcy.  In connection with the bankruptcy filing, we evaluated our potential risk and exposure as related to our outstanding accounts receivable balance from the customer as of
December 31, 2022, and estimated our anticipated recovery.  As a result of our evaluation, we recorded a $7 million pre-tax charge during the year ended December 31, 2022 to reduce our accounts receivable balance to our estimated recovery.  The
$7 million pre-tax charge is included in selling, general and administrative expenses in our consolidated statement of operations.  We will continue to monitor the circumstances surrounding the bankruptcy in determining whether additional
provisions may be necessary.

In March 2020, our Board of Directors authorized the purchase of up to $20 million of our common stock under a stock repurchase program.  Stock repurchases under this program, during the years ended December 31, 2021 and 2020, were 150,273 and
323,867 shares of our common stock, respectively, at a total cost of $6.5 million and $13.5 million, respectively, thereby completing the 2020 Board of Directors authorization.

In February 2021, our Board of Directors authorized the purchase of up to an additional $20 million of our common stock under a stock repurchase program.  Stock repurchases under this program, during the year ended December 31, 2021, were
464,992 shares of our common stock at a total cost of $20 million, thereby completing the 2021 Board of Directors authorization.

In October 2021, our Board of Directors authorized the purchase of up to $30 million of our common stock under a stock repurchase program.  Stock repurchases under this program, during the year ended December 31, 2022 and 2021 were 692,067 and
7,000 shares of our common stock, respectively, at a total cost of $29.7 million and $0.3 million, respectively, thereby completing the October 2021 Board of Directors authorization.

In July 2022, our Board of Directors authorized the purchase of up to an additional $30 million of our common stock under a new stock repurchase program. Stock will be purchased under the program from time to time, in the open market or
through private transactions, as market conditions warrant.  To date, there have been no repurchases of our common stock under the program.

Material Cash Commitments

Material cash commitments as of December 31, 2022 consist of required cash payments to service our outstanding borrowings of $239.5 million under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent, the future minimum cash
requirements of $60.2 million through 2033 under operating leases, and future cash payments relating to our restructuring and integration activities of $4.9 million.  All of our other cash commitments as of December 31, 2022 are not material.
For additional information related to our material cash commitments, see Note 3, “Restructuring and Integration Expenses”, Note 7, “Leases,” and Note 11, “Credit Facilities and Long-Term Debt,” of the Notes to Consolidated Financial Statements in

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 each of the fiscal years in the three-year period ended December 31, 2021.

The post COVID-19 sales momentum we experienced in the second half of 2020 carried over into 2021 resulting in record net sales and earnings from continuing operations.  We experienced strong demand across all our product categories as well as
a more normalized seasonal trend consistent with years prior to 2020.

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

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The increase in net sales in 2021 reflects the favorable impact of multiple factors including:

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

Gross margin as a percentage of net sales in 2021 was 29% as compared to 29.8% in 2020 and 29.2% in 2019.  Gross margins in the first half of 2021 were favorably impacted by greater fixed cost absorption due to higher production volumes as we
increased inventories to meet the strong customer demand.  The strong gross margins achieved in the first half of 2021 were offset by some compression in the second half of 2021 caused by several factors including lower fixed cost absorption due
to lower production levels than those achieved in the second half of 2020, inflationary cost increases in certain raw materials, labor and elevated transportation expense, and the higher mix of heavy duty parts sales from our recent acquisitions,
which have a different margin profile than our aftermarket business with lower gross margins but comparable operating margin. While we anticipate continued margin pressure resulting from inflationary headwinds, we believe that our annual cost
initiatives coupled with our ability to pass through higher prices to our customers should help to offset much of this impact to our margins.

Operating margin as a percentage of net sales in 2021 was 9.9% as compared to 9.6% in 2020 and 8.3% in 2019.  Our operating margins in 2021 were favorably impacted by higher net sales.  Included in our operating margin were selling, general
and administrative expenses (“SG&A”) of $247.5 million, or 19.1% of net sales in 2021, $224.7 million, or 19.9% of net sales in 2020, and $234.7 million, or 20.6% of net sales in 2019.  The higher SG&A expenses in 2021 resulted
principally from elevated distribution costs associated with higher sales volumes as well as the impact of increased freight costs, higher employee compensation costs, and incremental expenses from our soot sensor, Trombetta and Stabil
acquisitions.  We anticipate that our future operating margins will be in line with the operating margins achieved in 2021 and 2020.

Overall, our financial results in 2021 were extremely strong.  We posting record net sales and earnings from continuing operations and achieving substantial new business wins with existing customers.  Our core automotive aftermarket business
remains strong and we have made major strides into new complementary markets with upside potential.

