UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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| | ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20202022
Or
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| | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-5690
GENUINE PARTS COMPANY
(Exact name of registrant as specified in its charter)
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| GA | | | | 58-0254510 |
| (State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification No.) |
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| 2999 WILDWOOD PARKWAY, | | | | |
| ATLANTA, | GA | | | | 30339 |
| (Address of principal executive offices) | | | | (Zip Code) |
678-934-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $1.00 par value per share | GPC | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232,495 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
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| Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
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| Emerging growth company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2020,2022, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $12.2$18.7 billion based on the closing sale price as reported on the New York Stock Exchange.
There were 144,404,012140,807,089 shares of the Company'scompany's common stock outstanding as of February 15, 2021.20, 2023.
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the Company’scompany’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 29, 2021May 1, 2023 are incorporated by reference into Part III of this Form 10-K.
PART I.
ITEM 1. BUSINESS.
Genuine Parts Company, “GPC”, a Georgia corporation incorporated on May 7, 1928, is a leadingglobal service organization engaged in the distribution of automotive and industrial replacement parts, eachas described in more detail below. In 2020,2022, our business was conducted from more than 10,00010,600 locations throughout North America, Europe, Australia and New Zealand ("Australasia") viathrough an offering of best in class operating and distribution efficiencies, industry leading coverageassortment of consumable/replacement parts, outstanding just-in-time service and enhanced technology solutions.solution.
As used in this report, "we," "us," "our," "GPC," and the “Company”“company” refers to Genuine Parts CompanyGPC and its subsidiaries, except as otherwise indicated by the context; and the terms “automotive parts” and “industrial parts” refer to replacement parts in each respective category.
For financial information regarding segments as well asOUR PURPOSE & STRATEGY
We are one global team unified by our geographicpurpose: We Keep the World Moving. This is the foundation for how we do business. Our mission is to be an employer of choice, supplier of choice, valued customer, good corporate citizen and investment of choice for all our shareholders. Additionally, we strive to be a respected community member that gives back to the communities in which we operate. In order to execute this mission, we align our resources with strategic areas of operation, refer to the segment data footnote in the Notes to Consolidated Financial Statements.
The Company’s website can be found at www.genpt.com. The Company makes available, free of charge through its website, access to the Company’s Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other reports, and any amendments to these documents, as soon as reasonably practicable after such material is filed with or furnished to the Securities and Exchange Commission (“SEC”). Additionally,focus for our corporate governance guidelines, codes of conduct and ethics, and charters of the Audit Committee and the Compensation, Nominating and Governance Committee of our Board of Directors, as well as information regarding our procedure for shareholders and other interested parties to communicate with our Board of Directors, are availableoperations. Specifically, we focus on our website.
In Part III of this Form 10-K, we incorporate certain information by referencemarket-leading automotive and industrial businesses in North America, Europe and Australasia to our proxy statement for our 2021 annual meeting of shareholders. We expect to file that proxy statement with the SEC on or about March 2, 2021,deliver profitable growth, operational efficiencies and we will make it available online at the same time at http://www.proxydocs.com/gpc. Please refer to the proxy statement for the information incorporated by reference into Part III of this Form 10-K when it is available.
BUSINESS PRODUCTS GROUPstrong cash flow.
We previously reported the resultshave strategic initiatives designed to build on our current competitive advantages. We believe our primary competitive advantages are our: (1) global presence and brand strength; (2) best-in-class operating and distribution efficiencies; and (3) enhanced technology solutions.
Our strategic financial objectives are intended to complement our mission and drive value for all our stakeholders. These financial objectives include: (1) revenue growth in excess of our Business Products Group asmarket growth; (2) improved operating margins; (3) a segment. The Business Products Group was engaged in the wholesale distribution of a broad line of office and other business-related products through a diverse customer base of resellers for use in businesses, schools, offices, and other institutions. Business products fall into the general categories of office furniture, technology products, general office, school supplies, cleaning, janitorial and break room supplies, safety and security items, healthcare products and disposable food service products. As further described in the acquisitions, divestitures and discontinued operations footnote in the Notes to Consolidated Financial Statements, effective June 30, 2020, the Company completed the divestiture of its Business Products Group by selling Supply Source Enterprises, Inc. ("SSE") and S.P. Richards Company ("SPR") in separate transactions. The results of operations, financial positionstrong balance sheet and cash flowsflows; and (4) effective capital allocation. Our strategy is designed to position us for the Business Products Group are reported as discontinued operations for all periods presented. The Company maintains an immaterial investment in SPR, which is included within other assets on the consolidated balance sheet. As a result of the reclassification of the Business Products Group business to discontinued operations, we now have two segments: the Automotive Parts Grouplong-term growth and the Industrial Parts Group. Our description and discussion within this "Item 1. Business" reflect the continuing operations, unless otherwise noted. Our segments are further detailed in the segment data footnote in the Notes to Consolidated Financial Statements.enhance shareholder value.
OUR SEGMENTS
AUTOMOTIVE PARTS GROUP ("Automotive")
TheOur Automotive Parts Group distributessegment is the largest global automotive network of parts and care, distributing automotive parts, accessories and accessoryservice items in North America, Europe and Australasia. TheOur Automotive Parts Groupbusiness offers complete inventory, cataloging, marketing, training and other programs to the automotive aftermarket in each of these regions towhich distinguish itselfthis business from the competition. To complement its competitiveness in
In North America, Automotive sells parts primarily under the automotive aftermarket, this Group includes select investments in digital/e-commerce businesses across our operations.
During 2020, the Company’s Automotive Parts Group included National Automotive Parts Association ("NAPA") automotive partsbrand name through distribution centers and automotive parts stores (“auto parts stores” or “NAPA AUTO PARTS stores”) owned and operated in the United States ("U.S.") by the Company and its U.S. Automotive Group; NAPA and Traction automotive parts distribution centers and auto parts stores in the U.S. and Canada owned and operated by the Company and NAPA Canada/UAP Inc. (“NAPA Canada/UAP”), a wholly-owned subsidiary of the Company; auto parts stores and distribution centers in the U.S. operated by corporations in which the Company owned either a noncontrolling or controlling interest; auto parts stores in Canada operated by corporations in which NAPA Canada/UAP owns a 50% interest; Repco and other automotive parts distribution centers, branches and auto parts stores in Australasia owned and operated by GPC Asia Pacific, a wholly-owned subsidiary of the Company; automotive parts distribution centers and auto parts stores in. In Europe, owned and operated by Alliance Automotive Group (“AAG”), a wholly-owned subsidiary of the Company.company, is a leading distributor of vehicle parts, tools and workshop equipment with its primary operations in nine European countries. AAG is rolling out the NAPA brand of products and currently serves its customers under a variety of banners, including Groupauto, Precisium Group, Pièces Auto, UAN, Alliance Automotive Group Germany, PartsPoint and Lausan. In Australasia, Automotive serves the market primarily under the Repco and NAPA brand names.
Our global Automotive network sells to customers in both commercial do-it-for-me (“DIFM”) and retail do-it-yourself (“DIY”) segments of the market and covers substantially all global motor vehicle models. DIFM customers include local, regional and national repair centers, auto dealers, service stations and both private and public sector accounts. DIY customers are primarily served over-the-counter at our global stores or digitally. DIFM and DIY customers account for approximately 80% and 20% of Automotive total sales, respectively.
As part of our ongoing strategy, our Automotive network grew in 2022 with acquisitions of various strategic and bolt-on store groups in North America, Europe and Australasia. In Europe, we expanded our footprint in two new key markets in Spain and Portugal, Europe's fifth largest market, while also expanding into Eastern Germany. In Australasia, we acquired a leading Australian branded direct-to-consumer distributor of lighting products focused on the four-wheel drive market in Australasia and continued our bolt-on strategy in North America.
Store Network. The following table details the breakdown of our Automotive distribution network including our distribution centers, company-owned and independently-owned automotive stores by geographic region as of December 31, 2022.
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| | North America | | Europe | | Australasia | | Total |
| Distribution centers | | 77 | | | 78 | | | 14 | | | 169 | |
| Company-owned stores | | 1,682 | | | 742 | | | 529 | | | 2,953 | |
| Independently-owned stores | | 5,037 | | | 1,642 | | | — | | | 6,679 | |
| Total locations | | 6,796 | | | 2,462 | | | 543 | | | 9,801 | |
The Company’s automotive partsmix of company-owned stores versus independently-owned stores in a given market varies based on several factors including our overall market strategy, the ability to access desirable local retail space, the complexity, profitability and expected ultimate size of the market and our ability to provide operational support within a geographic region. In our Australasian operations, we go to market with a company-owned store model.
Independently-owned stores purchase inventory from company-operated distribution centers. These independently-owned stores are responsible for operating and managing their business, including operating costs and capital expenditures. We do not receive a royalty or franchise fee from independently-owned stores.
Our 169 Automotive distribution centers distributeserve both company-owned and independently-owned stores located throughout the geographic regions in which we operate. Both types of automotive stores, in turn, sell to a wide variety of customers in the automotive aftermarket. During 2022, we expanded our network with the addition of 138 net new stores during the year.
Products. Our automotive distribution network provides access to hundreds of thousands of different replacement parts (other than body parts) for substantially all motor vehicle makes and models, in service in the U.S., including imported vehicles, hybrid and electric vehicles, trucks, SUVs, buses, motorcycles, recreational vehicles and farm vehicles. Each part is cataloged and numbered for identification and accessibility. Availability is a critical success factor in our business and our teams utilize data and analytics to have the right parts, in the right place and at the right time. We do not manufacture any of the products we distribute. The majority of products distributed in North America are under the NAPA name, a mark licensed to us by NAPA, which is important to the sales and marketing of these products. In addition,Australasia and Europe, products are distributed under several brand names, including many of the Company distributesnational brands, as well as the NAPA name. Our Automotive operations have access to more than 725,000 different parts and related supply items. These items are purchased from hundreds of different suppliers, with approximately 46% of 2022 automotive parts inventories purchased from 10 major suppliers.
We also distribute replacement parts for small engines, farm equipment, marine equipment and heavy duty equipment. The Company’sOur inventories also include accessory items for such vehicles and equipment, and supply items used by a wide variety of customers in the automotive aftermarket, such as repair shops, service stations, fleet operators, automobile and truck dealers, leasing companies, bus and truck lines, mass merchandisers, farms, industrial concerns and individuals who perform their own maintenance and parts installation.
The Company's automotiveTraction, our heavy duty parts network was expanded in 2020 via the acquisition of various store groups and automotive operationsbusiness in North America Europe and Australasia.
Distribution System. In 2020, the Company's U.S. Automotive Group operated 52 domestic NAPA automotive parts distribution centers located in 37 states and approximately 1,190 domestic company-owned NAPA AUTO PARTS stores located in 46 states. The U.S. Automotive Group is supported by several operations that are integral to the NAPA supply chain. In addition, this Group operates two TW Distribution heavy duty parts distribution centers which serve 22 company-owned Traction Heavy Duty parts stores located in eight states.
At December 31, 2020, the Company had either a noncontrolling, controlling (less than 100% owned) or other interest in seven corporations, which operated approximately 268 auto parts stores in 12 states. The Company’s domestic automotive operations have access to approximately 565,000 different parts and related supply items. These items are purchased from hundreds of different suppliers, with approximately 48% of 2020 automotive parts inventories purchased from 10 major suppliers. Since 1931, the Company's domestic operations have had return privileges with most of its suppliers, which have protected the Company from inventory obsolescence.
The Company’s domestic distribution centers serve the company-owned NAPA AUTO PARTS stores and approximately 4,700 independently-owned NAPA AUTO PARTS stores located throughout the U.S. NAPA AUTO PARTS stores, in turn, sell to a wide variety of customers in the automotive aftermarket. Collectively, sales to these independent automotive parts stores account for approximately 60% of the Company’s total U.S. Automotive sales and 22% of the Company’s total sales.
NAPA Canada/UAP, founded in 1926, is a leader in the distribution and marketing of replacement parts and accessories for automobiles and trucks and is also a significant supplier to the mining and forestry industries in Canada. NAPA Canada/UAP operates a network of eight NAPA automotive parts distribution centers, four heavy duty parts distribution centers, one fabrication/remanufacturing facility and one Altrom distribution center supplying 573 NAPA stores, 122 Traction wholesalers and 24 Altrom branches. The NAPA stores and Traction wholesalers in Canada include 198 company-owned stores, 13 joint ventures and 21 progressive owners in which NAPA Canada/UAP owns a 50% interest and 463 independently owned stores. NAPA and Traction operations supply bannered installers and independent installers in all provinces of Canada, as well as networks of service stations and repair shops operating under the banners of national accounts. NAPA Canada/UAP is a licensee of the NAPA® name in Canada.
In Australia and New Zealand, GPC Asia Pacific, originally established in 1922, is a leading distributor of automotive replacement parts and accessories. GPC Asia Pacific operates 12 distribution centers, 406 auto parts stores under the Repco banner, 112 auto parts stores under NAPA, Ashdown Ingram and other banners, and 18 locations associated with AMX/McLeod.
AAG, founded in 1989, is a leading European distributor of vehicle parts, tools, and workshop equipment with its primary operations in six countries in Europe. In France, AAG operates 17 distribution centers and serves 1,083 stores, of which 253 are company-owned, under the banners GROUPAUTO France, Precisium Group, Partner's, and GEF Auto. In the United Kingdom ("U.K."), AAG operates 34 distribution centers and serves 818 stores, of which 220 are company-owned, under the banners GROUPAUTO UK & Ireland and UAN. In Germany, AAG operates 11 distribution centers and 59 company-owned stores under the banner Alliance Automotive Group Germany. In Poland, AAG serves 210 affiliated outlets under the banner GROUPAUTO Polska. In the Netherlands and Belgium, AAG operates under the banner Alliance Automotive Group Benelux through a network of one national distribution center, 6 regional warehouses and 215 stores, of which 153 are company owned.
Products. The Company’s automotive distribution network provides access to hundreds of thousands of different parts and related supply items. Each item is cataloged and numbered for identification and accessibility. Significant inventories are carried to provide for fast and frequent deliveries to customers. The majority of orders are filled and shipped the same day they are received. The Company does not manufacture any of the products it distributes. The majority of products are distributed in North America under the NAPA® name, a mark licensed to the Company by NAPA, which is important to the sales and marketing of these products. Traction sales also includesells products distributed under the HD Plus name, a proprietary line of automotive parts for the heavy duty truck market. In Australasia and Europe, products are distributed under several brand names, including many of the national brands, as well as the NAPA® name.
Service to NAPA AUTO PARTS Stores. The Company believesWe believe that the quality and the range of services provided to itsour North American automotive parts customers constitute a significant advantage for itsour automotive parts distribution system. SuchOur goal is to properly stock our locations with the right parts to ensure we provide quick and quality service to our customers whose orders are often filled and shipped the same day they are received. Our services also include fast and frequent delivery,up to date parts cataloging (including the use of electronic NAPA AUTO PARTS catalogs) and stock adjustmentadjustments through a continuing parts classification system which, as initiated by the Company from time to time,us, allows independent retailers (“jobbers”)independently-owned stores to return certain merchandise on a scheduled basis. The Company offers itsWe offer our NAPA AUTO PARTS store customers various management aids, marketing aids and service on topics such as inventory control, cost analysis, accounting procedures, group insurance and retirement benefit plans, as well as marketing conferences and seminars, sales and advertising manuals and training programs.
The Company hasWe have developed and refined an inventory classification system to determine optimum distribution center and auto parts store inventory levels for automotive parts stocking based on automotive registrations, usage rates, production statistics, technological advances, including predictive analytics, and other similar factors. This system, which undergoes continuous analytical review, is an integral part of the Company’sour inventory control procedures and comprises an important feature of the inventory management services that the Company makeswe make available to itsour NAPA AUTO PARTS store customers. Over the last 25 years, losses to the CompanyLosses from inventory obsolescence have not been insignificantsignificant historically and the Company attributeswe attribute this to the successful operation of itsour classification system, which involvesincludes product return privileges with most of itsour suppliers.
NAPA. The Company isWe are the sole member of the National Automotive Parts Association, LLC a voluntary association formed in 1925 to promote the distribution of automotive parts for its members. NAPA, which neither buys nor sells
automotive parts, functions as a trade association whose sole member in 2020 owned and operated 52 distribution centers located throughout the U.S. NAPAthat develops marketing concepts and programs that may be used byfor its members which, at December 31, 2020, includes only the Company. It is not involved in the chain of distribution.sole member.
Among the automotive products purchased by the Companyus from various manufacturers for distribution are certain lines designated, cataloged, advertised and promoted as “NAPA” lines. Generally, the Company iswe are not required to purchase any specific quantity of parts so designated and itwe may and does, purchase competitive lines from the same as well as other supply sources.
The Company usesWe use the federally registered trademark NAPA® as part of the trade name of itsour distribution centers and parts stores. The Company fundsWe fund NAPA’s national advertising program, which is designed to increase public recognition of the NAPA name and to promote NAPA product lines.
The Company isWe are a party to, together with the former members of NAPA, to a consent decree entered by the Federal District Court in Detroit, Michigan, on May 4, 1954. The consent decree enjoins certain practices under the federal antitrust laws, including the use of exclusive agreements with manufacturers of automotive parts, allocation or division of territories among the Companyus and former NAPA members, fixing of prices or terms of sale for such parts among such members, and agreements to adhere to any uniform policy in selecting parts customers or determining the number and location of, or arrangements with, auto parts customers.
Competition.Competition. The automotive parts distribution businessaftermarket is highly competitive. The Company competesWe compete with other national, regional and local automotive parts chains, automobile manufacturers (some of which sell replacement parts for vehicles built by other manufacturers as well as those that they build themselves), automobile dealers, and warehouse clubs and large automotive parts retail chains.clubs. In addition, the Company competeswe compete with the distributing outlets of parts manufacturers, oil companies, mass merchandisers (including national retail chains), and with other parts distributors and retailers, including online retailers. The Automotive Parts Group competesWe compete primarily on availability of product offering, service, brand recognition and price. Our automotive competitors include AutoZone, Inc., O-Reilly Auto Parts, Inc., Advance Auto Parts, Inc., LKQ Corporation, Bapcor and Uni-Select, among many others. Further information regarding competition in the industry is set forth in “Item 1A. Risk Factors — We face substantial competition in the industries in which we do business.”
INDUSTRIAL PARTS GROUP ("Industrial")
TheOur Industrial Parts Groupsegment operates in both North America and Australasia.Australasia through our wholly-owned subsidiaries Motion Industries, Inc. (“Motion”), a wholly-owned subsidiary of the Company headquartered in Birmingham, Alabama, operates in North America.and Motion Asia Pacific, which was rebranded from the Inenco Group ("Inenco"), also a wholly-owned subsidiary of the Company headquartered in Sydney, Australia, operates across Australasia.Australia.
MotionIndustrial distributes industrial replacement parts and related supplies such as bearings, mechanical and electrical power transmission products, industrial automation and robotics, hose,hoses, hydraulic and pneumatic components, industrial and safety supplies and material handling products to MRO (maintenance,maintenance, repair and operation)operation (“MRO”) and OEM (originaloriginal equipment manufacturer)manufacturer (“OEM”) customers throughout the U.S., Canada, Mexico and Mexico.Australasia
In Canada, industrial parts are distributed by Motion Industries (Canada), Inc. (“Motion Canada”). The Mexican market is2022, our Industrial segment served by Motion Mexico S de RL de CV (“Motion Mexico”).
In 2020, Motion served approximately 170,000more than 200,000 OEM and MRO customers in all types of industries, located throughout North America, including the equipment and machinery, food and beverage, forest products, primary metals, pulp and paper, mining, automotive, oil and gas, petrochemical and pharmaceutical industries; as well as strategically targeted specialty industries such
as power generation, alternative energy, government, transportation, ports and others. MotionWe established a new electric vehicle battery category based on increasing opportunities presented by the build-out of new battery manufacturing facilities across North America. Our Industrial segment services all manufacturing and processing industries with access to a database of 10.4over 19 million parts. Additionally, Motion provides U.S. government agencies access to approximately 20,500 products and replacement parts through a Government Services Administration (“GSA”) schedule.
The Industrial Parts Groupbusiness provides customers with supply chain efficiencies achieved through the Company’s On-Site Solutionsour on-site solutions offering. This service provides inventory management, asset repair and tracking, vendor managed inventory ("VMI"), as well as radio frequency identification ("RFID") asset management of the customer’s inventory. MotionIndustrial also provides a wide range of services and repairs such as: gearbox and fluid power assembly and repair, process pump assembly and repair, hydraulic drive shaft repair, electrical panel assembly and repair, and hose and gasket manufacture and assembly, as well as many other value-added services.assembly. A highly developed supply chain with vendor partnerships and connectivity are enhanced by Motion’s leading e-business capabilities, such as MiSupplierConnect, which provides integration between the Company’sour information technology network and suppliers’ systems, creating numerous benefits for both the supplier and customer. These services and supply chain efficiencies assist Motion in providing the cost savings that many of its customers require and expect.
Distribution SystemNetwork.The following table details the breakdown of our Industrial distribution centers, branches and service centers by geographic region as of December 31, 2022.
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| | North America | | Australasia | | Total |
| Distribution centers | | 19 | | | 16 | | | 35 | |
| Branches | | 549 | | | 148 | | | 697 | |
| Service Centers | | 67 | | | 2 | | | 69 | |
| Total locations | | 635 | | | 166 | | | 801 | |
Our 35 Industrial distribution centers serve the branches and services centers located throughout the geographic regions in which we operate. The branches and service centers, in turn, sell to MRO and OEM customers in all types of industries across North America and Australasia.
In North America, theour Industrial Parts Groupbusiness stocks andor distributes more than 155,00019 million different items purchased from more than 75049,000 different suppliers. Its service centers provide hydraulic, hose and mechanical repairs for customers. Approximately 50%46% of total industrial product purchases in 20202022 were made from 11 majorour top 50 strategic suppliers. Sales are generated from facilities in the Industrial Parts Group’s facilities located in 49 states,U.S., Puerto Rico, Mexico and nine provinces in Canada and Mexico.Canada.
In Australasia, theour Industrial Parts Group operatedbusiness operates a network of distribution centers, branches and branchesservice centers across Australia, New Zealand, Indonesia and Singapore as of December 31, 2020.2022.
Our Industrial network was expanded on January 3, 2022 with the acquisition of Kaman Distribution Group ("KDG"). KDG, which is headquartered in Bloomfield, Connecticut, is a power transmission, automation and fluid power industrial distributor and solutions provider with operations throughout the United States, providing electro-mechanical products, bearings, power transmission, motion control and electrical and fluid power components to MRO and OEM customers. This strategic and highly synergistic combination significantly enhances our scale and strengthens our market leading position, creating a premier leader of industrial solutions.
Most branches have warehouseare facilities that stock significant amounts of inventory representative of the products used by customers in the respective market areas served.
Products. The Industrial Parts Group distributes a wide variety of parts and products to its customers, which are primarily industrial companies. Products include such items as hoses, belts, bearings, pulleys, pumps, valves, chains, gears, sprockets, speed reducers, electric motors, industrial supplies, assembly tools, test equipment, adhesives and chemicals. MotionIndustrial also offers systems and automation products that support sophisticated motion control and process automation for full systems integration of plant equipment. The nature of Motion's business demands the maintenance of adequate inventories and the ability to promptly meet demandingcritical delivery requirements. Virtually all of the products distributed are installed by the customer or used in plant and facility maintenance activities. Most orders are filled immediately from existing stock and deliveries are normally made within 24 hours of receipt of order.order receipt. The majority of all sales are on open account. Motion has ongoing purchase agreements with many of its national account customers which, collectively, represent approximately 45%40% of the annual sales volume.
SupplySupplier Agreements. Non-exclusive distributor agreements are in effect with most of the Industrial Parts Group’s suppliers. The terms of these agreements vary; however, it has been theour experience of the Industrial Parts Group that the custom of the trade is to treat such agreements as continuing until breached by one party or until terminated by mutual consent.
Competition. The industrial parts distribution business is highly competitive and fragmented. The Industrial Parts Group competesWe compete with othernational, regional and local distributors specializing in the distribution of such items, general line distributors and others who provide similar services. To a lesser extent, the Industrial Parts Group competeswe compete with manufacturers that sell directly to the customer and with various industrial eCommerce sites. TheOur Industrial Parts Group competescompetitors include Applied Industrial Technologies, Inc., Fastenal Company, and W.W. Grainger, Inc, among many others. We compete primarily on the breadth of product offerings, quality service and price.competitive pricing. Further information regarding competition in the industry is set forth in “Item 1A. Risk Factors — We face substantial competition in the industries in which we do business.”
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
We are committed to the development of sustainable and efficient operations and business practices that enhance and protect our people, our communities and our planet. Our goal is to generate above-market returns while aligning our business practices to support the interests of our stakeholders.
