# TO OUR SHAREHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NYSE_SMP_2020/NYSE_SMP_2020.mmd` · pages 3-9_

---

TO OUR SHAREHOLDERS,

A good way to assess the strength of an organization is to see how it performs in an unexpected, unprecedented, and difficult situation. Such was the case with the COVID-19 pandemic, making 2020 a year unlike any other.

When the pandemic struck in early 2020, the nation went into a widespread lockdown. People sheltered at home. They stopped using their cars – the streets were empty.

We were left to figure out for ourselves how to navigate the situation. With no playbook to follow, our management team began meeting remotely every day, and agreed on the following principles.

Our first priority was the health and safety of our people. Fortunately, our industry was deemed essential, and we were able to continue to operate, but that created many challenges to ensure that our offices, distribution centers, and factories were safe.

We immediately instituted health and safety practices in all our locations, often exceeding CDC guidelines. We modified our locations to maximize social distancing, implemented temperature checks upon entering facilities, and conducted frequent deep cleaning. We also established robust incident response protocols in the event of a reported COVID-19 case, including contact tracing, decontamination of the affected areas, and mandatory quarantines.

We were very pleased with our results. Our facilities continued to operate throughout the crisis, and though we have had our share of cases, we believe that no one contracted the disease while at work.

Our second focus was on financial management. With no knowledge as to how long the crisis would last, we assumed worst-case scenarios. Since we were starting from a very healthy position, we were confident that we could weather the downturn. However, it would require substantial cost cutting and cash conservation.

Early on, we made a decision that while we would eliminate nearly all travel expenses and significantly cut discretionary spending, we would do nothing which would affect the long-term strength of the Company. To conserve cash, we suspended our dividend and placed our stock buyback program on hold. (These programs were reinstated later in the year when business rebounded.)

However, we chose not to terminate any of our salaried employees, recognizing that lost talent is difficult to recover. We retained all of our engineers, continuing to fund research and development efforts and our capital-spending program, as these are investments for the future.

Our sales force was a special case. With no ability to travel, and all customers prohibiting visitors, many in the industry furloughed their sales organizations. We knew that once we emerged from the crisis, a skilled and motivated sales force would be a true differentiator. We therefore used the opportunity to provide extensive remote training from our award-winning training department to all our sales people in product knowledge and selling skills.

Our third priority was communications. With so much uncertainty and concern on everyone's part, we knew we would have to communicate with our employees, our customers, and all other stakeholders more frequently and thoroughly than ever before. Using the benefit of technology, we held frequent virtual "town halls" with all our people, keeping everyone informed on all that was going on. We did the same with our customers, holding "top to top" meetings with our key accounts. These events have all proven extremely worthwhile, and we plan to continue them in the future.

As we now know, our industry proved extremely resilient. People need their vehicles, even more so when they are not using planes or public transportation. Business started to bounce back in June and finished the year quite strong. We made up most of the volume shortfall from early in the pandemic and ended the year with sales only slightly below 2019.

Profits performed even better. With the benefits of strong cost reduction programs (a good deal of which we plan to carry forward into 2021), we achieved an all-time record for profit.

<--- Page Split --->

We did receive one piece of bad news as the year drew to an end. One of our largest customers informed us that they would be changing the way they went to market, and would be switching their engine management program to a private brand offering, sourcing the product from multiple domestic and offshore vendors. While this was surely a major disappointment, we are encouraged by the fact that all of our major customers have advised us that they continue to prefer our value proposition of a high-quality, full-coverage program, enhanced by value-added services. Further, many of these customers honored us with their "Vendor of the Year" award. Still, this is a hole we need to fill, and we are working aggressively to do so while undertaking judicious cost reductions.

2020 also marked a significant step forward in enhancing our approach to corporate responsibility with our Environmental, Social, and Governance (ESG) initiative. Throughout our 100-year history, SMP has strived to be a good corporate citizen to our employees, customers, business partners and the communities within which we operate. We were founded on the values of ethics, integrity, common decency, and most importantly respect for others, and to this day, we pride ourselves on being diverse and inclusive.

This year we published our inaugural Corporate Social Responsibility and Sustainability Report, which details various actions that we have taken. This report showcases various elements of our program, such as developing and marketing products to improve the environmental impact of the car parc, reducing the carbon footprint of our operations, pursuing increased diversity and inclusion among our team members, enhancing employee health and safety, and engaging in community outreach. We believe that it has never been more important to be a good corporate citizen, and we are committed to that mission.

As we head into 2021, we wish to report on two personnel changes. Executive Chairman Larry Sills – grandson of the founder Elias Fife, father of the current CEO Eric Sills, and who has served the Company in many capacities for over 50 years – will be stepping back from certain day-to-day activities, while retaining the role of Chairman of the Board. Second, Roger Widmann, who has been an outstanding contributor to our Board of Directors for 16 years, and has served as Chairman of the Compensation and Management Development Committee, will be retiring in May. We offer Larry and Roger our profound thanks for their contributions to the Company.

To conclude, we are extremely proud of what our company accomplished in 2020. Facing an unprecedented situation, we overcame all of our challenges, and believe we are emerging stronger than ever. But we could not have accomplished any of this if it were not for the dedicated and talented people of our company. It was their creativity, hard work and enthusiasm that kept us going, often under very difficult conditions. We owe them our eternal gratitude.

![](images/4_0.jpg)

LAWRENCE I. SILLS
Chairman of the
Board

![](images/4_1.jpg)

ERIC P. SILLS
Director, Chief
Executive Officer
& President

![](images/4_2.jpg)

JAMES J. BURKE
Chief Operating
Officer

![](images/4_3.jpg)

DALE BURKS
Executive Vice
President & Chief
Commercial Officer

![](images/4_4.jpg)

NATHAN R. ILES
Chief Financial Officer

![](images/4_5.jpg)

![](images/4_6.jpg)

![](images/4_7.jpg)