Recent Strategic Acquisitions

As part of our strategic plan for diversification and growth beyond our core automotive aftermarket business, and to further expand internationally with a focus on the European market, we completed three acquisitions in 2021. The acquisitions
continue to increase our supplier capabilities with a complementary focus on specialized original equipment parts to manufacturers across multiple industries such as medium and heavy duty vehicles, construction and agricultural equipment, power
sports, and other sub-segments.  In addition to expanding beyond our core automotive aftermarket business, it also provided geographic expansion as we now have meaningful footprints to grow sales in Europe and Asia.

As we integrate these businesses, we will be able to take advantage of shared customer lists, product portfolios, manufacturing and engineering capabilities, and geographic reach.  Many of the products in the acquired businesses are either
power-train neutral, or are geared toward electric and alternative energy vehicles and, as such, not limited to applications on internal combustion engine (“ICE”), providing potential synergies and future sales growth opportunities in
non-internal combustion engine applications.  After these acquisitions, we estimate that approximately half of our product offering is power-train neutral, or suitable for electric, hybrid electric and/or alternative energy vehicles.  Following
is a brief summary of the acquired businesses.

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In March 2021, we acquired certain Soot Sensor product lines from Stoneridge, Inc. for $2.9 million. The product line assets acquired manufacture sensors used in the exhaust and emission systems of diesel engines. The acquisition is an
excellent fit for our strategy of expansion into the heavy duty market.

In May 2021, we acquired 100% of the capital stock of Trumpet Holdings, Inc., a Delaware corporation, (more commonly known as “Trombetta”), for $111.7 million.  Trombetta has manufacturing facilities in Milwaukee, Wisconsin; Sheboygan Falls,
Wisconsin; Tijuana, Mexico, as well as a 70% ownership in a joint venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”).  Trombetta is a worldwide leader in power switching and power management products and
has a long history of supplying high-quality products to a broad group of blue-chip customers across multiple commercial vehicle and off-highway channels, including heavy truck, construction, agricultural, electric vehicle and power sports
markets.  Few of Trombetta’s products are powertrain-related and thus unaffected by the shift from internal combustion engines.  We believe that the combination of Trombetta, along with our existing businesses will create a critical mass that can
be a powerful force for growth.

In September 2021, we acquired 100% of the capital stock of Stabil Operative Group GmbH, a German company (“Stabil”), for Euros 13.7 million, or $16.3 million, subject to certain post-closing adjustments.  Stabil is a manufacturer and
distributor of a variety of components, including electronic sensors, control units, and clamping devices to the European market, serving both commercial and light vehicle applications.  The acquired Stabil business is headquartered on the
outskirts of Stuttgart, Germany with facilities in Germany and Hungary. The acquisition is an excellent fit for our strategy of expansion beyond our core aftermarket business into complementary areas, and gives us exposure to a diversified group
of blue chip European commercial and light vehicle customers.

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

Impact of the Coronavirus (“COVID-19”)

On an ongoing basis, we continue to monitor the impact, if any, of COVID-19 on the global economy, our industry, business, and the markets that we serve.  In response to the COVID-19 pandemic, in 2020, we established a committee, comprised of
our executive officers, to oversee the Company’s risk identification, management and mitigation strategies regarding the impact of the pandemic on our business and operations.  The committee continues to meet on a regular basis, monitoring events
related to the pandemic and any appropriate actions to be taken.  Among the issues that are actively being monitored by the committee are the general state of economic conditions, governmental measures in response to the pandemic, the spread of
the delta and omicron variants, and the enactment of policies and practices to ensure the health and safety of our employees, contractors and customers, as well as customer demand for our products and any potential disruptions in our supply
chain.

As related to the performance of our business, we were declared an essential business under national and regional shelter-in-place orders and, as such, our business operations continued throughout 2020.  After a downturn in net sales initially
in the second quarter of 2020, customer orders strengthened in the last half of the second quarter and continued throughout 2020, resulting in strong net sales for the year ended December 31, 2020.  The net sales momentum continued into 2021, as
we experienced strong demand for our products, and a seasonal trend that was more in line with years prior to 2020.

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

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Impact of Global Supply Chain Disruption and Inflation

Disruptions in the global economy in 2020 and the lingering impacts into 2021 have impeded global supply chains, resulted in longer lead times and delays in procuring component parts and raw materials, and resulted in inflationary cost
increases in certain raw materials, labor and transportation.  In response to the global supply chain volatility and inflationary cost increases, we have taken, and continue to take, several actions to mitigate the impact by working closely with
our suppliers and customers to minimize any potential adverse impacts on our business, including implementing cost savings initiatives and the pass through of higher costs to our customers, which began in the fourth quarter of 2021. 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 a material adverse effect on our business, financial condition and results of operations.