Our process of defining sustainability priorities focuses on the simultaneous improvement of our environmental, social and financial position, and our strong leadership and governance practices that strive to integrate sustainability into our business strategy and corporate culture. The Nominating and ESG Committee of the Board of Directors oversees our sustainability initiatives which aims to deliver long-term value for our shareholders and all our stakeholders.
We seek to promote a diverse, equitable and inclusive workplace and to ensure the health, safety and well-being of all employees. We emphasize giving back and uplifting the communities in which we operate through partnerships and volunteer efforts. Refer to the “Human Capital Management” section below for further information on our human capital management initiatives.
We are committed to reducing our environmental footprint and positively impacting the planet through the implementation of sustainable initiatives throughout our value chain. We have engaged a leading sustainability partner to assist us with calculating our global greenhouse gas footprint, which includes all our facilities and operations worldwide. The new global emissions calculation provides the basis for measuring and reporting progress on reducing emissions over time, and it serves as a guidepost as we develop a comprehensive global carbon abatement strategy. We have expanded the use of LED lighting retrofits and smart HVAC systems in our facilities and have continued to implement and monitor fleet management practices and policies to minimize our energy usage and carbon emissions. Additionally, we are helping our teammates, customers and the industry prepare for electric vehicles ("EVs") and the changes taking place in the market. We see this as an opportunity to lead our industry with knowledge and new products for EVs. We are continuously incorporating environmental stewardship in our practices and discovering opportunities to develop more efficient operations.
Additional information regarding our sustainability efforts and future initiatives can be found in our 2022 Sustainability Report and the Sustainability section of our website at www.genpt.com.
HUMAN CAPITAL MANAGEMENT
The Company’sOur key human capital management objectives are to attract, retain and develop the highest quality talent. To support these objectives, the Company’sour human resources programs are designed to CONNECTconnect prospective and current talent to opportunities at the Company, ENGAGEcompany, engage current employees through an inclusive and diverse culture, with an emphasis internally and throughout the community, and helpdevelop employees to GROWgrow for future opportunities within the organization.
Employee Retention and Professional Development
As of December 31, 2020, the Company2022, we employed approximately 50,00058,000 people worldwide and operated within 1417 countries. We take pride in our employees and are committed to helping our employeesthem improve their physical, emotional, financial and financialsocial well-being. Our benefit offerings are designed to meet the varied and evolving needs of a diverse workforce across businesses and geographies while helping our employees care for themselves and their families. We offer benefits aimed at improving quality of care while limiting out-of-pocket costs. In addition, our well-being programs include an online platform that offers an interactive way to accomplish personal and financial goals and a rewards platform to reward employees for completing Companycompany sponsored competitions and well-being activities.
The CompanyWe periodically conductsconduct a global Engagement Survey ("the Engagement Survey")engagement survey as a means of measuring employee engagement and satisfaction, as well as a tool for improving our human capital management strategies. Our managementleadership team reviews the survey results and based on the survey responses, we have built action plans are developed to focus on areas of improvement.opportunity. We are pleased to report
that the 2020 Engagement Surveyour most recent engagement survey results were favorable overall favorable and have shown that our employees are proud to work for the Company.us. The results of the 2020 Engagement Survey and futureengagement surveys help us to continuously improve our human capital strategies and find ways to foster engagement and growth for our employees.
In addition, to empower employees to continually enhance their skills and reach their maximum potential, we provide a range of development programs, resources, and opportunities to help them be successful.opportunities. Many are facilitated locally by each business with core leadership development at the Corporate level. One of our more significant programs is focused on high potential employees from all businesses globally.global business units. This program is a combination of in-person and virtual coursework and training with the intent tothat participants become fully immersed in the operations of our business and developingdevelop strategies and improvements cross-functionally. The CompanyWe also offersoffer various internship and rotational programs. Our internship and rotational programs that allow employees to see different operations of our business while also building strong relationships throughout the Company. Additionally, we offer variouscompany. Other development opportunities include on-demand and live training courses to help our employees achieve their professional and personal goals. We believe these programs demonstrate the Company’sour ongoing commitment of developingto develop our future leaders.
Diversity, Equity and Inclusion ("DEI")
Our culture is strengthened by our core values, which includes a steadfast commitment to diversitystanding up for equality for our teammates, suppliers, customers, communities and inclusion.other stakeholders. As part of our investment in our people, we make diversity, equity and inclusion a top priority. We promote a diverse, inclusive, and innovative culture that encourages and embraces change, diverse ideas, and perspectives. We strive to ensure our teammates reflect our global and diverse customer base. We are committed to creating a welcoming environment where all teammates have opportunities to grow and feel a sense of belonging, regardless of gender, sex, race, color, religion, national origin, age, disability, veteran status, sexual orientation, gender expression or experiences. Our goal is to
create aan inclusive and welcoming culture where we value, respect, and provide fair treatment and equal opportunities for all employees.
In addition, the Company has created aOur Diversity, Equity, and Inclusion Committee,Council, led by senior leadership and representatives from each business unit have helped to ensure accountabilities exist to advance new and current DEI initiatives. Some initiatives include, providing scholarships with an emphasis for students who attend Historically Black Colleges and causes directed at leveling the playing field for all concerned.Universities and collaboration with organizations that support women such as Women in Technology and Women in Auto Care. Our commitment also includes supporting organizations that advance the interests of impacteddisadvantaged individuals as well as supporting ourand communities in need. InWe continue to partner with Georgia Minority Supplier Diversity Council, the year ended December 31, 2020, our senior leaders also participated in trainingGeorgia Hispanic Chamber of Commerce, United Way's African American Partnership and discussions around the creation of an inclusive workplace. Employees at all levels across the organization are also participating in trainings to gain a better understanding of unconscious bias and its impact on the business. Young Professional Leaders programs.
Our efforts are also directed internally where we encourage the exchange of ideas, actively listen to employee dialogue, provide appropriate training, and ensure that the interests of all our employees are supported and advanced. This year we launched four business resource groups ("BRGs") - African American, Asian, Veteran and Women, for our corporate teammates in the Unites States. These BRGs provide our teammates with venues for personal and professional development, including networking, coaching, skill building, community engagement, volunteering and advancement opportunities. These groups play a key role in educating and engaging teammates in our DEI goals and efforts. We aim to leverage key learnings from these groups and expand the program globally. Overall, the Company seekswe seek to create an environment where there is a sense of belonging and all voices are heard and valued.
Please refer to the Company's 2020our 2022 Sustainability Report and Human Rights Policy, which can be found on the Company'sour investor relations website, for further information on human capital management.
Additional Information
Our website can be found at www.genpt.com. We make available, free of charge through our website, access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, any amendments to these documents, and other reports. These documents and reports are available under the Investor Relations section of our website as soon as reasonably practicable after such material is filed with or furnished to the Securities and Exchange Commission (“SEC”). We also use our website as a means of disclosing material information and for complying with our disclosure obligations under the SEC’s Regulation FD (Fair Disclosure). Important information, including news releases, analyst presentations and financial information regarding Genuine Parts is routinely posted on our website. Accordingly, investors should monitor the Investor Relations portion of our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. Additionally, our corporate governance guidelines, codes of conduct and ethics, charters of the Compensation and Human Capital Committee and the Nominating and ESG Committee, and information regarding our procedure for shareholders and other interested parties to communicate with our Board of Directors, are available also on our website.
In Part III of this Form 10-K, we incorporate certain information by reference to our proxy statement for our 2023 annual meeting of shareholders. We expect to file the proxy statement with the SEC on or about March 3, 2023, and it will be available online at the same time at http://www.proxydocs.com/gpc. Please refer to the proxy statement for the information incorporated by reference into Part III of this Form 10-K when it is available.
ITEM 1A. RISK FACTORS.
FORWARD-LOOKING STATEMENTS
Some statements in this report, as well as in other materials we file with the SEC or otherwise release to the public and in materials that we make available on our website, constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Senior officers may also make verbal statements to analysts, investors, the media and others that are forward-looking. Forward-looking statements may relate, for example, to future operations, including the anticipated synergies and benefits of any acquisitions or divestitures, as well as prospects, strategies, including the 2019 Cost Savings Plan, financial condition, economic performance (including growth and earnings), industry conditions and demand for our products and services. The Company cautionsWe caution that itsour forward-looking statements involve risks and uncertainties, and while we believe that our expectations for the future are reasonable in view of currently available information, you are cautioned not to place undue reliance on our forward-looking statements. Actual results or events may differ materially from those indicated in our forward-looking statements as a result of various important factors. Such factors include, but are not limited to, those discussed below.
Forward-looking statements are only as of the date they are made, and the Company undertakeswe undertake no duty to update itsour forward-looking statements except as required by law. You are advised, however, to review any further disclosures we make on related subjects in our subsequent Forms 10-Q, 8-K and other reports filed with the SEC.
You should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K. Set forth below are the material risks and uncertainties that, if they were to occur, could materially and adversely affect our business or could cause our actual results to differ materially from the results contemplated by the forward-looking statements in this report and in the other public statements we make. Please be aware that these risks may change over time and other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our business, financial condition, results of operations or the trading price of our securities. The considerations and risks that follow are organized within relevant headings but may be relevant to other headings as well. In addition, the material risks and uncertainties described below does not indicate that the risk has not already materialized.
STRATEGIC AND OPERATIONAL RISKS
The impact of the COVID-19 pandemic has significantly impacted worldwide economic conditions, and our operations and our financial results have been and will in the future be materially adversely impacted, and the duration and extent to which it will impact our business remains uncertain.
COVID-19, a novel strain of coronavirus, was reported in December 2019, with the World Health Organization declaring it a global pandemic on March 11, 2020. The COVID-19 pandemic has created significant volatility, uncertainty and disruption, with severe impacts on the United States and global economies. The COVID-19 pandemic has impacted a large portion of the world, including our domestic and international operations. If the pandemic continues to create disruptions or turmoil in the credit or financial markets, or impacts our credit ratings, it could adversely affect our ability to access capital on favorable terms or at all, meet our liquidity needs or amend and/or refinance our existing credit arrangements.
The extent to which the COVID-19 pandemic impacts the Company will depend on numerous factors and future developments that we cannot predict, including the severity of the virus; the occurrence of additional waves or spikes in infection rates; the duration of the outbreak; governmental, business or other actions taken in response to the pandemic and the efficacy of these actions, including partial or complete shut downs, travel restrictions, and stay-at-home orders among other actions; the effectiveness and distribution of COVID-19 vaccines; and impacts on our supply chain, our ability to keep operating locations open, and on customer demand.
As the pandemic continues to spread throughout the United States, consumer fears about COVID-19 continue and recommendations and/or mandates from federal, state and local authorities to avoid large gatherings of people or self-quarantine have persisted and/or increased, which has and will continue to adversely affect our operations. We have incurred and continue to incur additional costs related to efforts to protect the health and well-being of our team members, customers and the communities we serve. We expect to continue to incur additional costs, which may be significant, as we continue to implement operational changes in response to this pandemic.
We may further restrict the operations of our various distribution centers, branches or store facilities in both of our segments if we deem such action necessary or appropriate or if recommended or mandated by local government authorities. Additionally, we may incur significant incremental costs to ensure we meet the needs of our customers and our employees, including additional cleanings of our stores and other facilities. Also, if we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate or appropriate for a particular region or the Company as a whole, we could suffer damage to our reputation and our brand, which could adversely affect our business in the future. These items could have a further material impact on our sales and profits and could lead to significantly higher losses on outstanding customer receivables, guaranteed loans and asset impairment charges, among other things.
The COVID-19 pandemic has resulted in work and travel restrictions and delays, which have been expanded throughout the continued progression of the pandemic. These restrictions and delays have impacted and may continue to impact suppliers and manufacturers of certain of our products. This may make it difficult for our suppliers to source and manufacture products in, and to export our products from, affected areas. As a result, we may continue to face delays or difficulty sourcing certain products. These supply chain disruptions, as well as associated labor shortages within the supply chain, could cause inventory shortages, delays in order fulfillment and increased backlogs, and we may be unable to meet our customers’ expectations and requirements as result, which could negatively affect our business and financial results. Even if we are able to find alternate sources for such products, they may cost more, which could adversely impact our profitability and financial condition.
Additional adverse changes in economic conditions as a result of the pandemic may also lead to increased credit concerns and challenges to recover accounts receivable, reduced liquidity, adverse impacts on our suppliers and customers, including on their abilities to continue to operate as a going concern.
Further, the Company and management are focused on mitigating the impact of the COVID-19 pandemic, which has required and will continue to require, a large investment of time and resources and may delay other strategic initiatives. Additionally, many of our employees are working remotely and may continue to do so for an extended period. An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including but not limited to our ability to manage our business, cyber-security and data security risks, the potential vulnerabilities to our financial reporting systems and our internal control environment and the effectiveness of our internal controls over financial reporting.
Due to the unprecedented nature of COVID-19 and the myriad of responses thereto, we cannot identify all of the risks we face from the pandemic and its resulting impacts. Even after the pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession that has occurred or may occur. The pandemic could also amplify other risks and uncertainties described in our 2019 Annual Report on Form 10-K. The ultimate adverse impacts relating to the potential effect of the COVID-19 pandemic on our business and the costs that we may incur as a result cannot be reasonably estimated but could be material.
Our business will be adversely affected if demand for our products slows.
Our business depends on customer demand for the products that we distribute. Demand for these products depends on many factors.
With respect to our automotive group,Automotive segment, the primary factors are:
•the number of miles vehicles are driven annually, as higher vehicle mileage increases the need for maintenance and repair;
•the number of vehicles in the automotive fleet, a function of new vehicle sales and vehicle scrappage rates, as a steady or growing total vehicle population supports the continued demand for maintenance and repair;
•the quality of the vehicles manufactured by the original vehicle manufacturers and the length of the warranty or maintenance offered on new vehicles;
•the number of vehicles in current service that are six years old and older, as these vehicles are typically no longer under the original vehicle manufacturers’ warranty and will need more maintenance and repair than newer vehicles;
•the addition of electric vehicles, hybrid vehicles, ride sharing services, alternative transportation means and autonomously driven vehicles and future legislation, including tax incentives and restrictions on the sale of new internal combustion vehicles, related thereto;
•gas prices, as increases in gas prices may deter consumers from using their vehicles;
•changes in travel patterns, which may cause consumers to rely more on other transportation;
•the weather, as milder weather conditions may lower the failure rates of automotive parts, while extended periods of rain and winter precipitation may cause our customers to defer maintenance and repair on their vehicles; extremely hot or cold conditions may enhance demand for our products due to increased failure rates of our customers’ automotive parts, and global warming trends and other significant climate changes can create more variability in the short term or lead to other weather conditions that could impact our business;
•restrictions on access to diagnostic tools and repair information imposed by the original vehicle manufacturers or by governmental regulation, as consumers may be forced to have all diagnostic work, repairs and maintenance performed by the vehicle manufacturers’ dealer networks; and
•the economy generally, which in declining conditions may cause consumers to defer vehicle maintenance and repair and defer discretionary spending.
With respect to our industrial parts group,Industrial segment, the primary factors are:
•the level of industrial production and manufacturing capacity utilization, as these indices reflect the need for industrial replacement parts;
•changes in manufacturing reflected in the level of the Institute for Supply Management’s Purchasing Managers Index, as an index reading of 50 or more implies an expanding manufacturing economy, while a reading below 50 implies a contracting manufacturing economy;
•the consolidation of certain of our manufacturing customers and the trend of manufacturing operations being moved overseas, which subsequently reduces demand for our products;
•changes in legislation or government regulations or policies which could impact international trade among our multi-national customer base and cause reduced demand for our products; and
•the economy in general, which in declining conditions may cause reduced demand for industrial output.
We depend on our relationships with our suppliers, and a disruption of these relationships or of our suppliers’ operations could harm our business.
As a distributor of automotive and industrial parts, our business depends on developing and maintaining close and productive relationships with our suppliers. We depend on our suppliers to sell us quality products at favorable prices. A variety of factors, many outside our control, affect our suppliers' ability to deliver quality merchandise to us at favorable prices and in a timely manner. These include, raw material shortages, inadequate manufacturing capacity, labor strikes, shortages and disputes anywhere within the supply and distribution chain delivering products to us, tariff and customs legislation and enforcement, transportation disruptions, tax and other legislative uncertainties, pandemics (including the current COVID-19 pandemic) and/or weather conditions. Since the beginningIn recent years, partly as a result of the COVID-19 pandemic and other factors beyond our control, such as the ongoing Russia and Ukraine war, we have experienced supply chain disruptions, particularly with regard to global labor shortages in the U.S. and inventory sourced from China.outside the U.S. These disruptions have not had a material impact on our business to date, but we cannot provide any assurance that these or new supply chain disruptions will not materially or adversely impact our business, financial condition and results of operations in the futurefuture.
Furthermore, financial or operational difficulties at a particular supplier could cause that supplier to increase the cost, or decrease the quality, of the products we purchase. Supplier consolidation could also limit the number of suppliers from which we may purchase products and could materially affect the prices we pay for these products. In addition, we would suffer an adverse impact if our suppliers limit or cancel the return privileges that currently protect us from inventory obsolescence.
We face substantial competition in the industries in which we do business.
The sale of automotive and industrial parts is highly competitive and impacted by many factors, including name recognition, product availability, customer service, changing customer preferences, store location, and pricing pressures. Because we seek to offer competitive prices, we may be forced to reduce our prices if our competitors reduce their prices or increase promotional spending, which could result in a material decline in our revenues and earnings. Increased competition among distributors of automotive and industrial parts, including increased availability among digital and e-commerce providers across the markets in which we do business, could cause a material adverse effect on our results of operations. The Company anticipatesWe anticipate no decline in competition in any of itsour business segments in the foreseeable future.
In particular, the market for replacement automotive parts is highly competitive and subjects us to a wide variety of competitors. We compete primarily with national, international and regional auto parts chains, independently owned regional and local automotive parts and accessories stores, automobile dealers that supply manufacturer replacement parts and accessories, mass merchandisers, internet providers and wholesale clubs that sell automotive products, and regional and local full service automotive repair shops, both new and established.
Furthermore, the automotive aftermarket industry continues to experience consolidation. Consolidation among our competitors could further enhance their financial position, provide them with the ability to offer more competitive prices to customers for whom we compete, and allow them to achieve increased efficiencies in their consolidated operations that enable them to more effectively compete for customers. If we are unable to continue to develop successful competitive strategies or if our competitors develop more effective strategies, we could lose customers and our sales and profits may decline.
The impact of geopolitical conflicts may adversely affect our business and results of operations.
We have operations or activities in numerous countries and regions outside the United States, including throughout western Europe and Australasia. As a result, our global operations are affected by economic, political and other conditions in the foreign countries in which we do business as well as U.S. laws regulating international trade. Specifically, instability in the geopolitical environment in many parts of the world (including as a result of the on-going Russia and Ukraine war, and China-Taiwan relations) and other disruptions may continue to put pressure on global economic conditions. In addition, countries across the globe are instituting sanctions and other penalties against Russia. While we do not have operations in Russia or Ukraine, the retaliatory measures that have been taken, and could be taken in the future, by the U.S., NATO, and other countries have created global security concerns that could result in broader European military and political conflicts and otherwise have a substantial impact on regional and global economies, any or all of which could adversely affect our business, particularly our European operations.
While the broader consequences are uncertain at this time, the continuation and/or escalation of the Russian and Ukraine conflict, along with any expansion of the conflict to surrounding areas, create a number of risks that could adversely impact our business, including:
•increased inflation and significant volatility in commodity prices;
•disruptions to our global technology infrastructure, including through cyberattacks, ransom attacks or cyber-intrusion;
•adverse changes in international trade policies and relations;
•our ability to maintain or increase our prices, including freight in response to rising fuel costs;
•disruptions in global supply chains;
•increased exposure to foreign currency fluctuations; and
•constraints, volatility or disruption in the credit and capital markets.
If we experience a security breach, if our internal information systems fail to function properly or if we are unsuccessful in implementing, integrating or upgrading our information systems, our business operations could be materially affected.
We depend on information systems to process customer orders, manage inventory and accounts receivable collections, purchase products, manage accounts payable processes, ship products to customers on a timely basis, maintain cost effective operations, provide superior service to customers and accumulate financial results, among many other things.
Despite our implementation of various security measures, our IT systems and operations could be subject to damage or interruption from computer viruses, natural disasters, unauthorized physical or electronic access, power outages, telecommunications failure, computer system or network failures, wire transfer failure, employee error/malfeasance, cyber-attacks, security breaches, and other similar disruptions. Additionally, the techniques and sophistication used to conduct cyber-attacks and breaches of IT systems change frequently and have the potential to not be recognized until such attacks are launched or have been in place for a period of time. Maintaining, operating, and protecting these systems and related personal and sensitive information about our employees, customers and suppliers requires continuous investments in physical and technological security measures, employee training, and third-party services which we have made and will continue to make. A cyber-attack or security breach could result in, among other things, sensitive and confidential data being lost, manipulated or exposed to unauthorized persons or to the public or delay our ability to process customer orders and manage inventory. While we also seek to obtain assurances from third parties with whom we interact to protect confidential information, there are risks that the confidentiality or accessibility of data held or utilized by such third parties may be compromised.
To date, we have not experienced a material breach of cyber-security; however, our computer systems and the computer systems of our third-party service providers have been, and will likely continue to be, subjected to unauthorized access or phishing attempts, computer viruses, malware, ransomware or other malicious codes. In particular, in connection with the COVID-19 pandemic and the related increase in working from home, there has been a spike in cyber-security attacks as work from home measures have led businesses to increase reliance on virtual environments and communications systems, which have been subjected to increasing third-party vulnerabilities and security risks.
A serious prolonged disruption of our information systems for any of the above reasons could materially impair fundamental business processes and increase expenses, decrease sales or otherwise impact earnings and cash flows. Furthermore, such a disruption may harm our reputation and business prospects and subject us to legal claims if there is loss, disclosure or misappropriation of or access to our customers, employees or suppliers' information. As the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, compliance with these requirements could also result in significant additional costs. As threats related to cybersecurity breaches grow more sophisticated and frequent, it may become more difficult to timely detect and protect our data and infrastructure.
We may not be able to successfully implement our business initiatives in each of our business segments to grow our sales and earnings, which could adversely affect our business, financial condition, results of operations and cash flows.
We have implemented numerous initiatives in each of our business segments to grow sales and earnings, including the introduction of new and expanded product lines, strategic acquisitions, geographic expansion (including through acquisitions), sales to new markets, enhanced customer marketing programs and a variety of gross margin and cost savings initiatives. If we are unable to implement these initiatives efficiently and effectively, or if these initiatives are unsuccessful, our business, financial condition, results of operations and cash flows could be adversely affected.
Successful implementation of these initiatives also depends on factors specific to the automotive parts and industrial parts industries and numerous other factors that may be beyond our control. In addition to the other risk factors contained in this “Item 1A. Risk Factors,” adverse changes in the following factors could undermine our business initiatives and have a material adverse effect on our business, financial condition, results of operations and cash flows:
•the competitive environment in our end markets may force us to reduce prices below our desired pricing level or to increase promotional spending;
•our ability to anticipate changes in consumer preferences and to meet customers’ needs for our products in a timely manner;
•our ability to successfully enter new markets, including by successfully identifying and acquiring suitable acquisition targets in these new markets;
•our ability to effectively manage our costs;
•our ability to continue to grow through acquisitions and successfully integrate acquired businesses in our existing operations, including in particular the challenges associated with the integration of foreign operations to ensure the adequacy of internal controls;
•our ability to identify and successfully implement appropriate technological, digital and e-commerce solutions;
•the rate of adoption of electric vehicles, hybrid vehicles, ride sharing services, alternative transportation means and autonomously driven vehicles and future legislation related thereto;
•the occurrence of unusually severe weather events, which can disrupt our operations (forcing temporary closure of retail and distribution centers, prohibiting shipment of inventory and products) and negatively impact our results in the affected geographies;
•the occurrence of political unrest and strikes, which can disrupt our operations and negatively impact our results in the affected geographies;
•volatility in oil prices, which could have a negative impact on the global economy and the economy of each of the nations in which we operate, in particular;
•the adequacy of our disclosure controls and procedures and internal controls over financial reporting; and
•the economy of each of the nations in which we operate in general, including the monetary policies of the Federal Reserve, which are influenced by various factors, including inflation, unemployment and short-term and long-term changes in the international trade balance and the fiscal policies of the U.S. government.
We recognize the growing demand for business-to-business and business-to-customer e-commerce options and solutions, and we could lose business if we fail to provide the e-commerce options and solutions our customers wish to use.
