SMP(SMP) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information Filing Details This section provides Standard Motor Products, Inc.'s Q2 2025 Form 10-Q filing details and accelerated filer status * The report is a Quarterly Report on Form 10-Q for the period ended June 30, 2025[2] * Standard Motor Products, Inc. is classified as an Accelerated Filer[5] * As of August 1, 2025, there were 21,987,673 outstanding shares of common stock[7] PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements This item presents SMP's unaudited consolidated financial statements for Q2 and H1 2025 and 2024, with detailed notes * The section includes Consolidated Statements of Operations, Comprehensive Income, Balance Sheets, Cash Flows, Changes in Stockholders' Equity, and Notes to Consolidated Financial Statements[9] Consolidated Statements of Operations Consolidated Statements of Operations (Three Months Ended June 30, in thousands, except per share data) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Net sales | $493,853 | $389,829 | $104,024 | 26.7% | | Gross profit | $150,889 | $111,447 | $39,442 | 35.4% | | Operating income | $42,836 | $24,986 | $17,850 | 71.4% | | Net earnings attributable to SMP | $25,242 | $17,063 | $8,179 | 47.9% | | Diluted EPS (attributable to SMP) | $1.13 | $0.77 | $0.36 | 46.8% | | Dividend declared per common share | $0.31 | $0.29 | $0.02 | 6.9% | Consolidated Statements of Operations (Six Months Ended June 30, in thousands, except per share data) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Net sales | $907,232 | $721,232 | $186,000 | 25.8% | | Gross profit | $275,611 | $200,969 | $74,642 | 37.1% | | Operating income | $67,298 | $39,605 | $27,693 | 69.9% | | Net earnings attributable to SMP | $37,808 | $25,887 | $11,921 | 46.0% | | Diluted EPS (attributable to SMP) | $1.69 | $1.16 | $0.53 | 45.7% | | Dividend declared per common share | $0.62 | $0.58 | $0.04 | 6.9% | Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income (Three Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Net earnings | $25,537 | $17,407 | $8,130 | 46.7% | | Foreign currency translation | $32,021 | $(3,744) | $35,765 | N/A | | Total comprehensive income attributable to SMP | $55,722 | $13,407 | $42,315 | 315.6% | Consolidated Statements of Comprehensive Income (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Net earnings | $38,278 | $26,397 | $11,881 | 45.0% | | Foreign currency translation | $45,000 | $(4,968) | $49,968 | N/A | | Total comprehensive income attributable to SMP | $80,465 | $22,399 | $58,066 | 259.2% | Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Total current assets | $1,065,064 | $921,924 | $143,140 | 15.5% | | Total assets | $2,007,348 | $1,814,126 | $193,222 | 10.7% | | Total current liabilities | $492,415 | $436,472 | $55,943 | 12.8% | | Long-term debt | $605,811 | $535,197 | $70,614 | 13.2% | | Total liabilities | $1,303,889 | $1,184,044 | $119,845 | 10.1% | | Total stockholders' equity | $703,459 | $630,082 | $73,377 | 11.6% | * Key asset changes (June 30, 2025 vs. Dec 31, 2024): Cash increased by $14.4 million, accounts receivable by $116.5 million, inventories by $13.7 million, goodwill by $14.8 million, and customer relationships intangibles by $10.6 million[20] * Key liability changes (June 30, 2025 vs. Dec 31, 2024): Accounts payable increased by $23.3 million and accrued customer returns by $28.7 million[20] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | Change ($) | Change (%) | | :----------------- | :----- | :----- | :--------- | :--------- | | Operating Activities | $(5,903) | $(10,139) | $4,236 | 41.8% | | Investing Activities | $(16,323) | $(22,923) | $6,600 | 28.8% | | Financing Activities | $32,624 | $28,471 | $4,153 | 14.6% | | Net increase (decrease) in cash | $14,366 | $(6,370) | $20,736 | N/A | | Cash at end of period | $58,792 | $26,156 | $32,636 | 124.8% | * Operating cash flow improved due to higher net earnings ($38.3 million in 2025 vs $26.4 million in 2024) and changes in working capital, including a larger increase in accounts receivable and a smaller increase in sundry payables[23] * Financing activities provided $32.6 million in cash, primarily from net borrowings under revolving credit facilities ($52.7 million), partially offset by dividends paid ($13.6 million)[23] Consolidated Statements of Changes in Stockholders' Equity Changes in SMP Stockholders' Equity (Six Months Ended June 30, 2025, in thousands) | Item | Amount | | :-------------------------------- | :----- | | Balance December 31, 2024 | $615,745 | | Net earnings | $37,808 | | Other comprehensive income (loss), net of tax | $42,657 | | Cash dividends paid | $(13,592) | | Stock-based compensation | $3,301 | | Employee Stock Ownership Plan | $2,700 | | Balance at June 30, 2025 | $688,619 | * Accumulated other comprehensive income increased significantly from $(25.8) million at December 31, 2024, to $16.8 million at June 30, 2025, primarily due to foreign currency translation gains[29][81] Notes to Consolidated Financial Statements (Unaudited) Note 1. Basis of Presentation Standard Motor Products, Inc. (SMP) is a leading manufacturer and distributor of automotive aftermarket parts and a custom-engineered solutions provider, operating in four global segments * SMP is a leading manufacturer and distributor of premium replacement parts in the automotive aftermarket and a custom-engineered solutions provider[34] * The company's four operating segments are Vehicle Control, Temperature Control, Nissens Automotive, and Engineered Solutions[34] * Nissens Automotive, acquired in Q4 2024, specializes in air conditioning climate systems, engine cooling, and engine efficiency products, primarily in Europe[34] Note 2. Summary of Significant Accounting Policies The financial statements are prepared under U.S. GAAP, relying on management estimates for key areas, with no material changes to critical accounting policies reported * Unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information[35] * Significant estimates include allowances for expected credit losses, inventory valuation, valuation of long-lived assets, goodwill, and other intangible assets, and product liability exposures[36] * There have been no material changes to critical accounting policies and estimates from the Annual Report on Form 10-K for the year ended December 31, 2024[37] Recently Issued Accounting Pronouncements SMP is evaluating new FASB ASUs on income tax disclosures and expense disaggregation, with one not expected to have a material impact * ASU 2023-09 (Income Taxes) is effective for annual reporting periods beginning after December 15, 2024, expanding income tax disclosures[39][47] * ASU 2024-03 (Expense Disaggregation Disclosures) is effective for annual reporting periods beginning after December 15, 2026, requiring more detailed expense disclosures[41][42] * ASU 2025-03 (Determining the Accounting Acquirer in VIE Acquisitions) is effective for annual reporting periods beginning after December 15, 2026, and is not expected to have a material impact[44][45] Note 3. Business Combinations SMP finalized the purchase price allocation for the Nissens Automotive acquisition in Q1 2025, incurring additional acquisition-related costs * SMP acquired Nissens Automotive on November 1, 2024, for €366.8 million (approximately $397.1 million)[49] * The purchase price allocation was finalized during the quarter ended March 31, 2025, with no adjustments to previously disclosed amounts[49] * Additional closing and acquisition-related costs of $0.6 million were incurred during the six months ended June 30, 2025[50] Note 4. Restructuring Expenses SMP incurred restructuring expenses for its Separation Program and Cost Reduction Initiative, with total expenses to date of $7.6 million and $5.3 million, respectively * The Separation Program, initiated in Q2 2024, is expected to be substantially complete by the end of 2027, with total restructuring expenses to date of $7.6 million[51] * The Cost Reduction Initiative, initiated in Q4 2022, is expected to be substantially complete by the end of 2026, with total restructuring expenses to date of $5.3 million[53] Restructuring Activity for Six Months Ended June 30, 2025 (in thousands) | Program | Costs Provided For | Cash Payments | Exit Activity Liability at June 30, 2025 | | :---------------------- | :----------------- | :------------ | :--------------------------------------- | | Separation Program | $531 | $(3,567) | $1,740 | | Cost Reduction Initiative | $724 | $(610) | $346 | Note 5. Sale of Receivables SMP sells trade accounts receivable through supply chain financing, with $442.1 million sold in H1 2025 and related charges of $21.6 million * SMP sells trade accounts receivable to financial institutions to reduce costs and improve cash flow, accounting for these transactions as sales[57] * Receivables sold: $257.6 million (Q2 2025) vs. $230.1 million (Q2 2024); $442.1 million (H1 2025) vs. $400.9 million (H1 2024)[58] * Charges related to sales: $12.3 million (Q2 2025) vs. $13.4 million (Q2 2024); $21.6 million (H1 2025) vs. $23.4 million (H1 2024)[58] Note 6. Inventories Total inventories increased to $657.2 million at June 30, 2025, with finished goods comprising the largest portion Inventories (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :---------------------- | :------------ | :---------------- | :--------- | :--------- | | Finished