Impact of Changes in U.S. Trade Policy

Changes in U.S. trade policy, particularly as it relates to China, as with much of our industry, have resulted in the assessment of increased tariffs on goods that we, as with much of our industry, import into the United States.  Although our
operating results in 2021 have been only slightly impacted by the tariff costs associated with Chinese sourced products (due to our diversified manufacturing and distribution footprint), we have taken, and continue to take, several actions to
mitigate the impact of the increased tariffs, including but not limited to, price increases to our customers.  We do not anticipate that the increased tariffs will have a significant impact on our future operating results.  Although we are
confident that we will be able to pass along the impact of the increased tariffs to our customers, there can be no assurances that we will be able to pass on the entire increased costs imposed by the tariffs.

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 building awareness of the environmental impact of our operations, and challenging ourselves to
reduce our impact by reducing our consumption of energy and generation of waste, as well as enhancing our recycling efforts.

Additionally, we realize the intricate role our employees play to the overall success of our business.  Their health and happiness is important, and we
continue to look for ways to address their needs and the needs of their families.  For example, in 2021 we conducted several surveys on employee engagement, employee satisfaction, and diversity, equity and inclusion to gain a deeper understanding of our employees’ well-being so as to ensure that the company’s culture remains strong.

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Comparison of Results of Operations For Fiscal Years 2021 and 2020

Sales.  Consolidated net sales for 2021 were $1,298.8 million, an increase of $170.2 million, or 15.1%, compared to $1,128.6 million in the
same period of 2020.  Consolidated net sales increased in both our Engine Management and Temperature Control Segments, with the majority of our net sales to customers located in the United States.

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

The following table summarizes consolidated net sales by segment and by major product group within each segment for the years ended December 31, 2021 and 2020 (in thousands):

Engine Management’s net sales increased $102.3 million, or 12.2%, to $937.9 million for the year ended December 31, 2021.  Net sales in ignition, emission control, fuel and safety related system products for the year ended December 31, 2021
were $786.5 million, an increase of $94.8 million, or 13.7%, compared to $691.7 million in the same period of 2020.  Net sales in the wire and cable product group for the year ended December 31, 2021 were $151.4 million, an increase of $7.5
million, or 5.2%, compared to $144 million in the same period of 2020.  Engine Management’s increase in net sales for the year ended December 31, 2021 compared to the same period in 2020, reflects the impact of successful customer initiatives in
the marketplace, the phase-in of new business wins, continued strong customer demand as evidenced by robust customer POS, the partial impact of price increases in the fourth quarter of the year, which were implemented to pass through inflationary
increases in raw materials, freight and labor costs, and incremental net sales from our soot sensor, Trombetta and Stabil acquisitions, along with the favorable year-over-year impact of having lower net sales in the first part of 2020 due to the
general weakness in the economy caused by the COVID-19 pandemic.  The favorable net sales results achieved by Engine Management in 2021 more than offset the impact of the lower net sales from the decision, in December 2020, of a large retail
customer to pursue a private brand strategy.

Incremental net sales from our soot sensor, Trombetta and Stabil acquisitions of $54.3 million were included in the net sales of the ignition, emission control, fuel and safety related system product group from the date of acquisition through
December 31, 2021.  Compared to the year ended December 31, 2020, excluding the incremental net sales from the acquisitions, net sales in the ignition, emission control, fuel and safety related product group increased $40.5 million, or 5.9%, and
Engine Management net sales increased $48 million, or 5.7%.

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Temperature Control’s net sales increased $66.5 million, or 23.6%, to $348.4 million for the year ended December 31, 2021.  Net sales in the compressors product group for the year ended December 31, 2021 were $206.7 million, an increase of
$43.6 million, or 26.7%, compared to $163.1 million in the same period of 2020.  Net sales in the other climate control parts group for the year ended December 31, 2021 were $141.7 million, an increase of $22.8 million, or 19.2%, compared to
$118.9 million for the year ended December 31, 2020.  Temperature Control’s increase in net sales for the year ended December 31, 2021, when compared to the same period in 2020, reflects the impact of continued strong customer demand stemming
from the impact of very warm summer weather conditions and the replenishment of customer inventory levels, along with the favorable year-over-year impact of having lower net sales in the first part of 2020 due to the general weakness in the
economy caused by the COVID-19 pandemic.  Demand for our Temperature Control products may vary significantly with summer weather conditions and customer inventory levels.

Gross Margins.  Gross margins, as a percentage of consolidated net sales, decreased to 29% for 2021, compared to 29.8% for 2020.  The following table summarizes gross margins by
segment for the years ended December 31, 2021 and 2020, respectively (in thousands):

Compared to 2020, gross margins at Engine Management decreased 1.6 percentage points from 30.1% to 28.5%, while gross margins at Temperature Control increased 0.6 percentage points from 26.7% to 27.3%.  The gross margin percentage decrease in
Engine Management compared to the prior year reflects the impact of the lower gross margins achieved in the second half of 2021 compared to the second half of 2020, resulting from lower fixed cost absorption due to lower production levels than
those achieved in the second half of 2020, inflationary cost increases in raw materials, labor and transportation, which began in the second quarter of 2021, and a higher mix of heavy duty OE sales from recent acquisitions, which has a different
margin profile than our aftermarket business with lower gross margins but comparable operating margins.  Engine Management gross margins in the first half of 2021 were favorably impacted by higher year-over-year absorption due to higher
production volumes to build inventory levels, and the impact of year-over-year production variances carried over from the prior year.