Our retail and business customers increasingly demand convenient, easy-to-use e-commerce tools as an option to conduct their business with us. The success of our e-commerce platform depends on our ability to accurately identify the products to make available through our e-commerce platform, and to provide and maintain an
efficient online experience with the highest level of data security for our customers. Operating an e-commerce platform is a complex undertaking and exposes us to risks and difficulties frequently experienced by internet-based businesses, included risks related to, among other things, our ability to support, expand, and develop our internet operations, website, mobile applications and software and related operational systems. Continuing to improve our e-commerce platform involves substantial investment of capital and resources, increasing supply chain and distribution capabilities, attracting, developing and retaining qualified personnel with relevant subject matter expertise and effectively managing and improving the customer experience. If we are unable to successfully provide the e-commerce solutions our retail and business customers desire, we may lose existing customers and fail to attract new ones. Our business, financial condition, results of operations and cash flows may be materially and adversely affected as a result.
We are dependent on key personnel and the loss of one or more of those key persons could harm our business.
Our future success significantly depends on the continued services and performance of our key management personnel. We believe our management team’s depth and breadth of experience in our industry is integral to executing our business plan. We also will need to continue to attract, motivate, and retain other key personnel.personnel as well as maintain employee safety and well-being. The loss of services of members of our senior management team or other key employees, the inability to attract additional qualified personnel as needed or failure to plan for the succession of senior management and key personnel could have a material adverse effect on our business.
In addition, there has recently been an increase in workers exercising their right to form or join a union, particularly in the U.S. There can be no assurance that our employees will not elect to be represented by labor unions in the future, which could among other things, adversely impact our culture, increase operating costs and otherwise disrupt our business and operations.
Our strategic transactions, initiatives and transformation plan involve risks, which could have an adverse impact on our financial condition and results of operation, and we may not realize the anticipated benefits of these transactions.transactions and initiatives.
We regularly consider and enter into strategic transactions, including mergers, acquisitions, investments, alliances, and other growth and market expansion strategies, with the expectation that these transactions will result in increases in sales, cost savings, synergies and various other benefits. Assessing the viability and realizing the benefits of these transactions is subject to significant uncertainty, and we face significant competition in pursuing strategically beneficially transactions. Pursuing strategic transactions is also a time-consuming process that can involve significant expenses and management attention. For each of our acquisitions, we need to successfully integrate the target company’s products, services, associates and systems into our business
operations.foreign operations to ensure the adequacy of internal controls. Integration can be a complex and time-consuming process, and if the integration is not fully successful or is delayed for a material period of time, we may not achieve the anticipated synergies or benefits of the acquisition. Furthermore, even if the target companies are successfully integrated, the acquisitions may fail to further our business strategy as anticipated, expose us to increased competition or challenges with respect to our products or services, and expose us to additional liabilities. Any impairment of goodwill or other intangible assets acquired in a strategic transaction may reduce our earnings. In addition, any investments we hold in other companies are subject to a risk of partial or total loss of our investment.
Additionally, we We also consider and enter into divestitures from time to time, with the expectation that these transactions will result in increases in cost savings and various other benefits. Strategic divestitures are subject to uncertainty and can be a complex and time-consuming process. If the divestiture is not fully successful or is delayed for a material period of time, or if we are unable to reinvest the proceeds of the divestiture in a manner consistent with our strategic objectives, we may not achieve the anticipated benefits of the divestiture.
Additionally, as we undertake the transformation plan for our business, we have integrated our strategic initiatives into a cohesive business model which balances competing priorities. If we are unable to implement these strategic initiatives efficiently and effectively, or if these strategic initiatives are unsuccessful, our business, financial condition, results of operations and cash flows could be adversely affected. To facilitate this transformation plan, we are making substantial investments, recruiting new talent, and optimizing our business model, management system, and organization, as well as divesting ourselves of assets related to the business products group segment, which we have exited. Accordingly, a strong balance sheet that provides the flexibility to invest in these new growth opportunities and maintaining discipline in our capital allocation is critical to the success of our transformation plans. If we are unable to maintain a strong balance sheet or optimize our capital allocation or are otherwise not successful in executing our strategic initiatives and transformation plan (or are delayed for reasons outside of our control), we may not be able to realize the full benefits of our plan. Furthermore, if we are unable to successfully drive employee or customer adoption of certain strategic initiatives, we may not realize the full benefits of our plan. Additionally,
failure to make progress on our plans (or failure to accurately measure progress on our plan), may disrupt the conduct of our business and divert management’s attention and resources. All of which could have an adverse effect on our financial condition and results of operations.
If we fail to maintain an effective system of internal controls over financial reporting there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis, which could result in a loss of investor confidence and negatively impact our business, results of operations, financial condition and stock price.
Effective internal controls are necessary for us to provide reliable and accurate financial statements and to effectively prevent fraud. However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There can be no assurance that all control issues or fraud will be detected. As we continue to grow our business, our internal controls continue to become more complex and require more resources. Further, manysome of our employees are workingwork remotely in response to the impact of the COVID-19 pandemic and may continue to do so for an extended period. An extended period of remote work arrangements could introduce potential vulnerabilities to our financial reporting systems and our internal control environment and the effectiveness of our internal controls over financial reporting. Any failure to maintain effective controls could prevent us from timely and reliably reporting financial results and may harm our operating results. In addition, if we are unable to conclude that we have effective internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified report as to the effectiveness of our internal control over financial reporting, as of each fiscal year end, we may be exposed to negative publicity, which could cause investors to lose confidence in our reported financial information. Any failure to maintain effective internal controls and any such resulting negative publicity may negatively affect our business and stock price.
Additionally, the existence of any material weaknesses or significant deficiencies would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect us and the market price of our common stock.
MACROECONOMIC, INDUSTRY AND FINANCIAL RISKS
Changes in legislation or government regulations or policies, particularly those relating to taxation and international trade, could have a significant impact on our results of operations.
Our business is global, so changes to existing international trade agreements, blocking of foreign trade or imposition of tariffs on foreign goods could result in decreased revenues and/or increases in pricing, either of which could have an adverse impact on our business, results of operations, financial condition and cash flows in future periods. For instance, the United States imposed Section 232 tariffs on many imported products of steel and aluminum in March 2018 and expanded the tariffs to additional derivative products of steel and aluminum effective February 8, 2020. The United States imposed Section 301 tariffs on most imported products from China starting in July 2018. Although the United States and China reached a Phase One trade deal in January 2020, there was no Phase Two trade deal implemented and most of the tariffs imposed remain in place, while uncertainty persists in the trade relationship between the two countries that impacts the global trade landscape.
In addition, as a global business, we are subject to taxation in each of the jurisdictions in which we operate. Changes in the tax laws of these jurisdictions, or in the interpretation or enforcement of existing tax laws, could subject our business to audits, inquiries and legal challenges from taxing authorities and could reduce the benefit of tax structures previously implemented for our operations. As a result, we may incur additional costs, including taxes and penalties for historical periods, that may have a material and adverse effect on our business, financial condition, results of operations and cash flows.
Uncertainty and/or deterioration in general macro-economic conditions domestically and globally, including unemployment, inflation or deflation, employment rates and wages, changes in tax policies, changes in energy costs, uncertain credit markets, or other economic conditions, could have a negative impact on our business, financial condition, results of operations and cash flows.
Our business and operating results have been and may in the future be adversely affected by uncertain global economic conditions, including inflation or deflation, domestic outputs, political uncertainty and unrest, employment rates inflation or deflation,and wages, including increases in minimum wage, changes in tax policies, including tax legislation such as the Inflation Reduction Act of 2022, changes in energy costs, instability in credit markets, declining consumer and business confidence, fluctuating commodity prices, rising interest rates, monetary policies, volatile exchange rates, and other challenges that could affect the global economy. Both our commercial and retail customers may experience deterioration of their financial resources, which could result in existing or potential customers delaying or canceling plans to purchase our products.
Additionally, other economic conditions, including resulting from healthcare pandemics or epidemics, could impact various aspects of our business. The extent to which these could impact us depends on numerous factors and future developments that we cannot predict, including the occurrence of additional waves or spikes in infection rates, including due to the emergence and spread of variants; governmental, business or other actions taken in response to certain healthcare pandemics or epidemics and the efficacy of these actions, including partial or complete shut downs, travel restrictions, and stay-at-home orders among other actions; effectiveness and public acceptance of vaccines; and impacts on our supply chain, our ability to keep operating locations open, and on customer demand.
Our vendors could experience similar negative conditions, which could impact their ability to fulfill their financial obligations to us. Future weakness in the global economy could adversely affect our business, results of operations, financial condition and cash flows.
Fluctuations in foreign currency exchange rates have adversely affected and could continue to adversely affect our operating results.
Because the functional currency of most of our foreign operations is the applicable local currency, but our financial reporting currency is the U.S. dollar, we are required to translate the assets, liabilities, expenses, and revenues of our foreign operations into U.S. dollars at the applicable exchange rate in preparing our Consolidated Financial Statements. Accordingly, we face foreign currency exchange rate risk arising from transactions in the normal course of business, such as sales and loans to wholly owned subsidiaries, sales to third-party customers, purchases from suppliers, and bank lines of credit with creditors denominated in foreign currencies.
Foreign currency exchange rates have affected our net sales, net earnings, and operating results and could continue to result in declines in our reported net sales and net earnings. Currency exchange rate fluctuations may also affect the comparative prices between products we sell and products our foreign competitors sell in the same market, which may decrease demand for our products. Substantial exchange rate fluctuations as a result of the strengthening of the U.S. dollar or otherwise, may have an adverse effect on our operating results, financial condition, and cash flows, as well as the comparability of our Consolidated Financial Statements between reporting periods. While we actively manage our foreign currency market risk in the normal course of business by entering into various derivative instruments to hedge against such risk, these derivative instruments involve risks and may not effectively limit our underlying exposure to foreign currency exchange rate fluctuations or minimize our net earnings and cash volatility associated with foreign currency exchange rate changes. Further, the failure of one or more counterparties to our foreign currency exchange rate contracts to fulfill their obligations to us could adversely affect our operating results.
Our debt levels could adversely affect our cash flow and prevent us from fulfilling our obligations.
We have an unsecured revolving credit facility and unsecured senior notes, which could have important consequences to our financial health. For example, our level of indebtedness could, among other things:
•make it more difficult to satisfy our financial obligations, including those relating to our unsecured revolving credit facility and our unsecured senior notes;
•increase our vulnerability to adverse economic and industry conditions;
•limit our flexibility in planning for, or reacting to, changes and opportunities in our industry, which may place us at a competitive disadvantage;
•require us to dedicate a substantial portion of our cash flows to service the principal and interest on the debt, reducing the funds available for other business purposes, such as working capital, capital expenditures or other cash requirements;
•limit our ability to incur additional debt with acceptable terms; and
•expose us to fluctuations in interest rates.
The terms of our financing obligations include restrictions, such as affirmative, negative and financial covenants, conditions on borrowing and subsidiary guarantees. A failure to comply with these restrictions could result in a default under our financing obligations or could require us to obtain waivers from our lenders for failure to comply with these restrictions. The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could have a material adverse effect on our business, financial condition, results of operations and cash flows. We also guarantee the borrowings of certain independently owned automotive parts stores and certain other affiliates in which we have a non-controlling equity ownership interest. To date, we have not experienced any significant losses in connection with these guarantees. However, if any of the borrowers under these guarantees experienced a default, we may be required to satisfy their payment obligations in an amount that could be material.
In addition, our indebtedness is rated by credit rating agencies. Our overall credit rating may be negatively impacted by deteriorating and uncertain credit markets or other factors that may or may not be within our control. The interest rates on our unsecured revolving credit facility, as well as any additional indebtedness we may incur in the future, are impacted by our credit ratings. Accordingly, any negative impact of our credit ratings, or placement of our credit ratings on “review” or “watch” status, could result in higher interest expense and could impact the terms of any additional indebtedness we incur in the future.
We may be adversely affected by changes in the method of determining the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with an alternative reference rate, for our variable rate loans, derivative contracts and other financial assets and liabilities.
Our business relies upon a large volume of loans, derivative contracts and other financial instruments which are directly or indirectly dependent on LIBOR to establish their interest rate and/or value. The U.K. Financial Conduct Authority announced in 2017 that it would no longer compel banks to submit rates for the calculation of LIBOR after 2021. It is not possible to predict whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. It is expected that a transition away from the widespread use of LIBOR to alternative rates is likely to occur during the next several years.
While we have established a working group consisting of key stakeholders from throughout the company to monitor developments relating to LIBOR uncertainty and changes and to guide the Company’s response, the impact of these developments on our business and financial results is not yet known. The transition from LIBOR may cause us to incur increased costs and additional risk. Uncertainty as to the nature of alternative reference rates and as to potential changes in or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans originated prior to 2021. If LIBOR rates are no longer available, any successor or replacement interest rates may perform differently, which may affect our net interest income, change our market risk profile and require changes to our risk, pricing and hedging strategies. We may also incur costs to re-form existing derivative contracts and other financial instruments to which we are a party to address these
differences in performance relative to LIBOR or relative to adjustments made in other loans, derivative contracts or financial instruments where we are a party. Any failure to adequately manage this transition could adversely impact our business, results of operations and cash flows.
The U.K.'s exit from the European Union (“E.U.”) will continue to have uncertain effects and could adversely impact our business, results of operations and financial condition.
On January 31, 2020, the U.K. exited from the E.U. (commonly referred to as “Brexit”) and began a transition period that concluded on December 31, 2020. Since the end of the transition, many companies operating in the U.K and E.U. have experienced greater restrictions on imports and exports, additional regulatory complexity in their cross-border operations and currency fluctuations. The long-term effects of Brexit remain uncertain and may include these immediate impacts, among others. While we have not experienced any material financial impact from Brexit on our business to date, we cannot predict its future implications and any future impacts on our business and operations.
LEGAL AND REGULATORY RISKS
There is uncertainty surrounding
We may be affected by global climate change or legal, tax, regulatory, or market responses to such change.
The concern over climate change has led to legislative and regulatory initiatives aimed at reducing greenhouse gas emissions (“GHG”). For example, proposals that would impose mandatory requirements related to GHG continue to be considered by policy changes by a new presidential administrationmakers in the United StatesU.S. and elsewhere. For example, significant increases in fuel economy requirements, new federal or state restrictions on emissions of carbon dioxide or new federal or state incentive programs that may directlybe imposed on vehicles and automobile fuels could adversely affect us and the global economy.
We face regulatory and tax uncertainties on account of the 2020 U.S. presidential election. The new presidential administration is continuing to articulate its fiscal and legislative prioritiesdemand for the next several years, however, the administration has indicated a desireproducts we sell. We may not be able to reform various aspectsaccurately predict, prepare for and respond to new kinds of existing tradetechnological innovations with respect to electric vehicles and tax lawsother technologies that minimize emissions. Laws enacted to reduce GHG could directly or indirectly affect our suppliers and to increase the federal minimum wage to at least $15 per hour. The nature, timing and economic and political effects of any potential change to the current legal and regulatory framework affecting us remains highly uncertain. Changes and uncertainty surrounding our operating environment, including U.S. labor laws, trade policies and practices, tariffs or taxes in particular, could adversely affect our business, financial condition, results of operations and growth prospects.cash flows. Changes in automotive technology (including the adoption of electric vehicles) and compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require additional expenditures by us or our suppliers all of which could adversely impact the demand for our products and our business, financial condition, results of operations or cash flows.
Because we are involved in litigation from time to time and are subject to numerous laws and governmental regulations, we could incur substantial judgments, fines, legal fees and other costs as well as reputational harm.
We are sometimes the subject of complaints or litigation from customers, employees or other third parties for various reasons. For example, we are party to, among other litigation, numerous pending product liability lawsuits relating to our national distribution of automotive parts and supplies, many of which involve claims of personal injury allegedly resulting from the use of automotive parts distributed by us. The damages sought against us in some of these litigation proceedings are substantial. Although we maintain liability insurance for some litigation claims, if one or more of the claims were to greatly exceed our insurance coverage limits or if our insurance policies do not cover a claim our business, financial condition, results of operations and cash flows could be materially and adversely affected. In particular, on July 8, 2021, the Washington Supreme Court overturned the order of the Washington Court of Appeals and reinstated the trial court's damage award of $77 million against us.
Additionally, we are subject to numerous laws in the various jurisdictions in which we operate as well as governmental regulations relating to taxes, environmental protection, product quality standards, data privacy, building and zoning requirements, and employment law matters. If we fail to comply with existing or future laws or regulations, we may be subject to governmental or judicial fines or sanctions, while incurring substantial legal fees and costs. In addition, our capital expenses could increase due to remediation measures that may be required if we are found to be noncompliant with any existing or future laws or regulations.
We may be affected byChanges in legislation or government regulations or policies, particularly those relating to taxation and international trade, could have a significant impact on our results of operations.
Our business is global, climate changeso changes to existing international trade agreements, blocking of foreign trade or legal, tax, regulatory, imposition of tariffs on foreign goods could result in decreased revenues and/or market responsesincreases in pricing, either of which could have an adverse impact on our business, results of operations, financial condition and cash flows in future periods. For instance, the United States imposed Section 232 tariffs on many imported products of steel and aluminum in March 2018 and expanded the tariffs to such change.
additional derivative products of steel and aluminum effective February 8, 2020. The concern over climate change has led to legislativeUnited States imposed Section 301 tariffs on most imported products from China starting in July 2018. Although the United States and regulatory initiatives aimed at reducing greenhouse gas emissions (“GHG”). For example, proposals that would impose mandatory requirements related to GHG continue to be considered by policy makersChina reached a Phase One trade deal in January 2020, there was no Phase Two trade deal implemented and most of the tariffs imposed remain in place, while uncertainty persists in the U.S.trade relationship between the two countries that impacts the global trade landscape.
In addition, as a global business, we are subject to taxation in each of the jurisdictions in which we operate. Changes in the tax laws of these jurisdictions, or in the interpretation or enforcement of existing tax laws, could subject our business to audits, inquiries and elsewhere. Laws enacted to reduce GHG could directly or indirectly affect our supplierslegal challenges from taxing authorities and could adversely affectreduce the benefit of tax structures previously implemented for our operations. As a result, we may incur additional costs, including taxes and penalties for historical periods, that may have a material and adverse effect on our business, financial condition, results of operations and cash flows. Changes in automotive technology (including the adoption of electric vehicles) and compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require additional expenditures by us or our suppliers all of which could adversely impact the demand for our products and our business, financial condition, results of operations or cash flows.
GENERAL RISKS
We are subject to risks related to corporate social responsibility and reputation.
Many factors influence our reputation and the value of our brands including the perception held by our customers, business partners, investors, other key stakeholders and the communities in which we do business. Our business faces increasing scrutiny related to environmental, social and governance activities and disclosures and risk of damage to our reputation and the value of our brands if we fail to act responsibly in a number of areas, such
as environmental stewardship and sustainability, supply chain management, climate change, diversity, equity and inclusion, workplace conduct, human rights, philanthropy and support for local communities. Any harm to our reputation could impact employee engagement and retention and the willingness of
customers and our partners to do business with us, which could have a material adverse effect on our business, results of operations and cash flows.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could affect our financial results or financial condition.
GAAP and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, such as revenue recognition, asset impairment, impairment of goodwill and other intangible assets, inventories, lease obligations, self-insurance, vendor allowances, tax matters and litigation, are complex and involve many subjective assumptions, estimates and judgments. Changes in accounting standards or their interpretation or changes in underlying assumptions, estimates or judgments could significantly change our reported or expected financial performance or financial condition. The implementation of new accounting standards could also require certain systems, internal process and other changes that could increase our operating costs.
Our stock price is subject to fluctuations, and the value of your investment may decline.
The trading price of our common stock is subject to fluctuations, and may be subject to fluctuations in the future based upon external economic and market conditions. The stock market in general has experienced significant price and volume fluctuations that sometimes have been unrelated or disproportionate to the operating performance of listed companies. These broad market, geopolitical and industry factors among others may harm the market price of our common stock, regardless of our operating performance and growth outlook, and the value of your investment may decline.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
The following table summarizes our company-owned and operated distribution centers, retail stores, branches and branchesservice centers as of December 31, 2020:2022:
| | | Distribution Centers | | Stores/Branches | | Distribution Centers | | Other Locations |
| Automotive Parts: | | | | |
| Automotive: | | Automotive: | | | |
| North America | North America | 76 | | 1,440 | North America | 77 | | 1,682 |
| Europe | Europe | 75 | | 685 | Europe | 78 | | 742 |
| Australasia | Australasia | 12 | | 536 | Australasia | 14 | | 529 |
| Total Automotive Parts | 163 | | 2,661 | |
| Industrial Parts: | | |
| Total Automotive | | Total Automotive | 169 | | 2,953 |
| Industrial: | | Industrial: | |
| North America | North America | 16 | | 523 | North America | 19 | | 616 |
| Australasia | Australasia | 8 | | 170 | Australasia | 16 | | 150 |
| Total Industrial Parts | 24 | | 693 | |
| Total Industrial | | Total Industrial | 35 | | 766 |
| Total | Total | 187 | | 3,354 | Total | 204 | | 3,719 |
In addition to the properties set forth above, the Company haswe have various headquarters, shared service centers and other facilities. The Company'sOur corporate and U.S. Automotive Parts Group headquarters are located in two office buildings owned by the Companyus in Atlanta, Georgia. The CompanyWe generally ownsown distribution centers and leaseslease retail stores and branches. We believe that our facilities on theas a whole are in good condition, are adequately insured, are fully utilized and are suitable and adequate to conduct the business of our current operations.
ITEM 3. LEGAL PROCEEDINGS.
Information with respect to the Company'sour legal proceedings may be found in the Commitments and Contingencies Footnote in the Notes to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information Regarding Common Stock
The Company’sOur common stock is traded on the New York Stock Exchange under the ticker symbol “GPC.”
Dividend Information
We have paid a cash dividend to shareholders every year since going public in 1948 and increased the annual dividend for 66 consecutive years through 2022. While we have historically paid dividends to holders of our common stock on a quarterly basis and expect to continue doing so going forward, the declaration and payment of future dividends will depend on many factors, including, but not limited to, our earnings, financial condition, business development needs and regulatory considerations, and are at the discretion of our Board of Directors.
Stock Performance Graph
Set forth below is a line graph comparing the yearly dollar change in the cumulative total shareholder return on the Company’sour common stock against the cumulative total shareholder return of the Standard and Poor’s ("S&P") 500 Stock Index and a peer group composite index (“Peer Index”) structured by the Companyus as set forth below for the five year period that commenced December 31, 20152017 and ended December 31, 2020.2022. This graph assumes that $100 was invested on December 31, 20152017 in Genuine Parts Company common stock, the S&P 500 Stock Index (the Company is(we are a member of the S&P 500 Stock Index, and itsour cumulative total shareholder return went into calculating the S&P 500 Stock Index results set forth in the graph) and the peer group composite index as set forth below and assumes reinvestment of all dividends.
Comparison of five year cumulative total shareholder return
Genuine Parts Company, S&P 500 Stock Index and peer group composite index
| | Cumulative Total Shareholder Return $ at Fiscal Year End | Cumulative Total Shareholder Return $ at Fiscal Year End | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | Cumulative Total Shareholder Return $ at Fiscal Year End | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| Genuine Parts Company | Genuine Parts Company | | $100.00 | | $114.30 | | $117.10 | | $121.91 | | $139.04 | | $135.99 | Genuine Parts Company | | $100.00 | | $104.11 | | $118.74 | | $116.13 | | $166.52 | | $211.19 |
| S&P 500 Stock Index | S&P 500 Stock Index | | $100.00 | | $111.96 | | $136.40 | | $130.43 | | $171.50 | | $203.05 | S&P 500 Stock Index | | $100.00 | | $95.62 | | $125.73 | | $148.87 | | $191.60 | | $156.90 |
| Peer Index | Peer Index | | $100.00 | | $110.23 | | $131.89 | | $111.44 | | $143.67 | | $171.86 | Peer Index | | $100.00 | | $83.10 | | $106.58 | | $127.14 | | $156.34 | | $125.91 |
In constructing the Peer Index for use in the stock performance graph above, the Companywe used the shareholder returns of various publicly held companies (weighted in accordance with each company’s stock market capitalization at
December 31, 20152017 and including reinvestment of dividends) that compete with the Companyus in itsour two industry segments: automotive parts and industrial parts (each group of companies included in the Peer Index as competing with the Companyus in a separate industry segment is hereinafter referred to as a “Peer Group”). Included in the automotive parts Peer Group are those companies making up the Dow Jones U.S. Auto Parts Index (the Company is(we are a member of such industry group, and its individual shareholder return was included when calculating the Peer Index results set forth in the performance graph). Included in the industrial parts Peer Group are Applied Industrial Technologies, Inc., Fastenal Company, and W.W. Grainger, Inc. In determining the Peer Index, each Peer Group was weighted to reflect the Company’sour annual net sales in each industry segment.
Holders
As of December 31, 2020,2022, there were 4,1076,892 holders of record of the Company’scompany’s common stock. The number of holders of record does not include beneficial owners of the common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.