goods | $405,539 | $394,852 | $10,687 | 2.7% | | Work in process | $21,714 | $22,053 | $(339) | -1.5% | | Raw materials | $211,341 | $208,008 | $3,333 | 1.6% | | Subtotal | $638,594 | $624,913 | $13,681 | 2.2% | | Unreturned customer inventories | $18,567 | $16,163 | $2,404 | 14.9% | | Total inventories | $657,161 | $641,076 | $16,085 | 2.5% | Note 7. Acquired Intangible Assets Net acquired intangible assets increased to $317.4 million, with amortization expense more than doubling due to recent acquisitions Acquired Intangible Assets (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Customer relationships | $322,786 | $303,547 | $19,239 | 6.3% | | Trademarks and trade names | $91,775 | $82,220 | $9,555 | 11.6% | | Total acquired intangible assets | $432,943 | $404,158 | $28,785 | 7.1% | | Less: accumulated amortization | $(115,531) | $(106,304) | $(9,227) | 8.7% | | Net acquired intangible assets | $317,412 | $297,854 | $19,558 | 6.6% | * Total amortization expense for acquired intangible assets was $4.6 million for Q2 2025 (vs. $2.1 million in Q2 2024) and $9.0 million for H1 2025 (vs. $4.3 million in H1 2024)[64] * Estimated future amortization expense is $9.4 million for the remainder of 2025, $18.8 million in 2026, $18.8 million in 2027, $18.8 million in 2028, and $167.3 million for 2029 through 2041[64] Note 8. Leases SMP's operating lease right-of-use assets were $111.7 million, with total lease expenses of $15.8 million for the first six months of 2025 * Leases have remaining terms of up to nine years, with some five-year renewal options not included in current obligations[65] Operating Lease Information (in thousands, except years and %) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $111,731 | $109,899 | | Noncurrent operating lease liabilities | $99,770 | $98,214 | | Total operating lease liabilities | $121,295 | $118,206 | | Weighted Average Remaining Lease Term | 7.2 Years | 7.7 Years | | Weighted Average Discount Rate | 5.1% | 5.0% | * Total lease expenses for the six months ended June 30, 2025, were $15.8 million, up from $11.1 million in 2024[66] Note 9. Credit Facilities and Long-Term Debt Total debt increased to $636.6 million, primarily under the 2024 Credit Agreement, with the weighted average interest rate decreasing to 5% Total Debt Outstanding (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :---------------------- | :------------ | :---------------- | :--------- | :--------- | | Multi-currency revolver | $309,130 | $244,171 | $64,959 | 26.6% | | U.S. dollar term loan | $193,547 | $198,287 | $(4,740) | -2.4% | | Euro term loan | $113,692 | $102,908 | $10,784 | 10.5% | | Other | $20,260 | $16,948 | $3,312 | 19.5% | | Total debt | $636,629 | $562,314 | $74,315 | 13.2% | | Current maturities of debt | $30,818 | $27,117 | $3,701 | 13.6% | | Long-term debt | $605,811 | $535,197 | $70,614 | 13.2% | * The 2024 Credit Agreement provides for an approximately $750 million credit facility, maturing in September 2029[204] * The weighted average interest rate under the 2024 Credit Agreement, adjusted for interest rate swap agreements, was 5% at June 30, 2025, down from 5.6% at December 31, 2024[71][208] Note 10. Accumulated Other Comprehensive Income Attributable to SMP AOCI attributable to SMP significantly increased to $16.8 million, primarily driven by foreign currency translation gains from the Danish kroner * AOCI attributable to SMP increased from $(25.8) million at December 31, 2024, to $16.8 million at June 30, 2025[81] * The primary driver for the increase in AOCI was foreign currency translation gains, mainly reflecting the appreciation of the Danish kroner[81] * A net gain of $0.8 million from accumulated other comprehensive income is expected to be reclassified to interest expense in the next twelve months[95] Note 11. Stock-Based Compensation Plans Shareholders approved the 2025 Omnibus Incentive Plan, authorizing 1,050,000 shares, with $1.8 million in compensation expense for H1 2025 * The 2025 Omnibus Incentive Plan was approved by shareholders in May 2025, authorizing a maximum of 1,050,000 shares for various awards[87][88] * For the six months ended June 30, 2025, 25,380 restricted and performance-based shares were granted, and 42,214 shares vested[89] * Compensation expense related to restricted and performance-based shares was $1.8 million ($1.3 million, net of tax) for the six months ended June 30, 2025, with $11.6 million unrecognized at period-end[89] Note 12. Employee Benefits SMP contributed $0.3 million to SERP and 87,300 treasury shares to ESOP in the first six months of 2025 * SMP contributed $0.3 million to the Supplemental Executive Retirement Plan (SERP) for calendar