The gross margin percentage increase in Temperature Control compared to the prior year reflects the favorable impact of higher year-over-year absorption due to higher production volumes, as well as overall higher sales volume, which more than
offset the unfavorable impact in the second half of 2021 of inflationary cost increases in certain raw materials, labor and transportation.  While we anticipate continued margin pressures at both Engine Management and Temperature Control
resulting from inflationary cost increases, we believe that our annual cost initiatives, and our ability to pass through higher prices to our customers, will help to offset the impact of the inflationary increases on our margins.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses (“SG&A”) increased to $247.5 million, or 19.1% of consolidated net sales in 2021, as
compared to $224.7 million, or 19.9% of consolidated net sales in 2020.  The $22.8 million increase in SG&A expenses as compared to 2020 is principally due to (1) higher distribution costs associated with higher sales volumes and the impact
of an increase in freight costs, (2) higher employee compensation costs, and (3) the impact of incremental expenses of $7.8 million from our soot sensor, Trombetta and Stabil acquisitions, including amortization of intangible assets acquired.
The lower year-over-year SG&A expense percentage of consolidated net sales reflects the impact of discretionary cost reduction measures implemented in 2020 and carried over into 2021, and higher year-over-year sales volumes.

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Intangible Asset Impairment.  In December 2020, a large retail customer informed us of its decision to pursue a private brand strategy for its engine management product line.  As a
result of this development, products sold under the BWD trademark were significantly reduced. In connection with the decision, we recorded an impairment charge of $2.6 million in 2020.

Restructuring and Integration Expenses.  Restructuring and integration expenses were $0.4 million in 2021 compared to restructuring and integration expenses of $0.5 million in 2020.
Restructuring and integration expenses incurred in 2021 relate to the relocation in our Engine Management Segment of certain inventory, machinery, and equipment acquired in our March 2021 soot sensor acquisition; while restructuring and
integration expenses incurred in 2020 relate to (1) the increase in environmental cleanup costs for ongoing monitoring and remediation in connection with the prior closure of our manufacturing operations at our Long Island City, New York
location, and (2) costs related to the residual relocation activities in our Engine Management segment in connection with our integration of the Pollak business of Stoneridge, Inc., acquired in April 2019.

Operating Income.  Operating income was $129 million, or 9.9%, of consolidated net sales in 2021, compared to $108.9 million, or 9.6%, of consolidated net sales in 2020.  The
year-over-year increase in operating income of $20.1 million is the result of the impact of higher consolidated net sales and the impact of the impairment charge in 2020 related to the BWD trademark, which more than offset the impact of lower
gross margins as a percentage of consolidated net sales and higher SG&A expenses.  Operating income of 9.9% of consolidated net sales achieved in 2021 is in line historical operating margin percentages achieved.

Other Non-Operating Income (Expense), Net.  Other non-operating income, net was $3.5 million in 2021, compared to $0.8 million in 2020.  The year-over-year increase in other
non-operating income, net results primarily from the increase in year-over-year equity income from our joint ventures and the favorable impact of changes in foreign currency exchange rates.  During the first quarter of 2020, our joint ventures in
China experienced temporary shutdowns due to the impact of the COVID-19 pandemic, resulting in significantly lower equity income.  In March 2020, the joint ventures reopened and resumed manufacturing and distribution.

Interest Expense.  Interest expense decreased to $2 million in 2021, compared to $2.3 million in 2020.  The year-over-year decrease in interest expense reflects the impact of lower
year-over-year average interest rates on our revolving credit facility, which more than offset the impact of slightly higher average outstanding borrowings in 2021 when compared to 2020.

Income Tax Provision.  The income tax provision for 2021 was $31 million at an effective tax rate of 23.8%, compared to $27 million at an
effective tax rate of 25.1% in 2020.  The lower effective tax rate in 2021 compared to 2020 results primarily from the increased year-over-year income tax benefit from the exercise of restricted stock, and changes in the mix of U.S. and foreign
income.