Issuer Purchases of Equity Securities
The following table provides information about the purchases of shares of the Company’scompany’s common stock during the three month period ended December 31, 2020:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total
Number of
Shares
Purchased(1) | | Average
Price Paid
per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | | Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs |
| October 1, 2020 through October 31, 2020 | | 6,536 | | | $ | 102.45 | | | — | | | 14,484,676 | |
| November 1, 2020 through November 30, 2020 | | 48,073 | | | $ | 100.69 | | | — | | | 14,484,676 | |
| December 1, 2020 through December 31, 2020 | | 34,806 | | | $ | 100.08 | | | 5,140 | | | 14,479,536 | |
| Totals | | 89,415 | | | $ | 100.58 | | | 5,140 | | | 14,479,536 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total
Number of
Shares
Purchased(1) | | Average
Price Paid
per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | | Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs |
| October 1, 2022 through October 31, 2022 | | 18,142 | | | $ | 173.00 | | | 124,004 | | | 10,458,662 | |
| November 1, 2022 through November 30, 2022 | | 22,892 | | | $ | 178.92 | | | 109,115 | | | 10,349,547 | |
| December 1, 2022 through December 31, 2022 | | 2,183 | | | $ | 171.00 | | | 56,549 | | | 10,292,998 | |
| Total | | 43,217 | | | $ | 176.04 | | | 289,668 | | | 10,292,998 | |
(1)Includes shares surrendered by employees to the Companycompany to satisfy tax withholding obligations in connection with the vesting of shares of restricted stock, the exercise of stock optionsshare appreciation rights and/or tax withholding obligations.
(2)On August 21, 2017, the Board of Directors announced that it had authorized the repurchase of 15.015 million shares. Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. The authorization for these repurchase plans continues until all such shares have been repurchased or the repurchase planprogram is terminated by action of the Board of Directors. The program may be suspended at any time and does not have an expiration date. Approximately 14.510.3 million shares authorized remain available to be repurchased by the Company.company. There were no other repurchase plans announced as of December 31, 2020.2022.
ITEM 6. SELECTED FINANCIAL DATA.(RESERVED)
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis contains forward-looking statements, including, without limitation, statements relating to our plans, strategies, objectives, expectations, intentions and resources. Such forward-looking statements should be read in conjunction with our disclosures under “Item 1A. Risk Factors” of this Form 10-K.
BUSINESS PRODUCTS GROUPOVERVIEW
Effective June 30, 2020,Genuine Parts Company is a global service organization engaged in the Company completeddistribution of automotive and industrial replacement parts. We have a long tradition of growth dating back to 1928, the divestitureyear we were founded in Atlanta, Georgia.
In 2022, we conducted business in North America, Europe and Australasia from more than 10,600 locations. Our Automotive business operated in the U.S., Canada, Mexico, France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Spain, Portugal, Australia and New Zealand in 2022 and accounted for 62% of its Business Products Group by selling Supply Source Enterprises, Inc. ("SSE") and S.P. Richards Company ("SPR") in separate transactions. The Business Products Group was previously a reportable segment of the Company. The results of operations, financial position and cash flowstotal revenues for the Business Products Group are reported as discontinued operations for all periods presented. Further, as a result of the reclassification of the Business Products Groupyear. Our Industrial business to discontinued operations, the Company now has two segments: the Automotive Group and the Industrial Parts Group. Refer to the acquisitions, divestitures and discontinued operations footnoteoperated in the accompanying consolidated financial statementsU.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore and accounted for more information.38% of total revenues.
COVID-19 PANDEMIC
The COVID-19 outbreak, which was declared a pandemic by the World Health Organization (“WHO”) on March 11, 2020, continuesOur mission is to evolve rapidly. Our deepestbe an employer of choice, supplier of choice, valued customer, good corporate citizen and sincere thoughts go out to all affected by COVID-19, as well as the dedicated healthcare workers and first responders who are on the front linesinvestment of choice for all our citizens.
Overall, our business segments continueshareholders. Additionally, we strive to face many uncertainties. The Company's operations are vulnerablebe a respected community member that gives back to the reduced economic activity caused by the COVID-19 outbreak. Many governments putcommunities in place temporary social distancing and shelter-in-place mandates in late March and early April of 2020 and, as a result, our business segments experienced slowing sales trends aswhich we entered the second quarter. Beginning in the second half of 2020, sales generally improved as markets reopened and governments eased restrictions.
The extentoperate. Our strategic financial objectives are intended to which the COVID-19 pandemic impacts the Company will depend on numerous factors and future developments that we cannot predict, including the severity of the virus; the occurrence of additional waves or spikes in infection rates; the duration of the outbreak; governmental, business or other actions taken in response to the pandemic and the efficacy of these actions, including partial or complete shutdowns, travel restrictions, and stay-at-home orders among other actions; the effectiveness and distribution of COVID-19 vaccines; and impacts on our supply chain, our ability to keep operating locations open, and on customer demand. While the negative impact on our business operations cannot be reasonably estimated at this time, our teams are preparing for multiple scenarios to ensure we continue to protect our employees while also keeping our operations up and running to serve our customers.
During the first quarter of 2020 we created a dedicated COVID-19 taskforce and added enhanced protocols in response to COVID-19, including implementing many of the recommendations and requirements issued by the Centers for Disease Control and Prevention, WHO, and local, state and national health authorities, to protect our employees, customers, suppliers and communities.
As of December 31, 2020, substantially all operations are open for business. Our supply chain partners have been very supportive, despite strain on the supply chain with respect to labor shortages and certain inventory shortages, delays in order fulfillment and increased backlogs, and they continue to do their part to help our service levels to our customers remain strong. We remain in constant communicationalign with our employees regarding changing conditionsmission and protocol. Based on the lengthdrive value for all our stakeholders. Our strategic financial objectives include: (1) revenue growth in excess of market growth; (2) improved operating margins; (3) strong balance sheet and severity of COVID-19, we may experience continued volatility in customer demandcash flows; and supply chain disruption. We will continue to evaluate the nature and extent of these potential impacts to our business, consolidated results of operations, segment results, liquidity and(4) effective capital resources.allocation.
KEY BUSINESS METRICSPERFORMANCE INDICATORS
We consider comparable sales to be a key business metric because management has evaluated its resultsvariety of operations using this metricperformance and we believe that this key indicator provides additional perspective and insights when analyzing the operating performance of the Company from period to period and trends in its historical operating results. This metric should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented in this report.assessing our business, and the key performance indicators used to measure our results are summarized below.
Comparable Sales
Comparable sales refersrefer to period-over-period comparisons of our net sales excluding the impact of acquisitions, divestitures, foreign currency and foreign currency. The Company considersother. We consider this metric useful to investors because it provides greater transparency into management’s view and assessment of the Company’sour core ongoing operations. This metric is widely used by analysts, investors and competitors in our industry, although our calculation of the metric may not be comparable to similar measures disclosed by other companies, because not all companies and analysts calculate this metric in the same manner.
Gross Profit and Gross Margin
Gross profit represents net sales less cost of goods sold. Gross profit as a percentage of net sales is referred to as gross margin. Cost of goods sold primarily represents the cost of merchandise sold, including the cost of inbound freight from suppliers. It also includes the effects of supplier volume incentives and inventory adjustments. Our gross profit is variable in nature and generally follows changes in net sales. We believe that gross profit and gross margin are useful measures because they allow management, analysts, investors and others to evaluate the profit we generate from our sales, before operating and other expenses and income.
Selling, Administrative and Other Expenses ("SG&A")
SG&A includes all personnel and personnel-related costs at our segment headquarters, distribution centers, stores and branches, which accounts for more than 60% of total SG&A. Additional costs in SG&A include our facilities, freight and delivery, marketing, advertising, technology, digital, legal and professional costs. Freight and delivery costs are the shipping and handling costs incurred related to delivering merchandise to our customers.
Segment Profit and Segment Margin
Segment profit is calculated as net sales less costs of goods sold, operating expenses, and certain non-operating expenses attributable to the segment (e.g., foreign currency), excluding general corporate expenses, net interest expense, intangible asset amortization, and other unallocated amounts that are primarily driven by corporate initiatives. Operating expenses include SG&A at our segments. Segment profit as a percentage of segment net sales is referred to as segment margin.
We believe that segment profit and segment margin are useful measures because they allow management, analysts, investors, and other interested parties to evaluate the profitability of our segments, after the effects of
OVERVIEW
Genuine Parts Company is a service organization engagedoperating and other expenses and income associated with those businesses. Refer to the Segment Data Footnote in the global distributionNotes to Consolidated Financial Statements for additional information.
Net Income and EBITDA
We believe that net income and EBITDA, along with their adjusted measures, are useful measures of automotiveoperating performance. EBITDA helps us assess the underlying profitability of our company’s business operations before the effects of certain net expenses that directly arise from our capital investment decisions (depreciation, amortization), financing decisions (interest), and industrial replacement parts. We have a long traditiontax strategies (income taxes). Net Income represents our profitability after the effects of growth dating back to 1928, the year we were founded in Atlanta, Georgia. In 2020, the Company conducted business in North America, Europeall operating and Australasia from approximately 10,000 locations.other expenses and income.
The Company's Automotive Parts Group operatedadjusted measures of EBITDA and net income eliminate certain non-recurring charges and other items that we do not believe are reflective of our ongoing business performance. These adjusted measures help us evaluate our operating performance on a comparable basis from period-to-period so that we can better understand the ongoing factors and trends affecting our business operations. We also use adjusted EBITDA, together with net income and segment profit, to forecast our performance, evaluate our actual results against our forecasts and compare our results to others in the U.S., Canada, France,industries that we serve. Adjusted EBITDA is also a measure of performance included in our executive incentive compensation plans. See “Non-GAAP Financial Measures” below for a discussion of how we define adjusted net income and adjusted EBITDA and a reconciliation of adjusted net income, EBITDA and adjusted EBITDA to net income, the UK, Germany, Poland,most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the Netherlands, Belgium, AustraliaUnited States (“GAAP”).
CONSOLIDATED RESULTS OF OPERATIONS
Our discussion of our results focuses on 2022 and New Zealand2021 and year-to-year comparisons between those periods. Discussions of 2020 results and year-to-year comparisons between 2021 and 2020 results are not included in 2020,this Form 10-K and accounted for 66%can be found in “Management’s Discussion and Analysis of total revenuesFinancial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year. The Industrial Parts Group operated in the U.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore, and accounted for 34% of the Company's total revenues in 2020.
At Genuine Parts Company, our mission is to be a world-class service organization and the employer of choice, supplier of choice, valued customer, good corporate citizen and investment of choice. Our strategic financial objectives are intended to align with our mission and drive value for all our stakeholders. Our strategic financial objectives include: (1) top line revenue growth (2) improved operating margin, (3) strong balance sheet and cash flow and (4) effective capital allocation.
Top Line Revenue
The Company's strategy for top line revenue growth includes a combination of organic and acquisitive initiatives designed to outpace the industry, improve the market share in each of our business segments and position the Company for sustained long-term growth. In 2020, in response to the COVID-19 pandemic, our business segments faced tremendous challenges and uncertainties. Governments put in place temporary social distancing and shelter-in-place mandates in late March and early April of 2020 causing reduced economic activity globally. Additionally, we limited merger and acquisition activity to select “bolt-on” acquisitions to preserve financial flexibility. As markets reopened and governments eased restrictions sales results began to improve in the third and fourth quarter of 2020. Although, we still face many uncertainties, we are encouraged by the current economic outlook and believe our Company is well-positioned to drive positive sales growth in 2021.
Operating Margins
The Company targets continuous operating margin improvement each year. In October of 2019, the Company approved and began to implement certain restructuring actions across its subsidiaries primarily targeted at simplifying organizational structures and distribution networks (the "2019 Cost Savings Plan"). In accordance with our 2019 Cost Savings Plan, we recognized permanent expense reductions of $150 million driven by transformative reductions in payroll and facility costs for thefiscal year ended December 31, 2020. Additionally,2021.
In 2022, we experienced lower costsstrong and consistent customer demand and a favorable pricing environment for our services. These factors, combined with our Industrial segment's $1.3 billion acquisition of Kaman Distribution Group ("KDG"), contributed to 17.1% revenue growth over 2021. Our strong revenue growth, expense leverage and strategic initiatives drove a 60 basis point improvement in areas such as freightsegment margin and delivery and legal and professional for the year. We also executed on a number of additional savings initiatives in response to the impact of COVID-19, which contributed approximately $300 million in incremental, temporary savings in 2020 related to furloughs, reduced travel and other initiatives. These efforts produced improved segment margins in 2020 and we believe created a path for a more efficient and productive cost structure in the years ahead.
Balance Sheet and Cash Flow
The Company is focused on maintaining a strong balance sheet and generating strong cash flows to support our growth initiatives. Our working capital was a source of operating cash flow. We also focused on having ample liquidity and we improved our debt position by entering into a new revolving credit facility and issuing $500 million of the Company's unsecured senior notes. Additionally, we entered into an accounts receivable sales agreement (the "A/R Sales Agreement"). We believe these measures further strengthen our liquidity position moving into 2021. The Company generated $2.0provided $1.5 billion in cash from operations, and also benefiteda 16.6% increase from cash proceeds associated with the sale of certain non-core businesses in 2020.
Capital Allocation
The Company's priorities for disciplined and effective capital allocation remain consistent with prior years. In 2020, we used cash for key investments in the form of essential capital expenditures and small, bolt-on acquisitions, as well as the return of capital to our shareholders via cash dividends and opportunistic share repurchases. We plan2021. These results allowed us to continue to support the dividend, which we have increased for 64 consecutive yearsinvesting in our businesses through 2020.
RESULTS OF OPERATIONSstrategic acquisitions and capital expenditures.
Our results of operations are summarized below for the years ended December 31, 2020, 20192022 and 2018.2021.
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| (In thousands, except per share data) | | 2020 | | 2019 | | 2018 |
| Net sales | | $ | 16,537,433 | | | $ | 17,522,234 | | | $ | 16,831,605 | |
| Gross margin | | $ | 5,654,841 | | | $ | 5,859,683 | | | $ | 5,519,755 | |
| Net income from continuing operations | | $ | 163,395 | | | $ | 646,475 | | | $ | 749,534 | |
| Diluted net income from continuing operations per common share | | $ | 1.13 | | | $ | 4.42 | | | $ | 5.09 | |
Net Sales
Consolidated net sales for the year ended December 31, 2020 totaled $16.5 billion, down 5.6% from 2019. The decline in net sales is due to a 5.6% comparable sales decrease attributable primarily to decreased demand caused by COVID-19 and a 3.3% negative impact from divestitures. These items were partially offset by a 3.0% positive impact from acquisitions. Additionally, the favorable impact of foreign currency and other partially offset the decline in total sales by 0.3%. Consolidated net sales for the year ended December 31, 2019 totaled $17.5 billion, up 4.1% from 2018. Net sales for 2019 included an approximate 5.1% contribution from acquisitions, net of store closures and an approximate 2.1% increase in core sales. The Company's sale of certain non-core businesses determined to be slower-growth and lower-margin operations partially offset total sales by 1.6%. Additionally, the unfavorable impact of foreign currency partially offset 2019 total sales by 1.5%.
The Company's comparable sales included both an increase in sales volume and product inflation. The impact of product inflation varied by business segment in 2020, with prices flat in the Automotive segment and up 0.7% in our Industrial segment. Due to the Company's global initiatives to grow revenues, we believe it is well positioned for sustainable long-term growth.
Automotive Group
Net sales for the Automotive Group (“Automotive”) were $10.9 billion in 2020, a 1.2% decrease from 2019. The decrease in sales consists of an approximate 4.4% decrease in comparable sales and a slight decrease related to divestitures. This decrease was partially offset by a 2.7% contribution from acquisitions, and a 0.6%favorable impact of currency translation and other. Foreign currency translation was positively impacted by our automotive businesses in Europe. In 2020, total Automotive revenues were down approximately 1.6% in the first quarter, down 10.1% in the second quarter, up 6.0% in the third quarter and up 0.7% in the fourth quarter. The positive growth in the second half of the year reflects a recovery from the decreased demand caused by COVID-19 in the first half of the year. We remain optimistic that our Automotive sales trends will continue to show positive growth, but we are still operating in an environment of significant uncertainty due to the COVID-19 pandemic. In our view, the underlying fundamentals in the automotive aftermarket, including trends related to the overall number and age of the vehicle population, as well as the continued increase in miles driven, remain supportive of sustained demand for automotive aftermarket maintenance and supply items across the markets we serve. We expect these fundamentals and our ongoing sales initiatives to drive sales growth for the Automotive Group in 2021.
Net sales for the Automotive Group were $11.0 billion in 2019, a 4.4% increase from 2018. The increase in sales consists of an approximate 5.0% contribution from acquisitions, a 2.3% comparable sales increase and a 2.3%negative impact of currency translation associated with our automotive businesses in Canada, Australasia, Europe and Mexico. In addition, the sale of Auto Todo in 2019, the Company's legacy automotive business in Mexico, slightly offset total sales for the Automotive Group. Automotive sales were positively impacted by product inflation of 2.4% in the U.S. operations.
Industrial Parts Group
Net sales for the Industrial Parts Group (“Industrial”) were $5.7 billion in 2020, down 13.0% from 2019. The decrease in sales reflects an 8.4% decrease in comparable sales and an approximate 8.5% decrease in net sales related to the sale of EIS, a non-core component of the industrial business due to its slower-growth and lower-margin profile. This decrease was slightly offset by an approximate 3.8% contribution from acquisitions. Total Industrial sales were positively impacted by product inflation of 0.7%, as a portion of this increase was passed through to customers and is included in the comparable sales impact. Industrial revenues were down approximately 7.7% in the first quarter of 2020, down 21.1% in the second quarter, down 18.6% in the third quarter and down 3.3% in the fourth quarter. These quarterly results reflect the impact of several factors, including reduced demand as a result of the COVID-19 pandemic. Beginning in the second half of 2020, however, the addition of three bolt-on acquisitions, among other initiatives, and strengthening industrial indicators such as the Purchasing Managers Index and Manufacturing Industrial Production led to improving conditions and sequentially stronger sales. We are confident in our growth plans for 2021, both in North America and Australasia, and expect to experience a continued, gradual recovery in the industrial economy amid the current COVID-19 environment.
Net sales for the Industrial Parts Group were $6.5 billion in 2019, up 3.6% from 2018. The increase in sales reflects an approximate 5.2% contribution from acquisitions and a 1.7% increase in comparable sales, offset by an approximate 3.1% decrease in net sales related to the sale of EIS. Total Industrial sales were positively impacted by product inflation of 2.4%, as a portion of this increase was passed through to customers and is included in the comparable sales increase. Industrial revenues were up approximately 5.7% in the first quarter of 2019, up 4.9% in the second quarter, up 9.9% in the third quarter and down 5.9% in the fourth quarter. These quarterly results reflect the impact of several factors, including the slowing trend in the industrial economy throughout the course of the year, as evidenced by weakening economic indicators such as Manufacturing Industrial Production and the Purchasing Managers Index, among others. In addition, the July 1, 2019 acquisition of Inenco (now referred to as Motion Asia Pacific), one of Australasia's leading industrial distributors, and the sale of EIS on September 30, 2019, impacted the quarterly sales comparisons for the Industrial Group in 2019. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | | | |
| | 2022 | | 2021 | | | | |
| (in thousands) | | $ | | % of Sales | | $ | | % of Sales | | $ Change | | % Change |
| Net sales | | $ | 22,095,973 | | | 100.0 | % | | $ | 18,870,510 | | | 100.0 | % | | $ | 3,225,463 | | | 17.1 | % |
| Cost of goods sold | | 14,355,869 | | | 65.0 | % | | 12,236,374 | | | 64.8 | % | | 2,119,495 | | | 17.3 | % |
| Gross profit | | 7,740,104 | | | 35.0 | % | | 6,634,136 | | | 35.2 | % | | 1,105,968 | | | 16.7 | % |
| Operating expenses: | | | | | | | | | | | | |
| Selling, administrative and other expenses | | 5,758,295 | | | 26.1 | % | | 5,162,506 | | | 27.4 | % | | 595,789 | | | 11.5 | % |
| Depreciation and amortization | | 347,819 | | | 1.6 | % | | 290,971 | | | 1.5 | % | | 56,848 | | | 19.5 | % |
| Provision for doubtful accounts | | 19,791 | | | 0.1 | % | | 17,739 | | | 0.1 | % | | 2,052 | | | 11.6 | % |
| Total operating expenses | | 6,125,905 | | | 27.7 | % | | 5,471,216 | | | 29.0 | % | | 654,689 | | | 12.0 | % |
| Non-operating expenses (income): | | | | | | | | | | | | |
| Interest expense, net | | 73,887 | | | 0.3 | % | | 62,150 | | | 0.3 | % | | 11,737 | | | 18.9 | % |
| Other | | (32,290) | | | (0.1) | % | | (99,576) | | | (0.5) | % | | 67,286 | | | (67.6) | % |
| Total non-operating expenses (income) | | 41,597 | | | 0.2 | % | | (37,426) | | | (0.2) | % | | 79,023 | | | (211.1) | % |
| Income before income taxes | | 1,572,602 | | | 7.1 | % | | 1,200,346 | | | 6.4 | % | | 372,256 | | | 31.0 | % |
| Income taxes | | 389,901 | | | 1.8 | % | | 301,556 | | | 1.6 | % | | 88,345 | | | 29.3 | % |
| Net income | | $ | 1,182,701 | | | 5.4 | % | | $ | 898,790 | | | 4.8 | % | | $ | 283,911 | | | 31.6 | % |
Cost
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | |
| (in thousands, except per share data) | | 2022 | | 2021 | | $ Change | | % Change |
| Diluted EPS | | $ | 8.31 | | $ | 6.23 | | $ | 2.08 | | | 33.4 | % |
| Adjusted EBITDA | | $ | 1,999,329 | | $ | 1,681,515 | | $ | 317,814 | | | 18.9 | % |
| Automotive segment profit | | $ | 1,191,674 | | $ | 1,073,427 | | $ | 118,247 | | | 11.0 | % |
| Industrial segment profit | | $ | 886,636 | | $ | 595,232 | | $ | 291,404 | | | 49.0 | % |
| Total segment profit | | $ | 2,078,310 | | $ | 1,668,659 | | $ | 409,651 | | | 24.5 | % |
| Automotive segment margin | | 8.7 | % | | 8.6 | % | | | | |
| Industrial segment margin | | 10.5 | % | | 9.4 | % | | | | |
| Total segment margin | | 9.4 | % | | 8.8 | % | | | | |
Net Sales
Our net sales increase of Goods Sold17.1% includes an 11.8% comparable sales increase and an 8.6% positive impact from acquisitions, slightly offset by an unfavorable impact of foreign currency of 3.3%.
Strong customer demand, which was consistent throughout 2022, and a favorable pricing environment were the primary drivers of our comparable sales growth. We deployed strategic pricing increases throughout 2022 to offset the dynamic product cost increases we faced across our businesses from elevated inflationary pressure, particularly in Automotive. Separately, we continued to invest in strategic acquisitions in both segments, with the KDG acquisition in particular providing a significant sales benefit in 2022. Our sales growth was negatively impacted by the U.S. dollar strengthening relative to other foreign currencies during the year, most significantly against the Euro.
Automotive
Net sales for Automotive were $13.7 billion in 2022, an 8.9% increase from 2021. The Companyincrease includes 9.0% growth in costcomparable sales and a 4.5% contribution from acquisitions, partially offset by a 4.6%unfavorable impact from foreign currency and other.
Our growth in sales was driven by continued solid demand for automotive parts, a strong pricing environment due to elevated inflation in product costs, and footprint expansion through acquisitions, such as our entry into new markets in Spain and Portugal. Several underlying factors driving customer demand for automotive parts in the markets we serve include increases in the average age of goods soldcars on the actual costroad and miles driven, and the lack of merchandise, which representsavailability of new cars due to supply chain constraints.
Industrial
Net sales for Industrial were $8.4 billion in 2022, a 33.2% increase from 2021. The increase includes 17.3% growth in comparable sales and a 16.8% contribution from acquisitions primarily driven by the vastaddition of KDG. This was slightly offset by a 0.9% unfavorable impact of currency translation.
Our growth in comparable sales reflects the positive impact of our ongoing sales initiatives and strength in numerous industry segments in North America throughout much of 2022. We experienced double-digit sales growth across all 14 customer sectors we served, with the largest percent increases in oil and gas, mining, and aggregate and cement. The increase in sales volume drove the majority of this line item. Other itemsour growth, in addition to a contribution of low single-digit product cost inflation. Our acquisition of goods sold include warranty costsKDG contributed significantly to our sales growth, and in-bound freightit enhanced our position as a market leader in the industrial supply chain for MRO and OEM customer support and advanced engineering and automation solutions.