year 2024 during the first six months of 2025[90] * During the six months ended June 30, 2025, SMP contributed 87,300 shares to the Employee Stock Ownership Plan (ESOP) trust and released 87,300 shares[91] Note 13. Derivative Instruments SMP uses derivatives to manage market risks, with $216 million in interest rate swaps and $223 million in non-derivative debt instruments * SMP uses derivative and non-derivative instruments to reduce market risk from changes in interest rates and foreign exchange rates, not for trading or speculative purposes[92] * Notional amounts at June 30, 2025: $216 million for interest rate swaps and $223 million for non-derivative debt instruments[94] * A net gain of $0.8 million from cash flow hedges is expected to be reclassified from accumulated other comprehensive income to interest expense in the next twelve months[95] Note 14. Fair Value Measurements SMP applies a three-level fair value hierarchy, with most financial instruments classified as Level 1 or Level 2, including cash flow hedge interest rate swaps * SMP follows a three-level fair value hierarchy (Level 1: quoted prices in active markets; Level 2: other observable inputs; Level 3: significant unobservable inputs)[97][98][99] Fair Value of Financial Instruments (June 30, 2025, in thousands) | Instrument | Fair Value Hierarchy Level | Fair Value | Carrying Amount | | :-------------------------- | :------------------------- | :--------- | :-------------- | | Cash | 1 | $58,792 | $58,792 | | Deferred compensation | 1 | $27,287 | $27,287 | | Cash flow hedge interest rate swaps | 2 | $2,182 | $2,182 | | Short-term borrowings | 2 | $30,818 | $30,818 | | Long-term debt | 2 | $605,811 | $605,811 | * The fair value of variable rate short-term borrowings and long-term debt approximates carrying value due to current market rates[101] Note 15. Earnings Per Share Diluted EPS attributable to SMP increased to $1.13 for Q2 2025 and $1.69 for H1 2025, primarily from continuing operations Earnings Per Share (Three Months Ended June 30) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Net earnings attributable to SMP | $25,242 | $17,063 | $8,179 | 47.9% | | Diluted EPS (Continuing operations) | $1.17 | $0.81 | $0.36 | 44.4% | | Diluted EPS (Total) | $1.13 | $0.77 | $0.36 | 46.8% | Earnings Per Share (Six Months Ended June 30) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Net earnings attributable to SMP | $37,808 | $25,887 | $11,921 | 46.0% | | Diluted EPS (Continuing operations) | $1.79 | $1.25 | $0.54 | 43.2% | | Diluted EPS (Total) | $1.69 | $1.16 | $0.53 | 45.7% | * Weighted average diluted common shares outstanding increased to 22,423,208 for the three months ended June 30, 2025, from 22,185,536 in the prior year[104] Note 16. Industry Segments SMP operates in four segments, with Nissens Automotive contributing significantly to Q2 2025 net sales and operating income, and all aftermarket segments showing growth * SMP's business is organized into four operating segments: Vehicle Control, Temperature Control, Nissens Automotive, and Engineered Solutions[105] Segment Net Sales (Three Months Ended June 30, 2025, in thousands) | Segment | 2025 Net Sales | 2024 Net Sales | Change ($) | Change (%) | | :------------------ | :------------- | :------------- | :--------- | :--------- | | Vehicle Control | $201,699 | $188,741 | $12,958 | 6.9% | | Temperature Control | $131,365 | $124,481 | $6,884 | 5.5% | | Nissens Automotive | $90,537 | $0 | $90,537 | N/A | | Engineered Solutions | $70,252 | $76,607 | $(6,355) | -8.3% | | Total | $493,853 | $389,829 | $104,024 | 26.7% | Segment Operating Income (Three Months Ended June 30, 2025, in thousands) | Segment | 2025 Operating Income | 2024 Operating Income | Change ($) | Change (%) | | :------------------ | :-------------------- | :-------------------- | :--------- | :--------- | | Vehicle Control | $16,540 | $15,116 | $1,424 | 9.4% | | Temperature Control | $19,536 | $13,197 | $6,339 | 48.0% | | Nissens Automotive | $10,034 | $0 | $10,034 | N/A | | Engineered Solutions | $3,954 | $5,812 | $(1,858) | -32.0% | | Other | $(7,228) | $(9,139) | $1,911 | -20.9% | | Total | $42,836 | $24,986 | $17,850 | 71.4% | Note 17. Net Sales Consolidated net sales increased by 26.7% for Q2 2025 and 25.8% for H1 2025, driven by aftermarket segments and Nissens Automotive, despite a decline in Engineered Solutions * Consolidated net sales for the three months ended June 30, 2025, were $493.9 million, an increase of 26.7% compared to the prior year[117] * Consolidated net sales for the six months ended June 30, 2025, were $907.2 million, an increase of 25.8% compared to the prior year[117] Major Product Group Vehicle Control and Temperature