Loss From Discontinued Operations.  Loss from discontinued operations, net of income tax, reflects information contained in the actuarial studies performed as of August 31, 2021 and
2020, and in December 2020 to reflect events that occurred in the fourth quarter of 2020, as well as other information available and considered by us, and legal expenses and other costs associated with our asbestos-related liability.  During the
years ended December 31, 2021 and 2020, we recorded a net loss of $8.5 million and $23 million from discontinued operations, respectively.  The loss from discontinued operations for the year ended December 31, 2021 and 2020 includes a $5.3
million and $25.7 million pre-tax provision, respectively, to increase our indemnity liability in line with the 2021 and 2020 actuarial studies; and legal expenses and other miscellaneous expenses, before taxes, of $6.1 million and $5.4 million
for 2021 and 2020, respectively.  As discussed more fully in Note 21 “Commitments and Contingencies” in the notes to our consolidated financial statements, we are responsible for certain future liabilities relating to alleged exposure to asbestos
containing products.

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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 $68,000 during the year ended December 31, 2021 represents 30% of the net earnings of
Trombetta Asia, Ltd. from the date of acquisition through December 31, 2021.

Comparison of Results of Operations For Fiscal Years 2020 and 2019

For a detailed discussion on the comparison of fiscal year 2020 to fiscal year 2019, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2020.

Restructuring and Integration Programs

For a detailed discussion on the restructuring and integration costs, see Note 3, “Restructuring and Integration Expense,” of the Notes Consolidated Financial Statements in Item 8 of this Report.

Liquidity and Capital Resources

Operating Activities.  During 2021, cash provided by operating activities was $85.6 million compared to $97.9 million in 2020.  The decrease in cash provided by operating activities
resulted primarily from the increase in inventories compared to the decrease in inventories in the prior year, the smaller year-over-year increase in sundry payables and accrued expenses, and the larger year-over-year increase in prepaid expenses
and other current assets, partially offset by the increase in net earnings, the decrease in accounts receivable compared to the increase in accounts receivable in the prior year, and the larger year-over-year increase in accounts payable.

Net earnings during 2021 were $91 million compared to $57.4 million in 2020.  During 2021 (1) the decrease in accounts receivable was $28.5 million compared to the year-over-year increase in accounts receivable of $71.9 million in 2020; (2)
the increase in inventories was $107.6 million compared to the year-over-year decrease in inventories of $18 million in 2020; (3) the increase in accounts payable was $33 million compared to the year-over-year increase in accounts payable of $7.4
million in 2020; (4) the increase in prepaid expenses and other current assets was $0.8 million compared to the year-over-year increase in prepaid expenses and other current assets of $0.4 million in 2020; and (5) the increase in sundry payables
and accrued expenses was $13.4 million compared to the year-over-year increase in sundry payables and accrued expenses of $40.7 million in 2020.  The decrease in accounts receivable during 2021 reflects the impact of $50 million of receivables
presented to financial institutions at December 31, 2020, pursuant to our supply chain financing arrangements, that were collected in 2021; while the increase in inventories during 2021 reflects actions taken to meet continued strong customer
demand, to replenish stock levels, which were depleted after record sales in the last half of 2020, and to serve as a hedge against the global disruptions in the supply chain.  We continue to actively manage our working capital to maximize our
operating cash flow.

Investing Activities.  Cash used in investing activities was $151.2 million in 2021 compared to $17.8 million in 2020.  Investing activities
during 2021 consisted of (1) the payment of $15.4 million, net of $0.9 million of cash acquired, for our acquisition of 100% of the capital stock of Stabil Operative Group GmbH, a German company, (“Stabil”); (2) the payment of $107.1 million, net
of $4.6 million of cash acquired, for our acquisition of 100% of the capital stock of Trumpet Holdings, Inc., a Delaware corporation, (“Trombetta”); (3) the payment of $2.9 million for our acquisition of certain assets of the soot sensor product
lines from Stoneridge, Inc.; and (4) capital expenditures of $25.9 million.  Investing activities in 2020 consisted of capital expenditures of $17.8 million.

Financing Activities.  Cash provided by financing activities was $69 million in 2021 compared to cash used in financing activities of $71.5
million in 2020.  During 2021, we (1) increased our borrowings under our revolving credit facility by $115.3 million; (2) increased our borrowings under lease obligations and our Polish overdraft facility by $3 million; (3) made cash payments for
the repurchase of shares of our common stock of $26.8 million; and (4) paid dividends of $22.2 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.

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Cash used in financing activities was $71.5 million in 2020.  During 2020, we (1) reduced our borrowings under our revolving credit facility by $42.5 million; (2) reduced our borrowings under lease obligations and our Polish overdraft facility
by $4.2 million; (3) made cash payments for the repurchase of shares of our common stock of $13.5 million; and (4) paid dividends of $11.2 million.  Cash provided by operating activities was used to pay down our revolving credit facility, our
lease obligations and Polish overdraft facility, and to fund our investing activities, purchase shares of our common stock and pay dividends.