Gross Profit & Gross Margin
Gross profit increased $1.1 billion, or approximately 16.7% from 2021, primarily driven by the suppliers,increase in net sales, and gross margin decreased slightly to 35.0% from 35.2% in 2021. The positive contributions to gross margin from our pricing and sourcing initiatives, among others, were more than offset by the negative impact of any vendor allowances and incentives. Cost of goods sold was $10.9 billion in 2020, a 6.7% decrease from $11.7 billion in 2019. Aslower supplier incentives as a percentage of netsales; the relative sales costgrowth of goods sold was 65.8% in 2020, decreasing from 66.6%Industrial as a component of nettotal sales, in 2019. The decrease in cost of goods sold in 2020 reflectswhich generates lower gross margins than Automotive; and the favorableunfavorable impact of business unit sales and product mix shifts, strategic category management initiatives in areas such as pricing and global sourcing, and the benefit of acquisitions and divestitures. These items were slightly offset by reduced supplier incentives in 2020 compared to 2019. During the quarter ended December 31, 2020, the Company recorded a $40 million increase to cost of goods sold due to the correction of an immaterial error related to the accounting in prior years for consideration received from vendors. Refer to the quarterly financial data footnote within the notes to the consolidated financial statements for additional information.foreign currency.
Cost of goods sold was $11.7 billion in 2019, a 3.1% increase from $11.3 billion in 2018. The increase in cost of goods sold in 2019 compares to a 4.1% total sales increase and is a positive reflection of our global supply chain initiatives, the lower cost of goods sold models at certain acquired companies such as PartsPoint and Motion Asia Pacific, and the sale of the lower margin EIS business. These items were slightly offset by relatively unchanged levels of supplier incentives in 2019 compared to 2018. Cost of goods sold represented 67.2% of net sales in 2018.
Operating Expenses
The Company includes in selling, administrative and otherSG&A expenses (“SG&A”) all personnel and personnel-related costs at its headquarters, distribution centers, stores and branches, which accounts for more than 60% of total SG&A. Additional costs in SG&A include our facilities, delivery, marketing, advertising, technology, digital, legal and professional costs.
SG&A of $4.4 billion in 2020 decreased by $0.2 billion or approximately 4.2% from 2019. This represents 26.5% of net sales in 2020 compared torepresent 26.1% of net sales in 2019.2022 compared to 27.4% of net sales in 2021. The increasedecrease in SG&A expensesexpense as a percent of net sales from the prior year reflects loss of leverage due to lower sales volume as a result of the COVID-19 pandemic, as well as the sale of EIS, which had a lower level of SG&A expenses relative to total sales. This increase was partially offset by our continued efforts to execute on our growth initiatives to better leverage our expenses. In addition, we are working towards a lower cost and highly effective infrastructure via steps to accelerate the integration of our acquisitions, investments to enhance our productivity and innovative strategies to unlock greater savings and efficiencies across our operations. In accordance with our $100 million cost savings plan announced in late 2019, we achieved permanent expense reductions of approximately $150 million for the year ended December 31, 2020primarily driven by transformative reductions in payroll and facility costs. Additionally, we have executed on a number of savings initiatives in response to the impact of COVID-19, which have contributed approximately $300 million in incremental, temporary savings related to furloughs, reduced travel and other initiatives for the year ended December 31, 2020.
SG&A of $4.6 billion in 2019 increased by $0.3 billion or approximately 7.9% from 2018. This represents 26.1% of net sales in 2019 compared to 25.2% of net sales in 2018. The increase in SG&A expenses from the prior year reflects a combination of factors, including the impact of increased sales for the year. In addition, our expenses reflect the impact of higher cost and higher gross margin models at certain acquired businesses, including PartsPoint and Motion Asia Pacific, as well as the sale of EIS, which had a lower level of SG&A expenses relative to total sales. We also experienced rising costs in areas such as labor, freight and delivery, insurance, legal and professional and technology for the year, although our labor and freight costs trended more favorably in the fourth quarter. Further, we incurred incremental costs associated with our acquisitions during the year. The increase in SG&A expenses as a percentage of net sales in 2019 relative to the prior year reflects the cost increases described above as well as the loss of leverage associated with the 2.1% comparableleveraging strong core sales growth, for the Company.
Depreciation and amortization expense was $272.8 million in 2020, an increase of approximately $15.6 million, or 6.1%, from 2019, due primarily to an increase in fixed assets acquired at the end of 2019 that began fully depreciating in 2020. The provision for doubtful accounts was $23.6 million in 2020, a $9.7 million increase from 2019, due primarily to higher collectability risks associated with the COVID-19 pandemic. We believe the Company is adequately reserved for bad debts and credit losses at December 31, 2020.
Depreciation and amortization expense was $257.3 million in 2019, an increase of approximately $29.7 million, or 13.0%, from 2018, due primarily to the impact of acquisitions and the increase in capital expenditures relative to the prior year. The provision for doubtful accounts was $13.9 million in 2019, a $2.1 million decrease from 2018.
Goodwill Impairment
Due to several factors that coalesced in the second quarter of 2020 we performed an interim impairment test as of May 31, 2020 for our European reporting unit and recorded a goodwill impairment charge of $506.7 million. These factors primarily resulted from the ongoing market volatility and uncertainty caused by the COVID-19 pandemic, which extended into the second quarter and impacted several critical impairment testing assumptions including weighted average cost of capital and market multiples, and near-term revenue and operating margin projections for the reporting unit. Refer to the goodwill and
other intangible assets footnote withinreduction and productivity initiatives, as well as a one-time benefit of $103 million on the notessale of real estate that had been previously leased to S.P. Richards Company ("SPR"). These benefits were partially offset by higher personnel and freight and delivery costs in 2022, and costs of $67 million associated with the consolidated financial statements for additional information. If there are sustained declines in macroeconomic or business conditionsacquisition and integration of KDG, which includes an impairment of $17 million from the retirement of certain legacy trade names. Additionally we had a remeasurement to increase our product liability by $29 million due to a revision of our estimate of the number of claims to be incurred in future periods, including as a result of the continued COVID-19 pandemic, affecting the projected earnings and cash flows at our reporting units, among other things, there can be no assurance that goodwill at one or more reporting units may not be impaired. Asassumptions.
The increase in depreciation and amortization expense of December 31, 2020, we determined that there were no indicators that goodwill$57 million was impaired at anydue to higher amortization from intangible assets associated with the acquisition of KDG and higher depreciation from increased capital investments to improve our reporting units.distribution facilities, streamline our supply chain and invest in enhanced technology solutions.
Non-Operating Expenses and Income
Non-operatingWe incurred $42 million in net non-operating expenses includedin 2022, a $79 million change from $37 million in net non-operating income in 2021. This category primarily includes net interest expense, pension and investment income, foreign currency gains and losses, and Accounts Receivable Sales Agreement ("A/R Sales Agreement") fees. The $79 million change includes the effects of $93.7a $12 million increase in 2020, $95.6 million in 2019 and $101.8 million in 2018. The decreases innet interest expense in 2022 due to increased borrowing to fund the acquisition of $1.9KDG. It also includes the effects of a $67 million decrease in 2020 and $6.2other non-operating income. The decrease primarily resulted from a $32 million year-over-year net decline in 2019 reflect the combination of the repayment of debt and lower interest ratesincome on certain variable interest debt instruments.
In 2019, the Company recorded $42.8investments, a $17 million increase in special termination costs related to benefits provided through the Company's defined benefit plans to employees that accepted the voluntary retirement program ("VRP") package as part of the Company's 2019 Cost Savings Plan. Refer to the restructuring footnote in the Notes to Consolidated Financial Statements for additional information.
In “Other”,A/R Sales Agreement fees, and the net benefitchange of interest income, equity method investment income, investment dividends, noncontrolling interests and pension income$12 million as foreign currency moved from gains in 2020 was $58.1 million, an approximate $28.6 million decrease from the prior year primarily driven by an immaterial loss on investment and changesto losses in retirement plan valuation. In 2019, the $25.3 million increase in income from 2018 was primarily driven by changes in retirement plan valuation.current year.
Segment Profit
Segment profit is calculated as net sales less operating expenses excluding general corporate expenses, interest expense, equity in income from investees, intangible asset amortization, income attributable to noncontrolling interests and other unallocated amounts that are driven by corporate initiatives and adjusted in Non-GAAP Measures (as described further below). Refer to the segment data footnote in the Notes to Consolidated Financial Statements for additional information.Automotive
Automotive Group
Automotive's segment profit increased 4.3% in 202011.0% and its segment margin improved 10 basis points from 2019 and2021. The increased segment profit reflects the benefits of strong sales growth due to solid customer demand, a favorable pricing environment and footprint expansion into new markets, such as in Europe. We were able to improve segment margin was 8.0% in 2020 as comparedAutomotive, despite elevated inflationary product cost pressures, primarily through our strategic pricing initiatives and our ability to 7.6% in 2019. The increase inleverage operating costs through strong core sales growth and the benefits of our strategic supply chain initiatives.
Industrial
Industrial segment profit margin reflects the strong operating results in North Americaincreased 49.0% and Australasia, driven by the positive impact of cost actions, which offset the 4.4% decrease in comparable sales for Automotive. The Company's European automotive operations were the most challenged in 2020, although this business made significant progress during the year, with improved margins in both the third and fourth quarters. To further improve Automotive'sits segment margin this group will continue to execute on its growth plans and cost initiatives in 2021 and the years ahead.
Automotive's segment profit decreased 2.8% in 2019improved 110 basis points from 2018 and segment margin was 7.6% in 2019 as compared to 8.1% in 2018. The decrease in segment margin reflects the loss of expense leverage due to the 2.3% growth in comparable sales for Automotive. In addition, rising costs in several areas as described above negatively impacted Automotive's segment margin.
Industrial Group
Industrial’s segment profit decreased 7.7% in 2020 from 2019 and segment profit margin was 8.5%, an increase from 8.0% in 2019.2021. The improvement in Industrial segment profit and margin for this group primarily reflects the benefits of an improved gross margin, despiteleveraging expenses through double-digit core sales growth, the reduced demand from the COVID-19 pandemic,acquisition of KDG and lower costs. The Company believes that strengthening economic indicators such as Manufacturing Industrial Productionour strategic supply chain and the Purchasing Managers Index combined with effective growth initiatives and cost actions position the Industrial Group for further growth in 2021.
Industrial’s segment profit increased 7.1% in 2019 from 2018 and segment margin was 8.0%, an increase from 7.7% in 2018. The improvement in segment margin for this group primarily reflects the benefit of improved gross margins, despite the slowing sales trend during the year and 1.7% comparable sales growth. 2019 was a transformative year for Industrial, given the addition of Motion Asia Pacific in Australasia and sale of EIS.other operating initiatives.
Income Taxes
TheOur effective income tax rate was 24.8% as of 56.9%December 31, 2022, compared to 25.1% in 2020 increased from 24.8% in 2019. The increase in2021. For the year ended December 31, 2022, the rate decrease is primarily due to a non-deductible goodwill impairment charge and other one-time costs incurred during the year.
The effective income tax rateinclusion in the prior year results of 24.8% in 2019 increased from 24.6% in 2018. The increase in rate is primarily due to geographic income tax rate mix shifts and the impact of one-time transactiona United Kingdom rate change that required deferred tax asset and liability remeasurement, partially offset by other costs, as well as changes inone time adjustments.
On August 16, 2022, the realizabilityInflation Reduction Act of future2022 ("IRA") was signed into law, and is effective beginning January 1, 2023. The IRA contains tax benefit adjustments recorded in the comparable periods.provisions primarily focused on implementing a 15% minimum tax on global adjusted financial statement income and a 1% excise tax on share repurchases which we do not expect to have material impacts to our financial statements.
Net Income from Continuing Operations
Net income from continuing operations was $163.4$1.2 billion in 2022, a significant increase compared to $899 million in 2020, a decrease2021. Diluted earnings per share ("EPS") was $8.31 in 2022, up 33.4% compared to $6.23 in 2021. Adjusted net income was $1.2 billion in 2022, an increase of 74.7%19.1% from $646.5$997 million in 2019. On2021. Adjusted diluted EPS was $8.34, a per share diluted basis,20.7% increase compared to $6.91 in 2021. EBITDA was $2.0 billion in 2022, an increase of 28.4% from $1.6 billion in 2021. Adjusted EBITDA was $2.0 billion in 2022, an increase of 18.9% from $1.7 billion in 2021.
The growth in net income, from continuing operations was $1.13 in 2020, down 74.4% compared to $4.42 in
2019. Net income from continuing operations was 1.0% of net sales in 2020 compared to 3.7% of net sales in 2019. Net income from continuing operationswas $646.5 million in 2019, a decrease of 13.7% from $749.5 million in 2018. On a per share diluted basis,adjusted net income, from continuing operations was $4.42EBITDA and adjusted EBITDA in 2019, down 13.2% compared to $5.09all periods presented reflects strong operating results in 2018. Net income from continuing operations was 3.7%both of netour segments, driven primarily by strong sales in 2019 compared to 4.5%growth, the benefits of net sales in 2018.
Duringkey acquisitions (including KDG), and the years ended December 31, 2020, 2019 and 2018, the Company incurred $634.5 million, $170.1 million and $34.9 million, respectively,continued execution of adjustments. In 2020, these adjustments include a goodwill impairment charge related to our European reporting unit, restructuring costs, an inventory adjustment, realized currency losses, and transactionstrategic pricing and other costs and income. Transaction and other costs in 2020 primarily include incremental costs associated with certain divestitures and COVID-19, slightly offset by income from the SPR Fire insurance proceeds. In 2019 and 2018, these transaction and other costs primarily reflect costs related to acquisitions and divestitures. Refer to the acquisitions, divestitures and discontinued operations footnote, commitments and contingencies footnote, and quarterly financial data footnoteinitiatives, as discussed more fully in the notes to the consolidated financial statements for more information.commentary above.
Adjusted net income, from continuing operations was $765.0 million in 2020, down 1.5% from adjusted net income from continuing operations in 2019. On a per share diluted basis, adjusted net income from continuing operations was $5.27, a 0.8% decrease compared to adjusted net income per diluted share from continuing operations of $5.31 in 2019. Adjusted net income from continuing operations was $776.8 million in 2019, up 0.3% from adjusted net income from continuing operations in 2018. On a per share diluted basis, adjusted net income from continuing operations was $5.31 in 2019, a 1.0% increase compared to adjusted net income per diluted share from continuing operations of $5.26 in 2018. Adjusted net income from continuing operationsEPS, EBITDA and adjusted net income per diluted share from continuing operations, both Non-GAAPEBITDA are non-GAAP measures in 2020, 2019 and 2018 exclude those items noted above (see table below for reconciliations to the most directly comparable GAAP measures).
Certain Information Regarding
Non-GAAP Financial Measures
The following tabletables sets forth a reconciliationreconciliations of net income, from continuing operations and diluted net income from continuing operations per common shareEPS to adjusted net income from continuing operations and adjusted diluted net income from continuing operations per common shareEPS to account for the impact of adjustments. The Company believesWe also include adjusted EBITDA with a reconciliation to pretax earnings. We believe that the presentation of adjusted net income, from continuing operationsadjusted diluted EPS and adjusted diluted net income from continuing operations per common share,EBITDA, which are not calculated in accordance with GAAP, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to both management and investors that is indicative of the Company'sour core operations. The Company considersWe consider these metrics useful to investors because they provide greater transparency into management’s view and assessment of the Company’sour ongoing operating performance by removing items management believes are not representative of our continuing operations and may distort our longer-term operating trends. We believe these measures to be useful to enhance the comparability of our results from period to period and with our competitors, as well as to show ongoing results from operations distinct from items that are infrequent or not associated with the Company’sour core operations. The Company doesWe do not, nor does itdo we suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information.
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In thousands) | | 2020 | | 2019 | | 2018 |
| GAAP net income from continuing operations | | $ | 163,395 | | | $ | 646,475 | | | $ | 749,534 | |
| | | | | | |
| Adjustments: | | | | | | |
| Goodwill impairment charge (1) | | 506,721 | | | — | | | — | |
| Restructuring (2) | | 50,019 | | | 142,780 | | | — | |
| Realized currency losses (3) | | 11,356 | | | 34,701 | | | — | |
| Gain on insurance proceeds related to SPR Fire (4) | | (13,448) | | | — | | | — | |
| Gain on equity investment (5) | | — | | | (38,663) | | | — | |
| Inventory adjustment (6) | | 40,000 | | | — | | | — | |
| Transaction and other costs (7) | | 39,817 | | | 31,254 | | | 34,930 | |
| Total adjustments | | 634,465 | | | 170,072 | | | 34,930 | |
| Tax impact of adjustments | | (32,822) | | | (39,704) | | | (10,170) | |
| Adjusted net income from continuing operations | | $ | 765,038 | | | $ | 776,843 | | | $ | 774,294 | |
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (in thousands) | | 2022 | | 2021 |
| GAAP net income | | $ | 1,182,701 | | | $ | 898,790 | |
| | | | |
| Adjustments: | | | | |
| Gain on sales of real estate (1) | | (102,803) | | | — | |
| Gain on insurance proceeds (2) | | (1,507) | | | (3,862) | |
| Product liability adjustment (3) | | 28,730 | | | — | |
| Product liability damages award (4) | | — | | | 77,421 | |
| Loss on software disposal (5) | | — | | | 61,063 | |
| Gain on equity investment (6) | | — | | | (10,229) | |
| Transaction and other costs (7) | | 80,601 | | | 3,655 | |
| Total adjustments | | 5,021 | | | 128,048 | |
| Tax impact of adjustments | | (137) | | | (29,828) | |
| Adjusted net income | | $ | 1,187,585 | | | $ | 997,010 | |
The table below represents amounts per common share assuming dilution:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (in thousands, except per share data) | | 2022 | | 2021 |
| GAAP diluted EPS | | $ | 8.31 | | | $ | 6.23 | |
| | | | |
| Adjustments: | | | | |
| Gain on sales of real estate (1) | | (0.72) | | | — | |
| Gain on insurance proceeds (2) | | (0.01) | | | (0.03) | |
| Product liability adjustment (3) | | 0.20 | | | — | |
| Product liability damages award (4) | | — | | | 0.54 | |
| Loss on software disposal (5) | | — | | | 0.42 | |
| Gain on equity investment (6) | | — | | | (0.07) | |
| Transaction and other costs (7) | | 0.56 | | | 0.03 | |
| Total adjustments | | 0.03 | | | 0.89 | |
| Tax impact of adjustments | | — | | | (0.21) | |
| Adjusted diluted EPS | | $ | 8.34 | | | $ | 6.91 | |
| Weighted average common shares outstanding - assuming dilution | | 142,322 | | | 144,221 | |
The table below represents amounts per common share assuming dilution:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (in thousands, except per share data) | | 2020 | | 2019 | | 2018 |
| GAAP net income from continuing operations | | $ | 1.13 | | | $ | 4.42 | | | $ | 5.09 | |
| | | | | | |
| Adjustments: | | | | | | |
| Goodwill impairment charge (1) | | 3.49 | | | — | | | — | |
| Restructuring (2) | | 0.34 | | | 0.98 | | | — | |
| Realized currency losses (3) | | 0.08 | | | 0.24 | | | — | |
| Gain on insurance proceeds related to SPR Fire (4) | | (0.09) | | | — | | | — | |
| Gain on equity investment (5) | | — | | | (0.26) | | | — | |
| Inventory adjustment (6) | | 0.28 | | | — | | | — | |
| Transaction and other costs (7) | | 0.27 | | | 0.20 | | | 0.24 | |
| Total adjustments | | 4.37 | | | 1.16 | | | 0.24 | |
| Tax impact of adjustments | | (0.23) | | | (0.27) | | | (0.07) | |
| Adjusted net income from continuing operations | | $ | 5.27 | | | $ | 5.31 | | | $ | 5.26 | |
| Weighted average common shares outstanding - assuming dilution | | 145,115 | | | 146,417 | | | 147,241 | |
The table below clarifies where the adjusted items are presented in the consolidated statement of income:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (in thousands) | | 2020 | | 2019 | | 2018 |
| Line item: | | | | | | |
| Cost of goods sold | | $ | 53,495 | | | $ | 9,608 | | | $ | 5,779 | |
| Selling, administrative and other expenses | | 10,094 | | | 23,768 | | | 29,151 | |
| Restructuring costs | | 50,019 | | | 100,023 | | | — | |
| Goodwill impairment charge | | 506,721 | | | — | | | — | |
| Non-operating expenses (income): Special termination costs | | — | | | 42,757 | | | — | |
| Non-operating expenses (income): Other | | 14,136 | | | (6,084) | | | — | |
| Total adjustments | | $ | 634,465 | | | $ | 170,072 | | | $ | 34,930 | |
(1) Adjustment reflects a second quarter goodwill impairment charge relatedgain on the sale of real estate that had been leased to our European reporting unit.S.P. Richards.
(2) Adjustment reflects restructuring and special termination costs related to the 2019 Cost Savings Plan announced in the fourth quarter of 2019. The costs are primarily associated with severance and other employee costs, including a voluntary retirement program, and facility and closure costs related to the consolidation of operations.
(3) Adjustment reflects realized currency losses related to divestitures.
(4) Adjustment reflects insurance recoveries in excess of losses incurred on inventory, property, plant and equipment and other fire-related costscosts.
(3)Adjustment to remeasure product liability for a revised estimate of the number of claims to be incurred in future periods, among other assumptions.
(4)Adjustment reflects damages reinstated by the Washington Supreme Court order on July 8, 2021 in connection with a 2017 automotive product liability claim.
(5)Adjustment reflects a loss on an internally developed software project that was disposed of due to a change in management strategy related to the S.P. Richards Headquarters and Distribution Center.advances in alternative technologies.
(5) (6)Adjustment relates to the gaingains recognized upon remeasuring the Company's preexisting 35%remeasurement of certain equity investmentinvestments to fair value upon acquiring the remaining equity of Motion Asia Pacific on July 1, 2019.those entities.
(6) (7)Adjustment reflects a $40for 2022 primarily includes costs of $67 million increase to costassociated with the January 3, 2022 acquisition and integration of goods sold recorded during the quarter ended December 31, 2020 due to the correction of an immaterial error related to the accounting in prior years for consideration received from vendors.
(7) AdjustmentKDG which includes a $17 million impairment charge. The impairment charge was driven by a decision to retire certain legacy trade names, classified as other intangible assets, prior to the end of their estimated useful lives as part of executing our KDG integration and rebranding strategy. Separately, this adjustment includes an $11 million loss on investment, $10 million of incremental costs associated with COVID-19, and costs associated with certain divestitures. COVID-19 related costs include incremental costs incurred relating to fees to cancel marketing events and increased cleaning and sanitization materials, among other things. For the twelve months ended December 31, 2019 and December 31, 2018, adjustments reflectan investment. Adjustment for 2021 includes transaction and other non-recurring costs related to acquisitionsacquisitions.
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (in thousands) | | 2022 | | 2021 |
| GAAP net income | | $ | 1,182,701 | | | $ | 898,790 | |
| Depreciation and amortization | | 347,819 | | | 290,971 | |
| Interest expense, net | | 73,887 | | | 62,150 | |
| Income taxes | | 389,901 | | | 301,556 | |
| EBITDA | | 1,994,308 | | | 1,553,467 | |
| Total adjustments (8) | | 5,021 | | | 128,048 | |
| Adjusted EBITDA | | $ | 1,999,329 | | | $ | 1,681,515 | |
(8) Adjustments are the same as adjustments included within the adjusted net income table above.
The table below clarifies where the adjusted items are presented in the consolidated statement of income:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (in thousands) | | 2022 | | 2021 |
| Line item: | | | | |
| Cost of goods sold | | $ | 5,000 | | | $ | — | |
| Selling, administrative and other expenses | | (7,472) | | | 142,139 | |
| Non-operating expenses (income): Other | | 7,493 | | | (14,091) | |
| Total adjustments | | $ | 5,021 | | | $ | 128,048 | |
OUTLOOK
We expect continued revenue and divestitures.earnings growth in 2023 despite uncertain economic conditions. We anticipate revenue growth in 2023, as positive trends related to miles driven, aging vehicles and limited new car inventory remain supportive of sustained demand for our Automotive business. In addition, we believe the strong performance in our Industrial business reflects the diversity of our product and service offerings. We expect our growing capabilities in industrial solutions, including automation, fluid power and conveyance to be differentiators for our business.
We continue to execute our strategic pricing and sourcing initiatives to mitigate product and other inflationary cost pressures which we expect to drive improvement in gross margins and earnings. With our global growth initiatives and strong industry fundamentals, we believe we are well positioned for both near-term and sustainable long-term sales and earnings growth.