Control sales grew, Nissens Automotive contributed significantly, while Engineered Solutions experienced declines due to market softness Net Sales by Major Product Group (Three Months Ended June 30, in thousands) | Product Group | 2025 Net Sales | 2024 Net Sales | Change ($) | Change (%) | | :-------------------------------- | :------------- | :------------- | :--------- | :--------- | | Vehicle Control | | | | | | Engine Management | $128,233 | $115,529 | $12,704 | 11.0% | | Electrical and Safety | $56,828 | $57,128 | $(300) | -0.5% | | Wire Sets and Other | $16,638 | $16,084 | $554 | 3.4% | | Total Vehicle Control | $201,699 | $188,741 | $12,958 | 6.9% | | Temperature Control | | | | | | AC System Components | $104,777 | $99,970 | $4,807 | 4.8% | | Other Thermal Components | $26,588 | $24,511 | $2,077 | 8.5% | | Total Temperature Control | $131,365 | $124,481 | $6,884 | 5.5% | | Nissens Automotive | | | | | | Air Conditioning | $40,441 | $0 | $40,441 | N/A | | Engine Cooling | $35,082 | $0 | $35,082 | N/A | | Engine Efficiency | $15,014 | $0 | $15,014 | N/A | | Total Nissens Automotive | $90,537 | $0 | $90,537 | N/A | | Engineered Solutions | | | | | | Light Vehicle | $21,780 | $24,686 | $(2,906) | -11.8% | | Commercial Vehicle | $21,836 | $23,483 | $(1,647) | -7.0% | | Construction/Agriculture | $9,584 | $9,473 | $111 | 1.2% | | All Other | $17,052 | $18,965 | $(1,913) | -10.1% | | Total Engineered Solutions | $70,252 | $76,607 | $(6,355) | -8.3% | Net Sales by Major Product Group (Six Months Ended June 30, in thousands) | Product Group | 2025 Net Sales | 2024 Net Sales | Change ($) | Change (%) | | :-------------------------------- | :------------- | :------------- | :--------- | :--------- | | Vehicle Control | | | | | | Engine Management | $246,599 | $231,614 | $14,985 | 6.5% | | Electrical and Safety | $115,147 | $109,535 | $5,612 | 5.1% | | Wire Sets and Other | $32,295 | $33,116 | $(821) | -2.5% | | Total Vehicle Control | $394,041 | $374,265 | $19,776 | 5.3% | | Temperature Control | | | | | | AC System Components | $171,968 | $149,930 | $22,038 | 14.7% | | Other Thermal Components | $48,280 | $46,159 | $2,121 | 4.6% | | Total Temperature Control | $220,248 | $196,089 | $24,159 | 12.3% | | Nissens Automotive | | | | | | Air Conditioning | $67,607 | $0 | $67,607 | N/A | | Engine Cooling | $62,855 | $0 | $62,855 | N/A | | Engine Efficiency | $26,257 | $0 | $26,257 | N/A | | Total Nissens Automotive | $156,719 | $0 | $156,719 | N/A | | Engineered Solutions | | | | | | Light Vehicle | $43,184 | $46,489 | $(3,305) | -7.1% | | Commercial Vehicle | $40,441 | $46,391 | $(5,950) | -12.8% | | Construction/Agriculture | $18,992 | $19,549 | $(557) | -2.8% | | All Other | $33,607 | $38,449 | $(4,842) | -12.6% | | Total Engineered Solutions | $136,224 | $150,878 | $(14,654)| -9.7% | Geographic Area The United States remains SMP's primary market, with Europe and Poland seeing significant sales contributions from the new Nissens Automotive segment * The United States is SMP's primary market, with sales substantially denominated in U.S. dollars[118] Net Sales by Geographic Area (Three Months Ended June 30, 2025, in thousands) | Geographic Area | Vehicle Control | Temperature Control | Nissens Automotive | Engineered Solutions | Total | | :---------------------- | :-------------- | :------------------ | :----------------- | :------------------- | :------ | | United States | $179,130 | $126,607 | $3,912 | $36,691 | $346,340 | | Europe, excluding Poland | $199 | $13 | $60,867 | $12,712 | $73,791 | | Canada | $9,400 | $4,287 | $103 | $8,101 | $21,891 | | Poland | $14 | $0 | $22,747 | $2,083 | $24,844 | | Mexico | $11,566 | $32 | $28 | $3,025 | $14,651 | | Other foreign | $1,390 | $426 | $2,880 | $7,640 | $12,336 | | Total | $201,699 | $131,365 | $90,537 | $70,252 | $493,853 | Net Sales by Geographic Area (Six Months Ended June 30, 2025, in thousands) | Geographic Area | Vehicle Control | Temperature Control | Nissens Automotive | Engineered Solutions | Total | | :---------------------- | :-------------- | :------------------ | :----------------- | :------------------- | :------ | | United States | $351,463 | $211,065 | $7,419 | $73,990 | $643,937 | | Europe, excluding Poland | $399 | $20 | $103,972 | $25,011 | $129,402 | | Canada | $18,790 | $8,378 | $174 | $15,704 | $43,046 | | Poland | $21 | $0 | $39,134 | $2,782 | $41,937 | | Mexico | $20,630 | $34 | $52 | $5,251 | $25,967 | | Other foreign | $2,738 | $751 | $5,968 | $13,486 | $22,943 | | Total | $394,041 | $220,248 | $156,719 | $136,224 | $907,232 | Note 18. Commitments and Contingencies SMP faces commitments and contingencies primarily related to asbestos litigation, other legal claims, and