Dividends of $22.2 million and $11.2 million were paid in 2021 and 2020, respectively.  In January 2020, our Board of Directors voted to increase our quarterly dividend from $0.23 per share in 2019 to $0.25 per share in 2020.  In April 2020,
in response to the impact of the COVID-19 pandemic on our business, our Board of Directors approved to temporarily suspend our quarterly cash dividend payments and stock repurchases.  In September 2020, our Board of Directors approved to
reinstate our stock repurchase program; and in October 2020, our Board of Directors approved the reinstatement of our quarterly cash dividend of $0.25 per share.  In February 2021, our Board of Directors voted to maintain our quarterly dividend
at $0.25 per share in 2021; and in February 2022, our Board of Directors voted to increase our quarterly dividend from $0.25 per share in 2021 to $0.27 per share in 2022.

Comparison of Liquidity and Capital Resources For Fiscal Years 2020 and 2019

For a detailed discussion of our Liquidity and Capital Resources comparison of fiscal year 2020 to fiscal year 2019, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2020.

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 secured revolving credit facility (as detailed below).

We have entered into an amended credit agreement with JPMorgan Chase Bank, N.A., as agent, and a syndicate of lenders.  The amended credit agreement provides for a senior secured revolving credit facility with a line of credit of up to $250
million (with an additional $50 million accordion feature) and extends the maturity date to December 2023.  The line of credit under the amended agreement also allows for a $10 million line of credit to Canada as part of the $250 million
available for borrowing.  Direct borrowings under the amended credit agreement bear interest at LIBOR plus a margin ranging from 1.25% to 1.75% based on our borrowing availability, or floating at the alternate base rate plus a margin ranging from
0.25% to 0.75% based on our borrowing availability, at our option.  The amended credit agreement is guaranteed by certain of our subsidiaries and secured by certain of our assets.

Borrowings under the amended credit agreement are secured by substantially all of our assets, including accounts receivable, inventory and certain fixed assets, and those of certain of our subsidiaries.  Availability under the amended credit
agreement is based on a formula of eligible accounts receivable, eligible drafts presented to the banks under our supply chain financing arrangements and eligible inventory.  After taking into account outstanding borrowings under the amended
credit agreement, there was an additional $122.1 million available for us to borrow pursuant to the formula at December 31, 2021.  The loss of business of one or more of our key customers or, a significant reduction in purchases of our products
from any one of them, could adversely impact availability under our revolving credit facility.

Outstanding borrowings under the credit agreement, which are classified as current liabilities, were $125.3  million and $10 million at December 31, 2021 and 2020, respectively; while letters of credit outstanding under the credit agreement
were $2.6 million and $2.8 million at December 31, 2021 and 2020, respectively.  Borrowings under the credit agreement have been classified as current liabilities based upon accounting rules and certain provisions in the agreement.

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At December 31, 2021, the weighted average interest rate on our amended credit agreement was 1.4%, which consisted of $125 million in direct borrowings at 1.4% and an alternative base rate loan of $0.3 million at 3.5%.  At December 31, 2020,
the weighted average interest rate on our amended credit agreement was 1.4%, which consisted of $10 million in direct borrowings.  Our average daily alternative base rate loan balance was $1.1 million and $1.5 million during 2021 and 2020,
respectively.

At any time that our borrowing availability is less than the greater of either (a) $25 million, or 10% of the commitments if fixed assets are not included in the borrowing base, or (b) $31.25 million, or 12.5% of the commitments if fixed
assets are included in the borrowing base, the terms of the amended credit agreement provide for, among other provisions, a financial covenant requiring us, on a consolidated basis, to maintain a fixed charge coverage ratio of 1:1 at the end of
each fiscal quarter (rolling four quarters).  As of December 31, 2021, we were not subject to these covenants.  The amended credit agreement permits us to pay cash dividends of $20 million and make stock repurchases of $20 million in any fiscal
year subject to a minimum availability of $25 million.  Provided specific conditions are met, the amended credit agreement also permits acquisitions, permissible debt financing, capital expenditures, and cash dividend payments and stock
repurchases of greater than $20 million.

In February 2022, our Polish subsidiary, SMP Poland sp. z.o.o., amended its overdraft facility with HSBC Continental Europe (Spolka Akcyjna) Oddzial w Polsce, formerly HSBC France (Spolka Akcyjna) Oddzial w Polsce.  The amended overdraft
facility provides for borrowings of up to Zloty 30 million (approximately $8 million).  Availability under the amended facility commences in March 2022 and ends in June 2022, with automatic three-month renewals until June 2027, subject to
cancellation by either party, at its sole discretion, at least 30 days prior to the commencement of the three-month renewal period.  Borrowings under the overdraft facility will bear interest at a rate equal to WIBOR + 1.5% and are guaranteed by
Standard Motor Products, Inc., the ultimate parent company.  At December 31, 2021 and 2020, borrowings under the overdraft facility were Zloty 12.3 million (approximately $3 million) and Zloty 0.4 million (approximately $0.1 million),
respectively.