FINANCIAL CONDITION
The Company’sOur cash balance of $990.2 million at December 31, 2020 compares2022 was $653 million compared to cash of $277.0$715 million at December 31, 2019, as discussed further below. For thea year ended December 31, 2020, the Company used $895.0 million to pay down debt (net of proceeds). This was primarily used to pay down the term loan A facility. Additionally the Company used
$453.3 million for dividends paid to the Company’s shareholders, $153.5 million for investments in the Company via capital expenditures and $69.2 million for acquisitions and other investing activities. These items were offset by the Company’s earnings and net cash provided by operating activities.
ago. Accounts receivable decreased $883.3increased $391 million, or 36.2%21.7%, from December 31, 20192021 primarily due to entering intohigher net sales inclusive of the A/R Sales Agreement.KDG acquisition. Inventory increased $62.4$552 million, or 1.8%14.2% from December 31, 2019, but was down 1.3% excluding the impact of foreign currency.2021 in association with higher product demand and increased net sales, and acquisitions (including KDG). Accounts payable increased $180.1$652 million, or 4.6%13.6% from December 31, 2019 partly2021 due to increased purchases to support higher net sales and extended payment terms with certain suppliers. Total debt of $2.7$3.3 billion at December 31, 2020 decreased $0.7 billion, or 21.9%,2022 increased $919 million from December 31, 20192021 primarily due to the extinguishmentSenior Notes offering (as discussed below) to fund the acquisition of the term loan A facility.KDG.
Supply Chain Finance Programs
We continue to negotiatehave negotiated extended payment dates with our suppliers. Our current payment terms with the majority of our suppliers range from 30 to 360 days.through supply chain finance programs. Several global financial institutions offer voluntary supply chain finance ("SCF") programs which enable our suppliers (generally those that grant extended terms), at their sole discretion, to sell their receivables from the Companyus to these financial institutions on a non-recourse basis at a rate that takes advantage of our credit rating and may be beneficial to them. The SCF program is primarily available to suppliers of goods and services included in cost of goods sold in our consolidated statements of comprehensive income. The CompanyWe and our suppliers agree on commercial terms for the goods and services we procure, including prices, quantities and payment terms, regardless of whether the supplier elects to participate in the SCF program. Our current payment terms with the majority of our suppliers range from 30 to 360 days. The suppliers sell goods or services, as applicable, to the Companyus and they issue the associated invoices to the Companyus based on the agreed-upon contractual terms. Then, if they are participating in the SCF program, our suppliers, at their sole discretion, determine which invoices, if any, they want to sell to the financial institutions. In turn, we direct payment to the financial institutions, rather than the suppliers, for the invoices sold to the financial institutions. No guarantees are provided by the Companyus or any of our subsidiaries on third-party performance under the SCF program; however, the Company guaranteeswe guarantee the payment by our subsidiaries to the financial institutions participating in the SCF program for the applicable invoices. We have no economic interest in a supplier’s decision to participate in the SCF program, and we have no direct financial relationship with the financial institutions, as it relates to the SCF program. Accordingly, amounts due to our suppliers that elected to participate in the SCF program are included in the line item accounts payable in our consolidated balance sheets. All activity related to amounts due to suppliers that elected to participate in the SCF program is reflected in cash flows from operating activities in our consolidated statement of cash flows. We have been informed by the financial institutions that as of December 31, 20202022 and 2019,2021, suppliers elected to sell $1.8$3.1 billion and $1.8$2.7 billion, respectively, of our outstanding payment obligations to the financial institutions. The amount settled through the SCF program was $2.6$3.7 billion for the year ended December 31, 2020.2022.
LIQUIDITY AND CAPITAL RESOURCES
The Company’sOur strong financial position and cash flow performance have provided us with the capacity to invest in acquisitions, capital expenditures and technology to support our global growth strategy, as well as return value to our shareholders through dividends and share repurchases. Our sources of capital consist primarily of cash flows from operations, supplemented as necessary by private and public issuances of debt and bank borrowings. Currently, we believe that our cash on hand and available short-term and long-term sources of capital are sufficient to fund the Company’sour operations in both the short and long term, including working capital requirements, scheduled debt payments, interest payments, capital expenditures, benefit plan contributions, income tax obligations,strategic acquisitions, dividends, share repurchases, capital expenditures, scheduled debt and contemplated acquisitions.interest payments, and income tax obligations.
The ratio of current assets to current liabilities was 1.21 to 1 at December 31, 2020 and 1.17 to 1 at 2019, and our liquidity position remains strong. The Company’sOur total debt outstanding at December 31, 2020 decreased2022 increased by $749.0$919 million or 21.9% from December 31, 2019, primarily due to the extinguishment of our term loan A facility.
Sources and Uses of Cash
A summary of the Company’s consolidated statements of cash flows is2021, as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | |
| (In thousands) | | 2020 | | 2019 | | $ Change | | % Change |
| Operating activities | | $ | 2,014,522 | | | $ | 832,519 | | | $ | 1,182,003 | | | 142.0 | % |
| Investing activities | | $ | 182,768 | | | $ | (543,595) | | | $ | 726,363 | | | (133.6) | % |
| Financing activities | | $ | (1,513,765) | | | $ | (385,962) | | | $ | (1,127,803) | | | 292.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | |
| (In thousands) | | 2019 | | 2018 | | $ Change | | % Change |
| Operating activities | | $ | 832,519 | | | $ | 1,056,722 | | | $ | (224,203) | | | (21.2) | % |
| Investing activities | | $ | (543,595) | | | $ | (469,938) | | | $ | (73,657) | | | 15.7 | % |
| Financing activities | | $ | (385,962) | | | $ | (608,830) | | | $ | 222,868 | | | (36.6) | % |
Sources and Uses of Cash
A summary of our consolidated statements of cash flows is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | |
| (In thousands) | | 2022 | | 2021 | | $ Change | | % Change |
| Operating activities | | $ | 1,466,971 | | | $ | 1,258,285 | | | $ | 208,686 | | | 16.6 | % |
| Investing activities | | $ | (1,684,240) | | | $ | (506,164) | | | $ | (1,178,076) | | | 232.7 | % |
| Financing activities | | $ | 205,101 | | | $ | (989,532) | | | $ | 1,194,633 | | | (120.7) | % |
Operating Activities
The Company continues to generateWe generated strong positive cash andflow in 2020 net cash provided by operating activities totaled $2.0 billion, a $1.2 billion, or 142.0%, increase from 2019. The2022 with the increase in cash provided by operating activities was primarily driven by higher earnings and the effective management of our working capital, including a $200 million benefit related to increasing the entry into anamount of receivables sold under our A/R Sales Agreement to sell receivables that provided an $800 million benefit to operating cash flows.Agreement.
In 2019 net cash provided by operating activities totaled $0.8 billion, a $0.2 billion, or 21.2%, decrease from 2018. The decrease in cash provided by operating activities was primarily due to the change in working capital in 2019 as compared to 2018, as the Company's increase in accounts payable was less than in the prior year.
Investing Activities
Net cash provided by investing activities was $182.8 millionWe continue to invest in 2020 comparedour business through strategic acquisitions and capital expenditures to broaden our product and service offerings, improve our business operations and expand our global footprint. In 2022, net cash used of $543.6 million in 2019, a $726.4 million, or 133.6%, decrease. In 2020, net cash provided by investing activities included $387.4$1.7 billion used for acquisitions of businesses and other investing activities primarily in connection with the acquisition of KDG and a $158 million benefit from the settlement of a net investment hedge. Additionally, we invested $340 million in proceeds from the divestiture of the Business Products Groupcapital expenditures to improve our supply chain, facilities, and $18.1technology environment. These items were partially offset by $145 million in proceeds from the sale of property, plant and equipment. Theseequipment (primarily real estate that had been previously leased to SPR) and $34 million in proceeds were partially offsetfrom divestitures of store operations in Automotive.
Financing Activities
Cash provided by capital expendituresfinancing activities reflects $919 million of $153.5 million, a decrease of $124.4 million, or 44.8%,net proceeds from debt primarily from the prior year, and $69.2 million used for acquisitions of businesses and other investing activities, a decrease of $655.5 million, or 90.5%, from 2019. As part of our actions to preserve liquidity as a result of the COVID-19 pandemic, we significantly reduced our planned capital expenditures during 2020 from our original estimate of $300 million for the year. We estimate that cash used for capital expenditures in 2021 will be in the range of $275 million to $325 million.
Net cash used in investing activities was $543.6 million in 2019 compared to $469.9 million in 2018, a $73.7 million, or 15.7%, increase. In 2019, net cash used in investing activities included $724.7 million used for acquisitions of businesses and other investing activities, an increase of $466.9 million, or 181.1%, from 2018, and capital expenditures of $277.9 million, an increase of $51.4 million, or 22.7%, from the prior year. This increaseSenior Notes offering, which was mostly offset by $434.6 million in proceeds for the divestiture of businesses during the year and $24.4 million in proceeds from the sale of property, plant and equipment.
Financing Activities
Net cash used in financing activities in 2020 totaled $1.5 billion, an increase of $1.1 billion, or 292.2%, from the $386.0 million in cash used in financing activities in 2019. The increase is primarily driven by the extinguishment of the term loan A facility in 2020. For the years presented, the Company's financing activities also included the use of cash for dividends paid to shareholders of $496 million and repurchases of the Company’sour common stock. The Company paid dividends to shareholdersstock of $453.3 million during 2020. During 2020, the Company repurchased $96.2 million, of the Company’s common stock. The Company expects$223 million. In 2022, we announced a 10% increase in our regular quarterly cash dividend and we expect this trend of increasing dividends to continue in the foreseeable future. We also expect to remain active in our share repurchase program, but the amount and value of shares repurchased will vary and is at the discretionsubject to authorization of the Company's boardour Board of directors.
Net cash used in financing activities in 2019 totaled $386.0 million, a decrease of $222.9 million, or 36.6%, from the $608.8 million in cash used in financing activities in 2018. Primarily, the decrease reflects the net proceeds from debt issued in 2019 as compared to the net payments on debt in 2018. For the years presented, the Company's financing activities also included the use of cash for dividends paid to shareholders and repurchases of the Company’s common stock. The Company paid dividends to shareholders of $438.9 million and $416.0 million during 2019 and 2018, respectively. During 2019 and 2018, the Company repurchased $74.2 million and $92.0 million, respectively, of the Company’s common stock.
Notes and Other Borrowings
We have taken actions and will continue to take actions, as necessary, intended to preserve financial flexibility in light of current uncertainty in the global markets resulting from COVID-19. These actions have included the previously negotiated covenant amendments to our credit arrangements due to macro uncertainty and evaluating alternative forms of liquidity to enhance credit capacity, reducing our capital expenditures (specifically deferring our growth related capital spending) and limiting merger and acquisition activity to select “bolt-on” acquisitions. Additionally, we took precautionary measures in 2020 to conserve liquidity including, but not limited to, reducing our inventory levels and managing replenishment volumes to adjust to the changing levels of market demand. To the extent available, we are also delaying tax payments as allowed by governmental authorities. We have a low level of capital expenditures related to maintenance items, which provides the flexibility to modify spending as needed to further preserve funds.
We believe that we have sufficient liquidity to manage through the current market conditions caused by COVID-19. We ended the year with $2.9 billion of total liquidity (comprising $1.9 billion availability on the revolving credit facility and $1.0 billion of cash and cash equivalents). From time to time, the Company may enter into other credit facilities or financing arrangements to provide additional liquidity and to manage against foreign currency risk. The Company currently believes that the existing lines of credit and cash generated from operations will be sufficient to fund anticipated operations for the foreseeable future.
On May 1, 2020, the Company entered into an amendment to each of the Amended and Restated Syndicated Credit Facility Agreement (the "October 30, 2017 Syndicated Facility") and the Notes Purchase Agreement, each dated as of OctoberDirectors.
30, 2017, to provide additional covenant flexibility on account of the COVID-19 pandemic. In consideration of the increased covenant flexibility, the Company agreed to certain interest rate increases under these facilities which expire on March 31, 2021.Notes and Other Borrowings
On May 29, 2020,January 3, 2022, we entered into theamended our A/R Sales Agreement to sell approximately $500 million of short-term receivables from certain customer trade accounts to an unaffiliated financial institution. The A/R Sales Agreement has a one year term, whichincrease the Company intends to renew each year. On October 29, 2020, the Company transferred ownership and control offacility limit by an additional $300$200 million, in receivables under the A/R Sales Agreement bringing the total to $800 million.$1 billion. The terms of the A/R Sales Agreement limit the balance of receivables sold to approximately $800 million$1 billion at any point in time. Refer to the A/R Sales Agreement Footnote in the Notes to Consolidated Financial Statements for more information.
On October 27, 2020, the CompanyJanuary 6, 2022, we issued $500,000 aggregate principal amount$500 million of unsecured 1.875%1.750% Senior Notes due 2030 at a price to the public2025. Simultaneously, we issued $500 million of 99.069% of their face value with U.S. Bank National Association as trustee. Interest on the 1.875%unsecured 2.750% Senior Notes due 20302032. For both offerings, interest is payable semi-annually on MayFebruary 1 and NovemberAugust 1 of each year, which beginsbeginning on MayAugust 1, 2021, and is computed on the basis of a 360-day year. On October 30, 2020, the term loan A was extinguished in connection with the issuance of these senior notes.
On October 30, 2020, the Company entered into a new $1.5 billion Syndicated Facility Agreement (the "October 30, 2020 Syndicated Facility"). Borrowings under the October 30, 2020 Syndicated Facility bear interest at a rate of London Inter-bank Offered Rate ("LIBOR") (or a similar index for foreign currency borrowings) plus a margin, which is based on the Company’s debt rating, with a LIBOR floor of 0.50%. The Company also has the option to increase the borrowing capacity up to an additional $750 million, as well as an option to decrease the borrowing capacity or terminate the facility with appropriate notice. The October 30, 2020 Syndicated Facility matures in October 2025. Simultaneously with the entry into the October 30, 2020 Syndicated Facility, the Company terminated and paid in full all outstanding indebtedness under the October 30, 2017 Syndicated Facility and repaid the existing term loan A facility.2022.
At December 31, 2020, approximately $1.52022, we had $3.4 billion was available under this line of credit. Due to the workers’ compensation and insurance reserve requirements in certain states, the Company also had unused letters of credit of approximately $69.9 million outstanding at December 31, 2020. Our unused letters of credit expire within one year, but have automatic renewal clauses.
At December 31, 2020, the Company had unsecured Senior Notes outstandingoutstanding. Approximately $1.8 billion of $2.1 billion. Thesethese borrowings contain covenants related to a maximum debt to EBITDA ratio and certain limitations on additional borrowings. The weighted average interest rate on the Company’s total outstanding borrowings was approximately 2.65% at December 31, 2020 and 2.18% at December 31, 2019. Total interest expense, net of interest income, for all borrowings was $91.0 million, $91.4 million and $93.3 million in 2020, 2019 and 2018, respectively. Refer to the credit facilities footnote the Consolidated Financial Statements for more information.
At December 31, 2020, the Company was2022, we were in compliance with the covenants under its October 30, 2020 Syndicatedour Unsecured Revolving Credit Facility and itsour outstanding unsecured Senior Notes. Any failure to comply with our debt covenants or restrictions could result in a default under our financing arrangements or could require us to obtain waivers from our lenders for failure to comply with these restrictions. The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could create cross defaults under other debt arrangements and have a material adverse effect on our business, financial condition, results of operations and cash flows.
We ended the year with $2.2 billion of total liquidity (comprising $1.5 billion availability on the revolving credit facility and $653 million of cash and cash equivalents). Due to the workers’ compensation and insurance reserve requirements in certain states, we also had unused letters of credit of approximately $71 million outstanding at December 31, 2022. Our unused letters of credit expire within one year, but have automatic renewal clauses. From time to time, we may enter into other credit facilities or financing arrangements to provide additional liquidity and to manage against foreign currency risk. We currently believe that the existing lines of credit and cash generated from operations will be sufficient to fund anticipated operations for the foreseeable future.
Our total average cost of debt was 2.33% at December 31, 2022 and 2.35% at December 31, 2021. Total interest expense, net of interest income, for all borrowings was $74 million and $62 million in 2022 and 2021, respectively. Refer to the Debt Footnote in the Notes to Consolidated Financial Statements for more information.
Contractual and Other Obligations
The following table summarizes our material cash requirements at December 31, 20202022 that we expect to be paid in cash. The table does not include amounts that are contingent on events or other factors that are uncertain or unknown at this time, including legal contingencies and uncertain tax positions. The amounts presented are based on various estimates and actual results may vary from the amounts presented.
| | | | | Payment Due by Period | | | Payment Due by Period |
| (In thousands) | (In thousands) | | Total | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | Over 5 Years | (In thousands) | | Total | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | Over 5 Years |
| Credit facilities | Credit facilities | | $ | 2,690,863 | | | $ | 162,429 | | | $ | 251,573 | | | $ | 395,906 | | | $ | 1,880,955 | | Credit facilities | | $ | 3,351,185 | | | $ | 252,029 | | | $ | 847,452 | | | $ | 743,264 | | | $ | 1,508,440 | |
| Operating leases | Operating leases | | 1,132,539 | | | 295,841 | | | 440,660 | | | 209,903 | | | 186,135 | | Operating leases | | 1,243,248 | | | 325,370 | | | 467,485 | | | 234,308 | | | 216,085 | |
| Total material cash requirements | Total material cash requirements | | $ | 3,823,402 | | | $ | 458,270 | | | $ | 692,233 | | | $ | 605,809 | | | $ | 2,067,090 | | Total material cash requirements | | $ | 4,594,433 | | | $ | 577,399 | | | $ | 1,314,937 | | | $ | 977,572 | | | $ | 1,724,525 | |
Purchase orders or contracts for the purchase of inventory and other goods and services are not included in our estimates. We are not able to determine the aggregate amount of such purchase orders that represent contractual cash requirement, as purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current distribution needs and are fulfilled by our vendors within short time horizons. The Company doesWe do not have significant agreements for the purchase of inventory or other goods specifying minimum quantities or set prices that exceed our expected requirements.
Additionally, the Company guaranteeswe guarantee the borrowings of certain independently owned automotive parts stores (independents) and certain other affiliates in which the Company haswe have a noncontrolling equity ownership interest (affiliates). The Company’sOur maximum exposure to loss as a result of itsour involvement with these independents and affiliates is generally equal to the total borrowings subject to the Company’sour guarantee. At December 31, 2020,2022, the total borrowings of the independents and affiliates subject to guarantee by the Companycompany were approximately $884.7$916 million. These loans generally mature over periods from one to six years. Our amount of commitment expiring in 20212023 is approximately $420.7$401 million. To date, the Company haswe have had no significant losses in connection with guarantees of independents’ and affiliates’ borrowings.
Share Repurchases
In 2020, the Company2022, we repurchased approximately 1.11.6 million shares of itsour common stock for an aggregate $223 million, and the Companywe had remaining authority to purchase approximately 14.510.3 million shares of itsour common stock at December 31, 2020.2022. We expect to remain active in our share repurchase program and continue to return capital to our shareholders. There were no other repurchase plans announced as of December 31, 2020.2022.
CRITICAL ACCOUNTING POLICIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, net sales and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We describe in this section certain critical accounting policies that require us to make significant estimates, assumptions and judgments. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain at the time the estimate is made and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. Management believes the following critical accounting policies reflect its most significant estimates and assumptions used in the preparation of the consolidated financial statements. For further information on the critical accounting policies, see the summarySummary of significant accounting policies footnoteSignificant Accounting Policies Footnote in the Notes to Consolidated Financial Statements.
Inventories — Provisions for Slow Moving and Obsolescence
The Company identifies slow moving or obsolete inventories and estimates appropriate provisions related thereto. Historically, these losses have not been significant as the vast majority of the Company’s inventories are not highly susceptible to obsolescence and a majority are eligible for return under various vendor return programs. While the Company has no reason to believe its inventory return privileges will be discontinued in the future, its risk of loss associated with obsolete or slow moving inventories would increase if such were to occur.
Allowance for Doubtful Accounts — Methodology
The Company evaluates the collectability of trade accounts receivable based on a combination of factors. The Company estimates an allowance for doubtful accounts as a percentage of net sales based on various factors, including historical experience, current economic conditions and expected future credit losses and collectability trends. The Company periodically adjusts this estimate when the Company becomes aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While the Company has a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which the Company operates could result in higher than expected defaults and, therefore, the need to revise estimates for bad debts. For the years ended December 31, 2020, 2019 and 2018, the Company recorded provisions for doubtful accounts of approximately $23.6 million, $13.9 million, and $15.9 million, respectively.
Consideration Received from Vendors
The CompanyWe may enter into agreements at the beginning of each year with many of itsour vendors that provide for inventory purchase incentives. Generally, the Company earnswe earn inventory purchase incentives upon achieving specified volume purchasing levels or other criteria. The Company accruesWe accrue for the receipt of these incentives as part of itsour inventory cost based on cumulative purchases of inventory to date and projected inventory purchases through the end of the year. While management believes the Companywe will continue to receive consideration from vendors in 20212023 and beyond, there can be no assurance that vendors will continue to provide comparable amounts of incentives in the future or that we will be able to achieve the specified volumes necessary to take advantage of such incentives.
Impairment of Property, Plant and Equipment and Goodwill and Other Intangible Assets
At least annually, the Company evaluateswe evaluate property, plant and equipment, goodwill and other intangible assets for potential impairment indicators. The Company’sOur judgments regarding the existence of impairment indicators are based on market conditions and operational performance, among other factors. Future events could cause the Companyus to conclude that impairment indicators exist and that assets associated with a particular operation are impaired. Evaluating for impairment also requires the Companyus to estimate future operating results and cash flows which requires judgment by management. Any resulting impairment loss could have a material adverse impact on the Company’sour financial condition and results of operations. Refer to the goodwillGoodwill and other intangible assets footnoteOther Intangible Assets Footnote of the Notes to Consolidated Financial Statements for further information on the results of the Company'sour annual goodwill impairment testing.
Employee Benefit Plans
The Company’sOur benefit plan committees in the U.S. and Canada establish investment policies and strategies and regularly monitor the performance of the Company’sour pension plan assets. Our U.S. plan, our largest pension plan, is well-funded, with a fund status of 127% at December 31, 2022. The plans in Europe are unfunded and therefore there are no plan assets. TheOur pension plan investment strategy implemented by the Company’sour management is to achieve long-term objectives and invest the pension assets in accordance with the applicable pension legislation in the U.S. and Canada, as well as fiduciary standards. The long-term primary objectives for the pension plan funds are to provide for a reasonable amount of long-term growth of capital without undue exposure to risk, protect the assets from erosion of purchasing power and provide investment results that meet or exceed the pension plans’ actuarially assumed long-term rates of return. The Company’sOur investment strategy with respect to pension plan assets is to generate a return in excess of the passive portfolio benchmark (47% S&P 500 Index, 5% Russell Mid Cap Index, 7% Russell 2000 Index, 5% MSCI EAFE Index, 5% DJ Global Moderate Index,(38% U.S. Large-cap stocks, 9% U.S. Mid-cap stocks, 10% International stocks, 3% MSCI Emerging Market Net,stocks and 28%40% Barclays U.S. Long Govt/Credit)Gov/Credit Index).
We make several critical assumptions in determining our pension plan assets and liabilities and related pension income. We believe the most critical of these assumptions are the expected rate of return on plan assets and the discount rate. Other assumptions we make relate to employee demographic factors such as rate of
compensation increases, mortality rates, retirement patterns and turnover rates. Refer to the employee benefit plans footnoteEmployee Benefit Plans Footnote of the Notes to Consolidated Financial Statements for more information regarding these assumptions.
Based on the investment policy for the pension plans, as well as an asset study that was performed based on the Company’sour asset allocations and future expectations, the Company’sour expected rate of return on plan assets for measuring 20212023 pension income is 6.88%7.09% for the plans. The asset study forecasted expected rates of return for the approximate duration of the Company’sour benefit obligations, using capital market data and historical relationships.
The discount rate is chosen as the rate at which pension obligations could be effectively settled and is based on capital market conditions as of the measurement date. We have matched the timing and duration of the expected cash flows of our pension obligations to a yield curve generated from a broad portfolio of high-quality fixed income debt instruments to select our discount rate. Based upon this cash flow matching analysis, we selected a weighted average discount rate for the plans of 2.7%5.61% at December 31, 2020.2022.
Our pension income for 2022 is determined at the December 31, 2021 measurement date. A 25 basis point increase in discount rate would result in an approximate $46 million decrease on our projected benefit obligation. A 25 basis point decrease in discount rate would result in approximate $48 million increase on our projected benefit obligation. A 25 basis point change in discount rate would have an immaterial impact on our pension income. A 25 basis point change in expected return on asset would have an approximate $6 million impact on our pension income. These sensitivities reflect the effect of changing one assumption at a time and assume no changes to the design of the pension plans.