product warranties, with liabilities estimated based on actuarial studies and historical experience Asbestos SMP's asbestos liability, assumed from a 1986 acquisition, includes 848 outstanding cases and an estimated undiscounted liability of $99.6 million to $210.8 million through 2065 * SMP assumed asbestos liabilities from a 1986 brake business acquisition, with approximately 848 cases outstanding as of June 30, 2025[122][123] * Total payments for settled claims and awards since September 2001 through June 30, 2025, were approximately $101 million[125] * An August 31, 2024, actuarial study estimated undiscounted liability for settlement payments (excluding legal costs) through 2065 to range from $99.6 million to $210.8 million, resulting in a $29.3 million increase to the asbestos liability in September 2024[127][128] Other Litigation SMP is involved in various legal claims, but management believes their ultimate outcome will not materially adversely affect the company's financial position * SMP is involved in various legal claims including commercial disputes, product liability, employment, and environmental matters[130] * Management believes the ultimate outcome of these matters will not have a material adverse effect on the business, financial condition, or results of operations[130] * Provisions for liabilities are recorded when the liability is considered probable and reasonably estimable[130] Warranties SMP's accrued product warranty liability increased to $35.6 million at June 30, 2025, with costs based on historical claims experience * Product warranties are provided against manufacturing and other defects for specific periods, with accrued costs based on historical claims experience[133] Product Warranty Changes (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Balance, beginning of period | $24,715 | $21,134 | $3,581 | 16.9% | | Liabilities accrued for current year sales | $67,453 | $65,680 | $1,773 | 2.7% | | Settlements of warranty claims | $(56,536) | $(59,271) | $2,735 | -4.6% | | Balance, end of period | $35,632 | $27,543 | $8,089 | 29.4% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on SMP's financial performance, condition, and future outlook, covering key drivers, risks, and strategic initiatives * The report contains forward-looking statements subject to risks and uncertainties, including changes in customer relationships, supply chain financing, production costs, market conditions, and successful integration of acquired businesses[135] * SMP is a leading manufacturer and distributor of automotive aftermarket parts and a custom-engineered solutions provider, operating in four segments: Vehicle Control, Temperature Control, Nissens Automotive, and Engineered Solutions[136] Overview Standard Motor Products, Inc. is a leading global manufacturer and distributor of automotive aftermarket parts and custom-engineered solutions, operating across four segments * SMP is a leading manufacturer and distributor of premium replacement parts in the automotive aftermarket and a custom-engineered solutions provider[136] * The company's operating segments include Vehicle Control, Temperature Control, Nissens Automotive (acquired in Q4 2024), and Engineered Solutions[136] * Nissens Automotive specializes in thermal management and engine efficiency products for the European automotive aftermarket[139] Overview of Financial Performance Consolidated net sales for Q2 2025 increased by 26.7% to $493.9 million, with gross margin improving to 30.6% and operating income rising to $42.8 million Key Financial Performance Highlights (Three Months Ended June 30, in thousands, except per share data) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Net sales | $493,853 | $389,829 | $104,024 | 26.7% | | Gross profit | $150,889 | $111,447 | $39,442 | 35.4% | | Gross profit % | 30.6% | 28.6% | 2.0 pp | 7.0% | | Operating income | $42,836 | $24,986 | $17,850 | 71.4% | | Operating income % | 8.7% | 6.4% | 2.3 pp | 35.9% | | Net earnings attributable to SMP | $25,242 | $17,063 | $8,179 | 47.9% | | Diluted EPS (attributable to SMP) | $1.13 | $0.77 | $0.36 | 46.8% | * Net sales increase driven by $90.5 million from Nissens Automotive, higher demand in Vehicle Control, and strong customer orders in Temperature Control, partly offset by decreased sales in Engineered Solutions[144][145] * Gross margin percentage increased due to higher sales volumes, improved operating performance, cost control measures, and favorable foreign currency exchange rates[144][146] United States Trade Policy and Tax Law SMP manages tariff exposures through operational optimization and a diverse global footprint, with new tax reform not expected to have a material impact * SMP is exposed to higher tariffs on imports from certain countries, including Canada, Mexico, China, and the European Union[149] * Mitigation strategies include optimizing operations, implementing cost and pricing measures, and leveraging a diverse global footprint[149] * The One Big Beautiful Bill Act (OBBBA), signed in July 2025, is not expected to have a material impact on SMP's consolidated financial statements[150] Sustainability SMP is committed to sustainability, focusing on reducing environmental impact and offering products that contribute to a greener car parc * SMP's sustainability initiatives are founded on values of integrity, common decency, and respect, as embodied in its Code of Ethics[151] * Key environmental efforts include reducing energy and water usage, waste generation, increasing recycling, and reducing Scope 1 and Scope 2 greenhouse gas emissions[152] * SMP's product offerings contribute to a greener car parc through components that improve fuel economy, reduce harmful emissions, and support alternative energy vehicles, alongside remanufacturing processes[152][153] Interim Results of Operations This section analyzes SMP's financial performance for Q2 and H1 2025 compared to 2024, detailing segment-specific net sales, gross margins, operating expenses, and income Comparison of the Three Months Ended June 30, 2025 to the Three Months Ended June 30, 2024 Consolidated net sales increased by 26.7% to $493.9 million, with gross margin improving to 30.6% and operating income rising by 71.4% to $42.8 million * Consolidated net sales increased by $104 million (26.7%) to $493.9 million, with increases across all aftermarket operating segments[155] * Gross margins increased to 30.6% (from 28.6%), primarily benefiting Temperature Control (due to higher production and cost savings) and Nissens Automotive (38.9%), while Vehicle Control and Engineered Solutions saw decreases[161][162][163][164][165] * Operating income increased by $17.9 million (71.4%) to $42.8 million, including $10 million from Nissens Automotive[170] * Selling, general and administrative expenses increased by $23.6 million, mainly due to $25.2 million from Nissens Automotive, partly offset by lower acquisition-related and distribution transition expenses[167] * Interest expense rose to $8.3 million (from $2.8 million) due to higher average outstanding borrowings for the Nissens Automotive acquisition[172] Comparison of the Six Months Ended June 30, 2025 to the Six Months Ended June 30, 2024 Consolidated net sales increased by 25.8% to $907.2 million, with gross margin improving to 30.4% and operating income rising by 69.9% to $67.3 million * Consolidated net sales increased by $186.0 million (25.8%) to $907.2 million, with all aftermarket segments showing increases[176] * Gross margins increased to 30.4% (from 27.9%), with Temperature Control and Engineered Solutions showing improvements, while Vehicle Control saw a slight decrease due to tariffs[182][183][185] * Operating income increased by $27.7 million (69.9%) to $67.3 million, including $12.6 million from Nissens Automotive[189] * Selling, general and administrative expenses increased by $48.7 million, primarily due to $45.8 million from Nissens Automotive and higher expenses related to increased net sales in Temperature Control[186] * Interest expense rose to $16.1 million (from $4.8 million) due to higher average outstanding borrowings for the Nissens Automotive acquisition[191] Restructuring Programs This section refers to Note 4 for a detailed discussion on restructuring costs, including the Separation Program and Cost Reduction Initiative * Detailed discussion on restructuring costs is provided in Note 4, 'Restructuring Expenses,' of the notes to the consolidated financial statements[195] Liquidity and Capital Resources SMP's liquidity is supported by operating cash flows and its $750 million 2024 Credit Agreement, with total debt increasing to $636.6 million due to the Nissens Automotive acquisition * Primary cash requirements include working capital, capital expenditures, quarterly dividend payments, stock repurchases, principal and interest payments on indebtedness, and acquisitions[196] Liquidity Summary (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Operating cash flows (six months) | $(5,903) | $(10,139) | | Total debt | $636,629 | $562,314 | | Cash | $58,792 | $44,426 | | Net debt | $577,837 | $517,888 | | Remaining borrowing capacity | $128,420 | $193,379 | | Total liquidity | $187,212 | $237,805 | * SMP anticipates adequate cash flow from operations, available cash, and borrowings under the 2024 Credit Agreement to meet liquidity needs for at least the next twelve months, subject