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 $818.8 million and $695.1 million of receivables for the years ended December 31, 2021 and 2020, respectively, which was reflected as a reduction of accounts receivable in the consolidated balance sheet at
the time of sale.  Receivables presented at financial institutions and not yet collected as of December 31, 2021 and December 31, 2020 were approximately $1.3 million and $50 million, respectively, and remained in our accounts receivable balance
for those periods.  A charge in the amount of $11.5 million, $12.2 million and $22 million related to the sale of receivables is included in selling, general and administrative expenses in our consolidated statements of operations for the years
ended December 31, 2021, 2020 and 2019, respectively.

To the extent that these arrangements are terminated, our financial condition, results of operations, cash flows and liquidity could be adversely affected by extended payment terms, delays or failures in collecting trade accounts receivables.
The utility of the supply chain financing arrangements also depends upon the LIBOR rate, as it is a component of the discount rate applicable to each arrangement.  If the LIBOR rate increases significantly, we may be negatively impacted as we may
not be able to pass these added costs on to our customers, which could have a material and adverse effect upon our financial condition, results of operations and cash flows.

In March 2020, our Board of Directors authorized the purchase of up to $20 million of our common stock under a stock repurchase program.  Stock repurchases under this program, during the years ended December 31, 2021 and 2020, were 150,273 and
323,867 shares of our common stock, respectively, at a total cost of $6.5 million and $13.5 million, respectively, thereby completing the 2020 Board of Directors authorization.

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In February 2021, our Board of Directors authorized the purchase of up to an additional $20 million of our common stock under a stock repurchase program.  Stock repurchases under this program, during the year ended December 31, 2021, were
464,992 shares of our common stock at a total cost of $20 million, thereby completing the 2021 Board of Directors authorization.

In October 2021, our Board of Directors authorized the purchase of up to an additional $30 million of our common stock under a stock repurchase program.  Stock will be purchased under the programs from time to time, in the open market or
through private transactions, as market conditions warrant.  Stock repurchases under this program, during the year ended December 31, 2021, were 7,000 shares of our common stock, at a total cost of $0.3 million.  As of December 31, 2021, there
was approximately $29.7 million available for future stock purchases under the program.  During the period from January 1, 2022 through February 17, 2022, we have repurchased an additional 64,482 shares of our common stock at a total cost of $3.1
million, thereby reducing the availability under the program to $26.6 million.

Material Cash Commitments

Material cash commitments as of December 31, 2021 consist of required cash payments to service our outstanding borrowings of $125.3 million under our amended revolving credit agreement with JPMorgan Chase Bank, N.A., as agent, and the future
minimum cash requirements of $44.9 million through 2031 under operating leases.  All of our other cash commitments as of December 31, 2021 are not material.  For additional information related to our material cash commitments, see Note 7,
“Leases,” and Note 11, “Credit Facilities and Long-Term Debt,” of the Notes to Consolidated Financial Statements in Item 8 of this Report.

We anticipate that our cash flow from operations, available cash and available borrowings under our revolving credit facility, inclusive of the utilization of the $50 million accordion feature in the facility, will be adequate to meet our
future liquidity needs for at least the next twelve months.  Significant assumptions underlie this belief, including, among other things, that we will be able to mitigate the future impact, if any, of the COVID-19 pandemic, disruptions in the
supply chain that may lead to a further increase in inventories to support our customers, and significant inflationary cost increases in raw materials, labor and transportation, and that there will be no material adverse developments in our
business, liquidity or capital requirements.  If material adverse developments were to occur in any of these areas, there can be no assurance that our business will generate sufficient cash flow from operations, or that future borrowings will be
available to us under our revolving credit facility in amounts sufficient to enable us to pay the principal and interest on our indebtedness, or to fund our other liquidity needs.  In addition, if we default on any of our indebtedness, or breach
any financial covenant in our revolving credit facility, our business could be adversely affected.

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

Critical Accounting Policies and Estimates

We have identified the two accounting policies and estimates below 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.  For a detailed discussion
on the application of these and other accounting policies, see Note 1 of the notes to our consolidated financial statements.

You should be aware that preparation of our consolidated annual and quarterly financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. We can give no assurances that actual results will not differ from those estimates.  Although we do
not believe that there is a reasonable likelihood that there will be a material change in the future estimates, or in the assumptions that we use in calculating the estimates, the uncertain future effects, if any, of the COVID-19 pandemic, and
other unforeseen changes in the industry, or business, could materially impact the estimates, and may have a material adverse effect on our business, financial condition and results of operations.