Effective December 31, 2013, our defined benefit pension plans waswere amended to freeze benefit plan accruals for participants and provide for immediate vesting of accrued benefits. Net periodic benefit income for our defined benefit pension plans was $18.0$27 million, $16.2$19 million, and $15.8$18 million for the years ended December 31, 2020, 20192022, 2021 and 2018,2020, respectively. The income associated with the pension plans in 2020, 20192022, 2021 and 20182020 reflects the impact of the freeze. Refer to the employee benefit plans footnoteEmployee Benefit Plans Footnote of the Notes to Consolidated Financial Statements for more information regarding employee benefit plans.
Business Combinations
When the Company acquireswe acquire businesses, it applieswe apply the acquisition method of accounting and recognizesrecognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree at their fair values on the acquisition date, which requires significant estimates and assumptions. Goodwill is measured as the excess of the fair value of the consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method requires the Companyus to record provisional amounts for any items for which the accounting is not complete at the end of a reporting period. The CompanyWe must complete the accounting during the measurement period, which cannot exceed one year. Adjustments made during the measurement period could have a material impact on the Company'sour financial condition and results of operations.
The CompanyWe typically measuresmeasure customer relationshiprelationships and other intangible assets using an income approach. Significant estimates and assumptions used in this approach include discount rates and certain assumptions that form the basis of the forecasted cash flows expected to be generated from the asset (e.g., future revenue growth rates operating margins and attrition rates)EBITDA margins). If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, the Companywe could record impairment charges. In addition, the Company haswe have estimated the economic lives of certain acquired tangible and intangible assets and these lives are used to
calculate depreciation and amortization expense. If the Company'sour estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired.
Legal and Product Liabilities
The Company accruesWe accrue for potential losses related to legal disputes, litigation, product liabilities, and regulatory matters when it is probable (the future event or events are likely to occur) that the Companywe will incur a loss and the amount of the loss can be reasonably estimated.
To calculate product liabilities, the Company estimateswe estimate potential losses relating to pending claims and also estimatesestimate the likelihood of additional, similar claims being filed against the Companyus in the future. To estimate potential losses on claims that could be filed in the future, the Company considerswe consider claims pending against the Company,us, claim filing rates, the number of codefendants and the extent to which they share in settlements, and the amount of loss by claim type. The estimated losses for pending and potential future claims are calculated on a discounted basis using risk-free interest rates derived from market data about monetary assets with maturities comparable to those of the projected product liabilities. The Company usesWe use an actuarial specialist to assist with measuring itsour product liabilities. While we believe our legal and product liability estimates are reasonable in light of all available information, if one or more legal claims were to greatly exceed our
estimates, our results of operations and cash flows could be materially and adversely affected. Refer to the commitmentsCommitments and contingencies footnoteContingencies Footnote of the Notes to Consolidated Financial Statements for additional information regarding product liabilities.
Self Insurance
The Company isWe are self-insured for the majority of itsour group health insurance costs. A reserve for claims incurred but not reported is developed by analyzing historical claims data provided by the Company’sour claims administrators. These reserves are included in accrued expenses in the accompanying consolidated balance sheets as the expenses are expected to be paid within one year.
Long-term insurance liabilities consist primarily of reserves for the Company'sour workers’ compensation program. In addition, the Company carrieswe carry various large risk deductible workers’ compensation policies for the majority of workers’ compensation liabilities. The Company recordsWe record the workers’ compensation reserves based on an analysis performed by an independent actuary. The analysis calculates development factors, which are applied to total reserves as provided by the various insurance companies who underwrite the program. While the Company believeswe believe that the assumptions used to calculate these liabilities are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect workers’ compensation costs.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amount and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes. In addition, valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. In making this determination, the Company considers all available positive and negative evidence including projected future taxable income, future reversals of existing temporary differences, recent financial operations and tax planning strategies.
The Company recognizes a tax benefit from uncertain tax positions when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Refer to the summarySummary of significant accounting policies footnoteSignificant Accounting Policies Footnote in the Notes to Consolidated Financial Statements for information on recent accounting pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Although the Company doeswe do not face material risks related to commodity prices, the Company iswe are exposed to changes in interest rates and in foreign currency rates with respect to foreign currency denominated operating revenues and expenses.
Foreign Currency
The Company incursWe incur translation gains or losses resulting from the translation of an operating unit’s foreign functional currency into U.S. dollars for consolidated financial statement purposes. For the periods presented, the Company’sour principal foreign currency exchange exposures are the Euro, the functional currency of our European operations; the Canadian dollar, the functional currency of our Canadian operations; and the Australian dollar, the functional currency of our Australasian operations. We monitor our foreign currency exposures and from time to time, we enter into currency forward contracts to manage our exposure to currency fluctuations. Foreign currency exchange exposure, particularly in regard to the Australian and Canadian dollar, and to a lesser extent the Euro, positively impacted our results for the year ended December 31, 2020.2022. Foreign currency exchange exposure, particularly in regard to the Euro positively impacted our results for the year ended December 31, 2021. This positive impact was mostly offset by the negative impact from the Canadian and Australian dollar for the full year ended December 31, 2020. Foreign currency exchange
exposure, particularly in regard to the Canadian and Australian dollar and, to a lesser extent, the Euro, negatively impacted our results for the year ended December 31, 2019.2021.
During 20202022 and 2019,2021, it was estimated that a 10% shift in exchange rates between those foreign functional currencies and the U.S. dollar would have impacted translated net sales by approximately $549$723 million and $508$683 million, respectively. A 15% shift in exchange rates between those functional currencies and the U.S. dollar would have impacted translated net sales by approximately $824 million$1.1 billion in 20202022 and $763 million$1.0 billion in 2019.2021. A 20% shift in exchange rates between those functional currencies and the U.S. dollar would have impacted translated net sales by approximately $1,099 million$1.4 billion in 20202022 and $1,017 million$1.4 billion in 2019.2021.
Interest Rates
The Company isWe are subject to interest rate volatility with regard to existing and future issuances of debt.debt and with respect to the A/R Sales Agreement, for which the fees are linked to interest rate changes. We monitor our mix of fixed-rate and variable-rate debt as well as our mix of short-term debt and long-term debt. From time to time, we enter into interest rate swap agreements to manage our exposure to interest rate fluctuations. As of December 31, 2022, we primarily had fixed-rate debt. Based on the Company'sour variable-rate debt and derivative instruments outstanding as of December 31, 20202022 and 2019,2021, we estimate that a 100 basis point increase in interest rates would have increased interest expensean immaterial impact in 2022 and 2021 and would increase the fees on our A/R Sales Agreement by $1.1 million$10 million.
Inflation
In fiscal year 2022, we experienced inflationary pressures across various parts of our business and operations, including, but not limited to, increases to our product costs, overhead costs and rising costs across our supply chain. We continue to monitor the impact of inflation in 2020order to minimize its effects through pricing strategies, productivity improvements and $5.5 million in 2019. However, thesecost reductions. If our costs were to be subject to more significant inflationary pressures, we may not be able to fully offset such higher costs through price increases in interest expense would have been partially offset by the increases in interest income relatedor other cost
efficiency measures. Our inability or failure to higher interest rates.do so could harm our business, financial condition and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ANNUAL REPORT ON FORM 10-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Genuine Parts Company and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Genuine Parts Company and Subsidiaries (the Company) as of December 31, 20202022 and 2019,2021, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020,2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 19, 202123, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
relate
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| Valuation of Goodwill
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Description of the Matter | As of December 31, 2020, the Company’s goodwill was $1,917,477,000. As disclosed in Note 1 to the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level. For a reporting unit in which the Company concludes, based on the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount (or if the Company elects to skip the optional qualitative assessment), the Company is required to perform a quantitative impairment test, which includes measuring the fair value of the reporting unit and comparing it to the reporting unit’s carrying amount. In the year ended December 31, 2020, the Company recorded a goodwill impairment charge of $506,721,000 related to its European reporting unit as disclosed in Note 3 to the consolidated financial statements.
Auditing management’s quantitative impairment test for goodwill was complex and judgmental due to the significant estimation required to determine the fair value of the reporting unit. In particular, the fair value estimate was sensitive to significant assumptions, such as changes in the weighted average cost of capital and market multiples, and near-term revenue and operating margin projections, which are affected by expectations about future market or economic conditions.
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| Fair Value of Customer Relationships Acquired in the Kaman Distribution Group Business Combination
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| Description of the Matter | As disclosed in Note 10 to the consolidated financial statements, the Company completed the acquisition of Kaman Distribution Group (KDG) during 2022 for an aggregate net purchase price of $1.3 billion. This acquisition was accounted for under the acquisition method of accounting for business combinations. The Company allocated the net purchase price to the assets acquired and the liabilities assumed based on their respective fair values as of the date of acquisition, including other intangible assets of $568 million. Of the other intangible assets acquired, the largest was customer relationships of $527 million.
Auditing the Company's valuation of customer relationships was complex and required significant auditor judgment due to the significant estimation uncertainty in evaluating certain assumptions required to estimate the fair value. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair value of the customer relationships to assumptions about the future cash flows that the Company expects to generate from the acquired business. The Company used the multi-period excess earnings method under the income approach to measure the customer relationships. The fair value measure was sensitive to underlying assumptions including discount rates and certain assumptions that form the basis of the forecasted results (e.g., future revenue growth rates and EBITDA margins). The significant assumptions are forward-looking and could be affected by future economic and market conditions. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant controls over the Company’s goodwill impairment review process for estimating the fair value of customer relationships, including controls over management’smanagement's review of the significant assumptions, described above. including the future revenue growth rates and EBITDA margins, used in the valuation of this this intangible asset and review of the valuation model.
To test the estimated fair value of the European reporting unit,customer relationships, we performed audit procedures that included, among others, assessingevaluating the Company's valuation methodologies and testingevaluating the significant assumptions discussed above and the underlying data used by the Company in its analysis. For example, we compared the significant assumptions of the reporting unit to current industry, market and economic trends, to the Company's historical results and those of other guideline companies in the same industry, and to other relevant factors.Company. We involved our valuation specialists to assist inwith our evaluation of the Company's valuation methodology used by the Company and significant assumptions. In addition, we assessedassumptions included in the fair value estimates. Our testing also included comparing the significant assumptions used to the historical accuracyresults of management’s estimatesthe acquired business and to other guideline companies within the same industry. We also performed sensitivity analyses of the significant assumptions to evaluate the changeschange in the fair value of the reporting unit that would resultintangible assets resulting from changes in the assumptions. We also recalculated the resulting impairment charge recorded by the Company. |
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| Loss Contingencies Related to Product Liabilities
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| Description of the Matter | As disclosed in Notes 1 and 1315 to the consolidated financial statements, the Company is subject to pending product liability lawsuits primarily resulting from its national distribution of automotive parts and supplies. The Company accrues for loss contingencies related to product liabilities if it is probable that the Company will incur a loss and the loss can be reasonably estimated. The amount accrued for product liabilities as of December 31, 20202022 was $169,461,000. $220 million.
Auditing the Company’s loss contingencies related to product liabilities was complex due to the significant measurement uncertainty associated with the estimate, management’s application of significant judgment and the use of valuation techniques. In addition, the loss contingencies related to product liabilities are sensitive to significant management assumptions, including the number, type, and severity of claims incurred and estimated to be incurred in future periods. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant controls over the Company’s process for estimating loss contingencies related to product liabilities. For example, we tested controls over management's review of the significant assumptions described above and the reconciliation of claims data to that used by the Company’s actuarial specialist.
To test the estimated loss contingencies related to product liabilities, our audit procedures included, among others, assessing the methodology used, testing the significant assumptions, including testing the completeness and accuracy of the underlying data, and comparing significant assumptions to historical claims as well as external data. We evaluated the legal letters obtained from internal and external legal counsel, held discussions with legal counsel, and performed a search for new or contrary evidence affecting the estimate. We involved our actuarial specialists to assist in our evaluation of the methodology and assumptions used by management and to independently develop a range of estimated product liabilities using the Company’s historical data as well as other information available for similar cases. We compared the Company's estimated loss contingencies related to product liabilities to the range developed by our actuarial specialists. We also assessed the adequacy of the Company’s disclosures, included in Notes 1 and 1315 to the consolidated financial statements, in relation to these matters. |
/s/ Ernst & Young LLP
We have served as the Company’scompany’s auditor since 1948.
Atlanta, Georgia
February 19, 202123, 2023
Genuine Parts Company and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Data and per Share Amounts)
| | | | As of December 31, | | As of December 31, |
| | | 2020 | | 2019 | | 2022 | | 2021 |
| Assets | Assets | | | | Assets | | | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 990,166 | | | $ | 276,992 | | Cash and cash equivalents | $ | 653,463 | | | $ | 714,701 | |
| Trade accounts receivable, net | Trade accounts receivable, net | 1,556,966 | | | 2,440,252 | | Trade accounts receivable, net | 2,188,868 | | | 1,797,955 | |
| Merchandise inventories, net | Merchandise inventories, net | 3,506,271 | | | 3,443,876 | | Merchandise inventories, net | 4,441,649 | | | 3,889,919 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 1,060,360 | | | 1,063,245 | | Prepaid expenses and other current assets | 1,532,759 | | | 1,353,847 | |
| Current assets of discontinued operations | 0 | | | 714,251 | | |
| Total current assets | Total current assets | 7,113,763 | | | 7,938,616 | | Total current assets | 8,816,739 | | | 7,756,422 | |
| Goodwill | Goodwill | 1,917,477 | | | 2,293,519 | | Goodwill | 2,588,113 | | | 1,915,307 | |
| Other intangible assets, net | Other intangible assets, net | 1,498,257 | | | 1,492,097 | | Other intangible assets, net | 1,812,510 | | | 1,406,401 | |
| Deferred tax assets | 65,658 | | | 45,921 | | |
| Operating lease assets | Operating lease assets | 1,038,877 | | | 995,667 | | Operating lease assets | 1,104,678 | | | 1,053,689 | |
| Other assets | Other assets | 644,140 | | | 457,350 | | Other assets | 847,325 | | | 985,884 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 1,162,043 | | | 1,173,688 | | Property, plant and equipment, net | 1,326,014 | | | 1,234,399 | |
| Noncurrent assets of discontinued operations | 0 | | | 248,771 | | |
| Total assets | Total assets | $ | 13,440,215 | | | $ | 14,645,629 | | Total assets | $ | 16,495,379 | | | $ | 14,352,102 | |
| | Liabilities and equity | Liabilities and equity | | Liabilities and equity | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Trade accounts payable | Trade accounts payable | $ | 4,128,084 | | | $ | 3,948,000 | | Trade accounts payable | $ | 5,456,550 | | | $ | 4,804,939 | |
| Current portion of debt | Current portion of debt | 160,531 | | | 624,043 | | Current portion of debt | 252,029 | | | — | |
| Other current liabilities | Other current liabilities | 1,491,426 | | | 1,493,109 | | Other current liabilities | 1,851,340 | | | 1,660,768 | |
| Dividends payable | Dividends payable | 114,043 | | | 110,851 | | Dividends payable | 126,191 | | | 115,876 | |
| Current liabilities of discontinued operations | 0 | | | 218,117 | | |
| Total current liabilities | Total current liabilities | 5,894,084 | | | 6,394,120 | | Total current liabilities | 7,686,110 | | | 6,581,583 | |
| Long-term debt | Long-term debt | 2,516,614 | | | 2,802,056 | | Long-term debt | 3,076,794 | | | 2,409,363 | |
| Operating lease liabilities | Operating lease liabilities | 789,294 | | | 756,519 | | Operating lease liabilities | 836,019 | | | 789,175 | |
| Pension and other post-retirement benefit liabilities | Pension and other post-retirement benefit liabilities | 265,687 | | | 249,832 | | Pension and other post-retirement benefit liabilities | 197,879 | | | 265,134 | |
| Deferred tax liabilities | Deferred tax liabilities | 212,910 | | | 233,044 | | Deferred tax liabilities | 391,163 | | | 280,778 | |
| Other long-term liabilities | Other long-term liabilities | 543,623 | | | 445,652 | | Other long-term liabilities | 502,967 | | | 522,779 | |
| Noncurrent liabilities of discontinued operations | 0 | | | 68,906 | | |
| Equity: | Equity: | | Equity: | |
| Preferred stock, par value $1 per share — authorized 10,000,000 shares; NaN issued | 0 | | | 0 | | |
| Common stock, par value $1 per share - authorized 450,000,000 shares; issued and outstanding - 2020 - 144,354,335 shares and 2019 - 145,378,158 shares | 144,354 | | | 145,378 | | |
| Preferred stock, par value $1 per share — authorized 10,000,000 shares; none issued | | Preferred stock, par value $1 per share — authorized 10,000,000 shares; none issued | — | | | — | |
| Common stock, par value $1 per share - authorized 450,000,000 shares; issued and outstanding - 2022 - 140,941,649 shares and 2021 - 142,180,683 shares | | Common stock, par value $1 per share - authorized 450,000,000 shares; issued and outstanding - 2022 - 140,941,649 shares and 2021 - 142,180,683 shares | 140,941 | | | 142,181 | |
| Additional paid-in capital | Additional paid-in capital | 117,165 | | | 98,777 | | Additional paid-in capital | 140,324 | | | 119,975 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (1,036,502) | | | (1,141,308) | | Accumulated other comprehensive loss | (1,032,542) | | | (857,739) | |
| Retained earnings | Retained earnings | 3,979,779 | | | 4,571,860 | | Retained earnings | 4,541,640 | | | 4,086,325 | |
| Total parent equity | Total parent equity | 3,204,796 | | | 3,674,707 | | Total parent equity | 3,790,363 | | | 3,490,742 | |
| Noncontrolling interests in subsidiaries | Noncontrolling interests in subsidiaries | 13,207 | | | 20,793 | | Noncontrolling interests in subsidiaries | 14,084 | | | 12,548 | |
| Total equity | Total equity | 3,218,003 | | | 3,695,500 | | Total equity | 3,804,447 | | | 3,503,290 | |
| Total liabilities and equity | Total liabilities and equity | $ | 13,440,215 | | | $ | 14,645,629 | | Total liabilities and equity | $ | 16,495,379 | | | $ | 14,352,102 | |
See accompanying notes.
Genuine Parts Company and Subsidiaries
Consolidated Statements of Income
(In Thousands, Except per Share Amounts)
| | | | Year Ended December 31, | | Year Ended December 31, |
| | | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 |
| Net sales | Net sales | $ | 16,537,433 | | | $ | 17,522,234 | | | $ | 16,831,605 | | Net sales | $ | 22,095,973 | | | $ | 18,870,510 | | | $ | 16,537,433 | |
| Cost of goods sold | Cost of goods sold | 10,882,592 | | | 11,662,551 | | | 11,311,850 | | Cost of goods sold | 14,355,869 | | | 12,236,374 | | | 10,882,592 | |
| Gross profit | Gross profit | 5,654,841 | | | 5,859,683 | | | 5,519,755 | | Gross profit | 7,740,104 | | | 6,634,136 | | | 5,654,841 | |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
| Selling, administrative and other expenses | Selling, administrative and other expenses | 4,386,739 | | | 4,577,610 | | | 4,241,203 | | Selling, administrative and other expenses | 5,758,295 | | | 5,162,506 | | | 4,386,739 | |
| Depreciation and amortization | Depreciation and amortization | 272,842 | | | 257,263 | | | 227,584 | | Depreciation and amortization | 347,819 | | | 290,971 | | | 272,842 | |
| Provision for doubtful accounts | Provision for doubtful accounts | 23,577 | | | 13,876 | | | 15,929 | | Provision for doubtful accounts | 19,791 | | | 17,739 | | | 23,577 | |
| Restructuring costs | Restructuring costs | 50,019 | | | 100,023 | | | 0 | | Restructuring costs | — | | | — | | | 50,019 | |
| Goodwill impairment charge | Goodwill impairment charge | 506,721 | | | 0 | | | 0 | | Goodwill impairment charge | — | | | — | | | 506,721 | |
| Total operating expenses | Total operating expenses | 5,239,898 | | | 4,948,772 | | | 4,484,716 | | Total operating expenses | 6,125,905 | | | 5,471,216 | | | 5,239,898 | |
| Non-operating expenses (income): | Non-operating expenses (income): | | Non-operating expenses (income): | |
| Interest expense | 93,713 | | | 95,583 | | | 101,796 | | |
| Interest expense, net | | Interest expense, net | 73,887 | | | 62,150 | | | 91,048 | |
| Other | Other | (58,138) | | | (86,712) | | | (61,395) | | Other | (32,290) | | | (99,576) | | | (55,473) | |
| Special termination costs | 0 | | | 42,757 | | | 0 | | |
| Total non-operating expenses (income) | Total non-operating expenses (income) | 35,575 | | | 51,628 | | | 40,401 | | Total non-operating expenses (income) | 41,597 | | | (37,426) | | | 35,575 | |
| Income before income taxes | Income before income taxes | 379,368 | | | 859,283 | | | 994,638 | | Income before income taxes | 1,572,602 | | | 1,200,346 | | | 379,368 | |
| Income taxes | Income taxes | 215,973 | | | 212,808 | | | 245,104 | | Income taxes | 389,901 | | | 301,556 | | | 215,973 | |
| Net income from continuing operations | Net income from continuing operations | 163,395 | | | 646,475 | | | 749,534 | | Net income from continuing operations | 1,182,701 | | | 898,790 | | | 163,395 | |
| Net (loss) income from discontinued operations | (192,497) | | | (25,390) | | | 60,940 | | |
| Net (loss) income | $ | (29,102) | | | $ | 621,085 | | | $ | 810,474 | | |
| Basic (loss) earnings per share: | | | | | | |
| Net loss from discontinued operations | | Net loss from discontinued operations | — | | | — | | | (192,497) | |
| Net income (loss) | | Net income (loss) | $ | 1,182,701 | | | $ | 898,790 | | | $ | (29,102) | |
| Basic earnings (loss) per share: | | Basic earnings (loss) per share: | | | | | |
| Continuing operations | Continuing operations | $ | 1.13 | | | $ | 4.44 | | | $ | 5.11 | | Continuing operations | $ | 8.36 | | | $ | 6.27 | | | $ | 1.13 | |
| Discontinued operations | Discontinued operations | (1.33) | | | (0.18) | | | 0.42 | | Discontinued operations | — | | | — | | | (1.33) | |
| Basic (loss) earnings per share | $ | (0.20) | | | $ | 4.26 | | | $ | 5.53 | | |
| Diluted (loss) earnings per share: | | | | | | |
| Basic earnings (loss) per share | | Basic earnings (loss) per share | $ | 8.36 | | | $ | 6.27 | | | $ | (0.20) | |
| Diluted earnings (loss) per share: | | Diluted earnings (loss) per share: | | | | | |
| Continuing operations | Continuing operations | $ | 1.13 | | | $ | 4.42 | | | $ | 5.09 | | Continuing operations | $ | 8.31 | | | $ | 6.23 | | | $ | 1.13 | |
| Discontinued operations | Discontinued operations | (1.33) | | | (0.18) | | | 0.41 | | Discontinued operations | — | | | — | | | (1.33) | |
| Diluted (loss) earnings per share | $ | (0.20) | | | $ | 4.24 | | | $ | 5.50 | | |
| Diluted earnings (loss) per share | | Diluted earnings (loss) per share | $ | 8.31 | | | $ | 6.23 | | | $ | (0.20) | |
| Weighted average common shares outstanding | Weighted average common shares outstanding | 144,474 | | | 145,736 | | | 146,657 | | Weighted average common shares outstanding | 141,468 | | | 143,435 | | | 144,474 | |
| Dilutive effect of stock options and non-vested restricted stock awards | Dilutive effect of stock options and non-vested restricted stock awards | 641 | | | 681 | | | 584 | | Dilutive effect of stock options and non-vested restricted stock awards | 854 | | | 786 | | | 641 | |
| Weighted average common shares outstanding — assuming dilution | Weighted average common shares outstanding — assuming dilution | 145,115 | | | 146,417 | | | 147,241 | | Weighted average common shares outstanding — assuming dilution | 142,322 | | | 144,221 | | | 145,115 | |
See accompanying notes.
Genuine Parts Company and Subsidiaries
Consolidated Statements of Comprehensive Income
(In Thousands, Except per Share Amounts)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Net (loss) income | $ | (29,102) | | | $ | 621,085 | | | $ | 810,474 | |
| Other comprehensive income (loss), net of income taxes: | | | | | |
| Foreign currency translation adjustments | 102,595 | | | 67,902 | | | (200,490) | |
| Cash flow hedge adjustments, net of income taxes in 2020 — $3,453, 2019 — $5,932, and 2018 — $1,713 | (9,336) | | | (16,039) | | | (4,631) | |
| Pension and postretirement benefit adjustments, net of income taxes of 2020 — $4,639, 2019 — $5,036, and 2018 — $21,297 | 11,547 | | | 44,433 | | | (57,365) | |
| Other comprehensive income (loss), net of tax | 104,806 | | | 96,296 | | | (262,486) | |
| Comprehensive income | $ | 75,704 | | | $ | 717,381 | | | $ | 547,988 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net income (loss) | $ | 1,182,701 | | | $ | 898,790 | | | $ | (29,102) | |
| Other comprehensive (loss) income, net of income taxes: | | | | | |
| Foreign currency translation adjustments | (143,890) | | | (65,843) | | | 102,595 | |
| Cash flow hedge adjustments, net of income taxes in 2022 — $4,612, 2021 — $5,535, and 2020 — $3,453 | 12,470 | | | 14,965 | | | (9,336) | |
| Pension and postretirement benefit adjustments, net of income taxes of 2022 — $15,846, 2021 — $84,650, and 2020 — $4,639 | (43,383) | | | 229,641 | | | 11,547 | |
| Other comprehensive (loss) income, net of tax | (174,803) | | | 178,763 | | | 104,806 | |
| Comprehensive income | $ | 1,007,898 | | | $ | 1,077,553 | | | $ | 75,704 | |
See accompanying notes.