to macroeconomic risks[216][217] Critical Accounting Policies and Estimates SMP identifies valuation of long-lived assets, goodwill, and asbestos litigation as critical accounting policies, with no material changes reported from the prior annual filing * Critical accounting policies and estimates include "Valuation of Long-Lived and Intangible Assets and Goodwill" and "Asbestos Litigation"[219] * No material changes to these policies have occurred since December 31, 2024[219] * Future estimates may be materially impacted by supply chain disruptions, interest rate increases, inflation, and macroeconomic uncertainty[220] Recently Issued Accounting Pronouncements This section refers to Note 2 for a detailed discussion on recently issued accounting pronouncements and their impact on the consolidated financial statements * For a detailed discussion on recently issued accounting pronouncements, refer to Note 2, "Summary of Significant Accounting Policies"[221] Item 3. Quantitative and Qualitative Disclosures About Market Risk SMP is exposed to market risks from foreign currency exchange rates and interest rates, which are managed using derivative and non-derivative instruments * SMP's primary market risks are related to foreign currency exchange and interest rates[222] * Derivative financial instruments (interest rate swaps, forward foreign exchange contracts) and non-derivative instruments (foreign currency denominated debt) are used to manage exposures, not for trading or speculative purposes[222] Foreign Exchange Rate Risk SMP has foreign exchange exposure to multiple currencies, with Euro-denominated debt hedging Nissens Automotive's Danish kroner operations, and a 10% change not expected to materially impact earnings * SMP has foreign exchange rate exposure to multiple currencies, including the Canadian dollar, euro, British pound, Polish zloty, Mexican peso, and Danish kroner[223] * Euro-denominated debt is designated as a non-derivative hedge of the net investment in Nissens Automotive's foreign operations (Danish kroner functional currency)[223] * A hypothetical 10% unfavorable change in foreign currency exchange rates is not expected to have a material impact on earnings or cash flows[224] Interest Rate Risk SMP manages interest rate risk by balancing fixed and variable rate debt, using swaps, with a 100 basis point increase potentially impacting earnings by $3.4 million annually * SMP manages interest rate risk through the proportion of fixed and variable rate debt and uses interest rate swap agreements to convert variable rate debt to fixed rates[225] * As of June 30, 2025, $401.2 million of outstanding borrowings under the 2024 Credit Agreement bear interest at variable rates[226] * A hypothetical, instantaneous and unfavorable change of 100 basis points in the interest rate may have an approximate $3.4 million annualized negative impact on earnings before income taxes or cash flows from borrowings, and an additional $2.6 million (QoQ) / $4.4 million (YoY) impact from receivables sales[227][228] Item 4. Controls and Procedures This item addresses the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures As of June 30, 2025, SMP's CEO and CFO concluded that the company's disclosure controls and procedures were effective * The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2025[231] Changes in Internal Control Over Financial Reporting No material changes in internal control over financial reporting occurred during Q2 2025, as the company integrates Nissens Automotive's controls * No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[232] * SMP is in the process of evaluating and integrating internal controls over financial reporting at Nissens Automotive, acquired in November 2024[233] PART II – OTHER INFORMATION Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 18, "Commitments and Contingencies," specifically the "Asbestos" section * Information required by this Item is incorporated by reference to Note 18, "Commitments and Contingencies," under the caption "Asbestos"[235] Item 6. Exhibits This item lists all exhibits filed as part of the Form 10-Q, including the 2025 Omnibus Incentive Plan, CEO/CFO certifications, and XBRL-related documents * Exhibits include the Standard Motor Products, Inc. 2025 Omnibus Incentive Plan, CEO/CFO certifications (Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL documents[236] Signatures The report is duly signed on behalf of Standard Motor Products, Inc. by Nathan R. Iles, Chief Financial Officer, on August 5, 2025 * The report is signed by Nathan R. Iles, Chief Financial Officer, on behalf of Standard Motor Products, Inc[239] * The signing date of the report is August 5, 2025[239]