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Valuation of Long‑Lived and Intangible Assets and Goodwill

At acquisition, we estimate and record the fair value of purchased intangible assets, which primarily consist of customer relationships, trademarks and trade names, patents, developed technology and intellectual property, and non-compete
agreements.  Intangible assets acquired through business combinations are subject to potential adjustments within the measurement period, which is up to one year from the acquisition date.  Valuing intangible assets requires the use of
significant estimates and assumptions.  As related to valuing customer relationships, significant estimates and assumptions used include but are not limited to: (1) forecasted revenues attributable to existing customers; (2) forecasted earnings
before interest and taxes (“EBIT”) margins; (3) customer attrition rates; and (4) the discount rate.  Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations.  Goodwill and
certain other intangible assets having indefinite lives are not amortized to earnings, but instead are subject to periodic testing for impairment.  Intangible assets determined to have definite lives are amortized over their remaining useful
lives.  We believe that the fair value of acquired identifiable net assets, including intangible assets, are based upon reasonable estimates and assumptions.

We assess the impairment of long‑lived assets, identifiable intangibles assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  With respect to goodwill and identifiable
intangible assets having indefinite lives, we test for impairment on an annual basis or in interim periods if an event occurs or circumstances change that may indicate the fair value is below its carrying amount.  Factors we consider important,
which could trigger an impairment review, include the following: (a) significant underperformance relative to expected historical or projected future operating results; (b) significant changes in the manner of our use of the acquired assets or
the strategy for our overall business; and (c) significant negative industry or economic trends.  We review the fair values using the discounted cash flows method and market multiples.

When performing our evaluation of goodwill for impairment, if we conclude qualitatively that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then a quantitative impairment test would
not be required.  If we are unable to reach this conclusion, then we would perform a goodwill quantitative impairment test.  In performing the quantitative test, the fair value of the reporting unit is compared to its carrying amount.  A charge
for impairment is recognized by the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

Identifiable intangible assets having indefinite lives are reviewed for impairment on an annual basis using a methodology similar with that used to evaluate goodwill.  Intangible assets having definite lives and other long-lived assets are
reviewed for impairment whenever events such as product discontinuance, plant closures, product dispositions or other changes in circumstances indicate that the carrying amount may not be recoverable.  In reviewing for impairment, we compare the
carrying value of such assets to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition.  When the estimated undiscounted future cash flows are less than their carrying amount, an
impairment loss is recognized equal to the difference between the assets fair value and their carrying value.

There are inherent assumptions and estimates used in developing future cash flows requiring our judgment in applying these assumptions and estimates to the analysis of identifiable intangibles and long‑lived asset impairment including
projecting revenues, interest rates, tax rates and the cost of capital.  Many of the factors used in assessing fair value are outside our control and it is reasonably likely that assumptions and estimates will change in future periods.  These
changes can result in future impairments.  In the event our planning assumptions were modified resulting in impairment to our assets, we would be required to include an expense in our statement of operations, which could materially impact our
business, financial condition and results of operations.

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Asbestos Litigation

In evaluating our potential asbestos-related liability, we have considered various factors including, among other things, an actuarial study of the asbestos related liabilities performed by an independent actuarial firm, our settlement amounts
and whether there are any co-defendants, the jurisdiction in which lawsuits are filed, and the status and results of such claims.  As is our accounting policy, we consider the advice of actuarial consultants with experience in assessing
asbestos-related liabilities to estimate our potential claim liability; and perform an actuarial evaluation in the third quarter of each year and whenever events or changes in circumstances indicate that additional provisions may be necessary.
The methodology used to project asbestos-related liabilities and costs in our actuarial study considered: (1) historical data available from publicly available studies; (2) an analysis of our recent claims history to estimate likely filing rates
into the future; (3) an analysis of our currently pending claims; (4) an analysis of our settlements and awards of asbestos-related damages to date; and (5) an analysis of closed claims with pay ratios and lag patterns in order to develop average
future settlement values.  Based on the information contained in the actuarial study and all other available information considered by us, we have concluded that no amount within the range of settlement payments and awards of asbestos-related
damages was more likely than any other and, therefore, in assessing our asbestos liability we compare the low end of the range to our recorded liability to determine if an adjustment is required.  Future legal costs are expensed as incurred and
reported in earnings (loss) from discontinued operations in the accompanying statement of operations.

We plan to perform an annual actuarial evaluation during the third quarter of each year for the foreseeable future and whenever events or changes in circumstances indicate that additional provisions may be necessary. Given the uncertainties
associated with projecting such matters into the future and other factors outside our control, we can give no assurance that additional provisions will not be required. We will continue to monitor events and changes in circumstances surrounding
these potential liabilities in determining whether to perform additional actuarial evaluations and whether additional provisions may be necessary, which will reported in earnings (loss) from discontinued operations in the accompanying statement
of operations.  At the present time, however, we do not believe that any additional provisions would be reasonably likely to have a material adverse effect on our liquidity or consolidated financial position.  See Note 21, “Commitments and
Contingencies,” of the Notes to Consolidated Financial Statements in Item 8 of this Report for additional information.

Recently Issued Accounting Pronouncements

For a detailed discussion on recently issued accounting pronouncements and their impact on our consolidated financial statements, see Note 1, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in