Genuine Parts Company and Subsidiaries
Consolidated Statements of Equity
(In Thousands, Except Share Data and per Share Amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive
Loss | | Retained
Earnings | | Total
Parent
Equity | | Non-
controlling
Interests in
Subsidiaries | | Total
Equity |
|
|
| Shares | | Amount | |
| Balance at January 1, 2018 | 146,652,615 | | | $ | 146,653 | | | $ | 68,126 | | | $ | (852,592) | | | $ | 4,049,965 | | | $ | 3,412,152 | | | $ | 52,004 | | | $ | 3,464,156 | |
| Net income | — | | | — | | | — | | | — | | | 810,474 | | | 810,474 | | | — | | | 810,474 | |
| Other comprehensive loss, net of tax | — | | | — | | | — | | | (262,486) | | | — | | | (262,486) | | | — | | | (262,486) | |
| Cash dividends declared, $2.88 per share | — | | | — | | | — | | | — | | | (422,352) | | | (422,352) | | | — | | | (422,352) | |
| Share-based awards exercised, including tax benefit of $4,232 | 235,058 | | | 235 | | | (10,462) | | | — | | | — | | | (10,227) | | | — | | | (10,227) | |
| Share-based compensation | — | | | — | | | 20,716 | | | — | | | — | | | 20,716 | | | — | | | 20,716 | |
| Purchase of stock | (951,060) | | | (951) | | | — | | | — | | | (91,032) | | | (91,983) | | | — | | | (91,983) | |
Cumulative effect from adoption of ASU No. 2014-09, net of tax | — | | | — | | | — | | | — | | | (5,843) | | | (5,843) | | | — | | | (5,843) | |
| Noncontrolling interest activities | — | | | — | | | — | | | — | | | — | | | — | | | (30,464) | | | (30,464) | |
| Balance at December 31, 2018 | 145,936,613 | | | 145,937 | | | 78,380 | | | (1,115,078) | | | 4,341,212 | | | 3,450,451 | | | 21,540 | | | 3,471,991 | |
| Net income | — | | | — | | | — | | | — | | | 621,085 | | | 621,085 | | | — | | | 621,085 | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | 96,296 | | | — | | | 96,296 | | | — | | | 96,296 | |
| Cash dividends declared, $3.05 per share | — | | | — | | | — | | | — | | | (444,372) | | | (444,372) | | | — | | | (444,372) | |
| Share-based awards exercised, including tax benefit of $4,920 | 240,568 | | | 240 | | | (11,653) | | | — | | | — | | | (11,413) | | | — | | | (11,413) | |
| Share-based compensation | — | | | — | | | 32,050 | | | — | | | — | | | 32,050 | | | — | | | 32,050 | |
| Purchase of stock | (799,023) | | | (799) | | | — | | | — | | | (73,388) | | | (74,187) | | | — | | | (74,187) | |
| Cumulative effect from adoption of ASU No. 2018-02 | — | | | — | | | — | | | (122,526) | | | 122,526 | | | — | | | — | | | — | |
| Cumulative effect from adoption of ASU No. 2016-02, net of tax | — | | | — | | | — | | | — | | | 4,797 | | | 4,797 | | | — | | | 4,797 | |
| Noncontrolling interest activities | — | | | — | | | — | | | — | | | — | | | — | | | (747) | | | (747) | |
| Balance at December 31, 2019 | 145,378,158 | | | 145,378 | | | 98,777 | | | (1,141,308) | | | 4,571,860 | | | 3,674,707 | | | 20,793 | | | 3,695,500 | |
| Net loss | — | | | — | | | — | | | — | | | (29,102) | | | (29,102) | | | — | | | (29,102) | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | 104,806 | | | — | | | 104,806 | | | — | | | 104,806 | |
| Cash dividend declared, $3.16 per share | — | | | — | | | — | | | — | | | (456,469) | | | (456,469) | | | — | | | (456,469) | |
| Share-based awards exercised, including tax benefit of $677 | 112,621 | | | 113 | | | (4,233) | | | — | | | — | | | (4,120) | | | — | | | (4,120) | |
| Share-based compensation | — | | | — | | | 22,621 | | | — | | | — | | | 22,621 | | | — | | | 22,621 | |
| Purchase of stock | (1,136,444) | | | (1,137) | | | 0 | | | — | | | (95,078) | | | (96,215) | | | — | | | (96,215) | |
Cumulative effect from adoption of ASU 2016-13, net of tax | — | | | — | | | — | | | — | | | (11,432) | | | (11,432) | | | — | | | (11,432) | |
| Noncontrolling interest activities | — | | | — | | | — | | | — | | | — | | | — | | | (7,586) | | | (7,586) | |
| Balance at December 31, 2020 | 144,354,335 | | | $ | 144,354 | | | $ | 117,165 | | | $ | (1,036,502) | | | $ | 3,979,779 | | | $ | 3,204,796 | | | $ | 13,207 | | | $ | 3,218,003 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive
Loss | | Retained
Earnings | | Total
Parent
Equity | | Non-
controlling
Interests in
Subsidiaries | | Total
Equity |
|
|
| Shares | | Amount | |
| Balance at January 1, 2020 | 145,378,158 | | | $ | 145,378 | | | $ | 98,777 | | | $ | (1,141,308) | | | $ | 4,571,860 | | | $ | 3,674,707 | | | $ | 20,793 | | | $ | 3,695,500 | |
| Net loss | — | | | — | | | — | | | — | | | (29,102) | | | (29,102) | | | — | | | (29,102) | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | 104,806 | | | — | | | 104,806 | | | — | | | 104,806 | |
| Cash dividends declared, $3.16 per share | — | | | — | | | — | | | — | | | (456,469) | | | (456,469) | | | — | | | (456,469) | |
| Share-based awards exercised, including tax benefit of $677 | 112,621 | | | 113 | | | (4,233) | | | — | | | — | | | (4,120) | | | — | | | (4,120) | |
| Share-based compensation | — | | | — | | | 22,621 | | | — | | | — | | | 22,621 | | | — | | | 22,621 | |
| Purchase of stock | (1,136,444) | | | (1,137) | | | — | | | — | | | (95,078) | | | (96,215) | | | — | | | (96,215) | |
| Cumulative effect from adoption of ASU No. 2016-13 | — | | | — | | | — | | | — | | | (11,432) | | | (11,432) | | | — | | | (11,432) | |
| Noncontrolling interest activities | — | | | — | | | — | | | — | | | — | | | — | | | (7,586) | | | (7,586) | |
| Balance at December 31, 2020 | 144,354,335 | | | 144,354 | | | 117,165 | | | (1,036,502) | | | 3,979,779 | | | 3,204,796 | | | 13,207 | | | 3,218,003 | |
| Net income | — | | | — | | | — | | | — | | | 898,790 | | | 898,790 | | | — | | | 898,790 | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | 178,763 | | | — | | | 178,763 | | | — | | | 178,763 | |
| Cash dividends declared, $3.26 per share | — | | | — | | | — | | | — | | | (467,482) | | | (467,482) | | | — | | | (467,482) | |
| Share-based awards exercised, including tax benefit of $7,076 | 440,667 | | | 441 | | | (22,787) | | | — | | | — | | | (22,346) | | | — | | | (22,346) | |
| Share-based compensation | — | | | — | | | 25,597 | | | — | | | — | | | 25,597 | | | — | | | 25,597 | |
| Purchase of stock | (2,614,319) | | | (2,614) | | | — | | | — | | | (330,985) | | | (333,599) | | | — | | | (333,599) | |
| Cumulative effect from adoption of ASU 2019-12 | — | | | — | | | — | | | — | | | 6,223 | | | 6,223 | | | — | | | 6,223 | |
| Noncontrolling interest activities | — | | | — | | | — | | | — | | | — | | | — | | | (659) | | | (659) | |
| Balance at December 31, 2021 | 142,180,683 | | | 142,181 | | | 119,975 | | | (857,739) | | | 4,086,325 | | | 3,490,742 | | | 12,548 | | | 3,503,290 | |
| Net income | — | | | — | | | — | | | — | | | 1,182,701 | | | 1,182,701 | | | — | | | 1,182,701 | |
| Other comprehensive loss, net of tax | — | | | — | | | — | | | (174,803) | | | — | | | (174,803) | | | — | | | (174,803) | |
| Cash dividend declared, $3.58 per share | — | | | — | | | — | | | — | | | (506,232) | | | (506,232) | | | — | | | (506,232) | |
| Share-based awards exercised, including tax benefit of $5,495 | 333,185 | | | 332 | | | (17,709) | | | — | | | — | | | (17,377) | | | — | | | (17,377) | |
| Share-based compensation | — | | | — | | | 38,058 | | | — | | | — | | | 38,058 | | | — | | | 38,058 | |
| Purchase of stock | (1,572,219) | | | (1,572) | | | — | | | — | | | (221,154) | | | (222,726) | | | — | | | (222,726) | |
| Noncontrolling interest activities | — | | | — | | | — | | | — | | | — | | | — | | | 1,536 | | | 1,536 | |
| Balance at December 31, 2022 | 140,941,649 | | | $ | 140,941 | | | $ | 140,324 | | | $ | (1,032,542) | | | $ | 4,541,640 | | | $ | 3,790,363 | | | $ | 14,084 | | | $ | 3,804,447 | |
See accompanying notes.
Genuine Parts Company and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31 |
| | 2020 | | 2019 | | 2018 |
| Operating activities: | | | | | |
| Net (loss) income | $ | (29,102) | | | $ | 621,085 | | | $ | 810,474 | |
| Net (loss) income from discontinued operations | (192,497) | | | (25,390) | | | 60,940 | |
| Net income from continuing operations | 163,395 | | | 646,475 | | | 749,534 | |
| Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 272,842 | | | 257,263 | | | 227,584 | |
| Excess tax benefit from share-based compensation | (677) | | | (4,920) | | | (4,232) | |
| Deferred income taxes | (27,722) | | | (55,939) | | | 1,593 | |
| Share-based compensation | 22,621 | | | 28,703 | | | 17,737 | |
| Realized currency and other divestiture losses | 11,356 | | | 34,701 | | | 0 | |
| Gain on equity investment | 0 | | | (38,663) | | | 0 | |
| Goodwill impairment charge | 506,721 | | | 0 | | | 0 | |
| Other operating activities | 12,569 | | | (17,589) | | | 1,648 | |
| Changes in operating assets and liabilities: | | | | | |
| Trade accounts receivable, net | 957,514 | | | (134,163) | | | (62,103) | |
| Merchandise inventories, net | 58,462 | | | (54,765) | | | (74,148) | |
| Trade accounts payable | 89,350 | | | 82,739 | | | 357,097 | |
| Other short-term assets and liabilities | (109,812) | | | 11,740 | | | (100,616) | |
| Other long-term assets and liabilities | 57,903 | | | 76,937 | | | (57,372) | |
| Net cash provided by operating activities from continuing operations | 2,014,522 | | | 832,519 | | | 1,056,722 | |
| Investing activities: | | | | | |
| Purchases of property, plant and equipment | (153,502) | | | (277,873) | | | (226,506) | |
| Proceeds from sale of property, plant and equipment | 18,064 | | | 24,387 | | | 14,391 | |
| Proceeds from divestitures of businesses | 387,379 | | | 434,609 | | | 0 | |
| Acquisitions of businesses and other investing activities | (69,173) | | | (724,718) | | | (257,823) | |
| Net cash provided by (used in) investing activities from continuing operations | 182,768 | | | (543,595) | | | (469,938) | |
| Financing activities: | | | | | |
| Proceeds from debt | 2,638,014 | | | 5,037,168 | | | 5,064,291 | |
| Payments on debt | (3,533,017) | | | (4,897,769) | | | (5,124,265) | |
| Share-based awards exercised | (4,120) | | | (11,413) | | | (10,227) | |
| Dividends paid | (453,277) | | | (438,890) | | | (415,983) | |
| Purchase of stock | (96,215) | | | (74,187) | | | (91,983) | |
| Other financing activities | (65,150) | | | (871) | | | (30,663) | |
| Net cash used in financing activities from continuing operations | (1,513,765) | | | (385,962) | | | (608,830) | |
| Cash flows from discontinued operations: | | | | | |
| Net cash flows provided by operating activities from discontinued operations | 5,039 | | | 59,491 | | | 88,442 | |
| Net cash used in investing activities from discontinued operations | (11,131) | | | (19,611) | | | (26,186) | |
| Net cash provided by financing activities from discontinued operations | 0 | | | 0 | | | 0 | |
| Net cash (used in) provided by discontinued operations | (6,092) | | | 39,880 | | | 62,256 | |
| Effect of exchange rate changes on cash and cash equivalents | 35,741 | | | 603 | | | (21,562) | |
| Net increase (decrease) in cash and cash equivalents | 713,174 | | | (56,555) | | | 18,648 | |
| Cash and cash equivalents at beginning of year | 276,992 | | | 333,547 | | | 314,899 | |
| Cash and cash equivalents at end of year | $ | 990,166 | | | $ | 276,992 | | | $ | 333,547 | |
| | | | | |
| Supplemental disclosures of cash flow information | | | | | |
| Cash paid during the year for: | | | | | |
| Income taxes | $ | 223,019 | | | $ | 303,736 | | | $ | 236,536 | |
| Interest | $ | 91,344 | | | $ | 95,281 | | | $ | 102,131 | |
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31 |
| | 2022 | | 2021 | | 2020 |
| Operating activities: | | | | | |
| Net income (loss) | $ | 1,182,701 | | | $ | 898,790 | | | $ | (29,102) | |
| Net loss from discontinued operations | — | | | — | | | (192,497) | |
| Net income from continuing operations | 1,182,701 | | | 898,790 | | | 163,395 | |
| Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 347,819 | | | 290,971 | | | 272,842 | |
| Deferred income taxes | 2,220 | | | 31,676 | | | (27,722) | |
| Share-based compensation | 38,058 | | | 25,597 | | | 22,621 | |
| Gain on sale of real estate | (102,803) | | | — | | | — | |
| Goodwill impairment charge | — | | | — | | | 506,721 | |
| Other operating activities | 18,377 | | | 22,575 | | | 23,248 | |
| Changes in operating assets and liabilities: | | | | | |
| Trade accounts receivable, net | (244,371) | | | (258,994) | | | 957,514 | |
| Merchandise inventories, net | (380,420) | | | (329,237) | | | 58,462 | |
| Trade accounts payable | 676,406 | | | 777,318 | | | 89,350 | |
| Other assets and liabilities | (71,016) | | | (200,411) | | | (51,909) | |
| Net cash provided by operating activities from continuing operations | 1,466,971 | | | 1,258,285 | | | 2,014,522 | |
| Investing activities: | | | | | |
| Purchases of property, plant and equipment | (339,632) | | | (266,136) | | | (153,502) | |
| Proceeds from sale of property, plant and equipment | 145,007 | | | 26,549 | | | 18,064 | |
| Proceeds from divestitures of businesses | 33,604 | | | 17,738 | | | 387,379 | |
| Proceeds from settlement of net investment hedge | 158,441 | | | — | | | — | |
| Acquisitions and other investing activities | (1,681,660) | | | (284,315) | | | (69,173) | |
| Net cash (used in) provided by investing activities from continuing operations | (1,684,240) | | | (506,164) | | | 182,768 | |
| Financing activities: | | | | | |
| Proceeds from debt | 5,108,641 | | | 892,694 | | | 2,638,014 | |
| Payments on debt | (4,147,773) | | | (1,053,423) | | | (3,533,017) | |
| Share-based awards exercised | (17,377) | | | (22,346) | | | (4,120) | |
| Dividends paid | (495,917) | | | (465,649) | | | (453,277) | |
| Purchase of stock | (222,726) | | | (333,599) | | | (96,215) | |
| Other financing activities | (19,747) | | | (7,209) | | | (65,150) | |
| Net cash provided by (used in) financing activities from continuing operations | 205,101 | | | (989,532) | | | (1,513,765) | |
| Cash flows from discontinued operations: | | | | | |
| Net cash flows provided by operating activities from discontinued operations | — | | | — | | | 5,039 | |
| Net cash used in investing activities from discontinued operations | — | | | — | | | (11,131) | |
| Net cash provided by financing activities from discontinued operations | — | | | — | | | — | |
| Net cash (used in) provided by discontinued operations | — | | | — | | | (6,092) | |
| Effect of exchange rate changes on cash and cash equivalents | (49,070) | | | (38,054) | | | 35,741 | |
| Net (decrease) increase in cash and cash equivalents | (61,238) | | | (275,465) | | | 713,174 | |
| Cash and cash equivalents at beginning of year | 714,701 | | | 990,166 | | | 276,992 | |
| Cash and cash equivalents at end of year | $ | 653,463 | | | $ | 714,701 | | | $ | 990,166 | |
| | | | | |
| Supplemental disclosures of cash flow information | | | | | |
| Cash paid during the year for: | | | | | |
| Income taxes | $ | 362,859 | | | $ | 305,326 | | | $ | 223,019 | |
| Interest | $ | 73,368 | | | $ | 65,732 | | | $ | 91,344 | |
See accompanying notes.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
(in thousands, except per share data)
1. Summary1.Summary of Significant Accounting Policies
Business
Genuine Parts Company (the "Company""company") is a distributor of automotive replacement parts and industrial parts and materials. The Company servesWe serve a diverse customer base through a network of more than 10,00010,600 locations throughout North America, Australasia, and Europe and, therefore, hashave limited exposure from credit losses to any particular customer, region, or industry segment. The Company performsWe perform periodic credit evaluations of itsour customers’ financial condition and generally doesdo not require collateral.
The Company's operations are vulnerableWe have reclassified certain prior period amounts to conform to the reduced economic activity caused by the COVID-19 outbreak, which was declared a pandemic in March 2020. The extent to which the COVID-19 pandemic impacts the Company will depend on numerous factors and future developments that the Company cannot predict, including the severity of the virus; the occurrence of additional waves or spikes in infection rates; the duration of the outbreak; governmental, business or other actions taken in response to the pandemic and the efficacy of these actions, including partial or complete shut downs, travel restrictions, and stay-at-home orders among other actions; the effectiveness and distribution of COVID-19 vaccines; and impacts on the Company's supply chain, its ability to keep operating locations open, and on customer demand. The Company benefited from various forms of government economic assistance including certain temporary subsidies that were received in 2020, whichcurrent period presentation.
We have been classified as a reduction of selling, administrative and other expenses. The Company has evaluated subsequent events through the date the financial statements were issued.
On June 30, 2020, the Companywe completed the divestiture of itsour Business Products Group. Refer to the acquisitions, divestituresAcquisitions, Divestitures and discontinued operations footnoteDiscontinued Operations Footnote for more information. The Company'sOur results of operations for the Business Products Group are reported as discontinued operations and all information related to the discontinued operations has been excluded from the notesNotes to the consolidated financial statementsConsolidated Financial Statements for all periods presented. Net (loss) incomeloss from discontinued operations for each period includes all costs that are directly attributable to these businesses and excludes certain corporate overhead costs that were previously allocated.
Principles of Consolidation
The consolidated financial statements include all of the accounts of the Company.our accounts. The net income attributable to noncontrolling interests is not material to the Company’sour consolidated net income. Intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements, in conformity with U.S. generally accepted accounting principles, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates and the differences could be material. If the pandemic persists or worsens, the estimates and assumptions management made as of December 31, 2020 could change, and it is reasonably possible such changes could be significant.
Revenue Recognition
The CompanyWe primarily recognizesrecognize revenue at the point the customer obtains control of the products or services and at an amount that reflects the consideration expected to be received for those products or services. Contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price and recognizes revenue upon delivery or as services are rendered.
Revenue is recognized net of allowances for returns, variable consideration and any taxes collected from customers that will be remitted to governmental authorities. Revenue recognized over time is not significant. Payment terms with customers vary by the type and location of the customer and the products or services offered. The Company doesWe do not adjust the promised amount of consideration for the effects of significant financing components based on the expectation that the period between when the Company transferswe transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Arrangements with customers that include payment terms extending beyond one year are not significant. Liabilities for customer incentives, discounts, or rebates are included in other current liabilities in the consolidated balance sheets.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
Product Distribution Revenues
The Company generatesWe generate revenue primarily by distributing products through wholesale and retail channels. For wholesale customers, revenue is recognized when title and control of the goods has passed to the wholesale customer. Retail revenue is recognized at the point of sale when the goods are transferred to customers and consideration is received. Shipping and handling activities are performed prior to the customer obtaining control of the products. Costs associated with shipping and handling to our customers are considered costs to fulfill a contract and are included in selling, administrative and other expenses in the period they are incurred.
Other Revenues
The Company offersWe offer software support, product cataloging, marketing, training and other membership program and support services to certain customers. This revenue is recognized as services are performed. Revenue from these services is recognized over a short duration and the impact to our consolidated financial statements is not significant.
Variable Consideration
The Company’sOur products are generally sold with a right of return and may include variable consideration in the form of incentives, discounts, credits or rebates. The Company estimatesWe estimate variable consideration based on historical experience to determine the expected amount to which the Companywe will be entitled in exchange for transferring the promised goods or services to a customer. The Company recognizesWe recognize estimated variable consideration as an adjustment to the transaction price when control of the related product or service is transferred. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant.
Foreign Currency Translation
The consolidated balance sheets and statements of income of the Company’sour foreign subsidiaries have been translated into U.S. dollars at the current and average exchange rates, respectively. The foreign currency translation adjustment is included as a component of accumulated other comprehensive loss.
Cash and Cash Equivalents
The Company considersWe consider all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.
Trade Accounts Receivable and the Allowance for Doubtful Accounts
The Company evaluatesWe evaluate the collectability of trade accounts receivable based on a combination of factors. The Company estimatesWe estimate an allowance for doubtful accounts as a percentage of net sales based on various factors, including historical experience, current economic conditions and future expected credit losses and collectability trends. The CompanyWe will periodically adjust this estimate when the Company becomeswe become aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While the Company haswe have a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which the Company operateswe operate could result in higher than expected defaults and, therefore, the need to revise estimates for bad debts. For the years ended December 31, 2022, 2021, and 2020, 2019, and 2018, the Companywe recorded provisions for doubtful accounts of approximately $23,577, $13,876,$20 million, $18 million, and $15,929,$24 million, respectively. At December 31, 20202022 and 2019,2021, the allowance for doubtful accounts was approximately $36,622$54 million and $35,047,$44 million, respectively.
Merchandise Inventories, Including Consideration Received From Vendors
Merchandise inventories are valued at the lower of cost or net realizable value. Cost is determined by the last-in, first-out ("LIFO") method for a majority of U.S. automotive and industrial parts, and generally by the first-in, first-out ("FIFO")weighted average method for non-U.S. and certain other inventories. If the FIFO method had been used for all inventories,in place of LIFO, cost would have been approximately $524,400$835 million and $531,800$628 million higher than reported at December 31, 20202022 and 2019,2021, respectively. During 2020 and 2019, reductionsReductions in certain industrial parts inventories resulted in liquidations of LIFO inventory layers, which reduced cost of goods sold by approximately $15,500immaterial amounts in 2021 and $10,400, respectively.2020. There were no liquidations of LIFO inventory layers in 2022.
The Company identifiesWe identify slow moving or obsolete inventories and estimatesestimate appropriate provisions related thereto. Historically, these losses have not been significant as the vast majority of the Company’sour inventories are not highly susceptible to obsolescence and are eligible for return under various vendor return programs. While the Company haswe have no reason to believe itsour inventory return privileges will be discontinued in the future, itsour risk of loss associated with obsolete or slow moving inventories would increase if such were to occur.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
The Company entersWe enter into agreements at the beginning of each year with many of itsour vendors that provide for inventory purchase incentives. Generally, the Company earnswe earn inventory purchase incentives upon achieving specified volume purchasing levels or other criteria. The Company accruesWe accrue for the receipt of these incentives as part of itsour inventory cost based on cumulative purchases of inventory to date and projected inventory purchases through the end of the year. While
management believes the Companywe will continue to receive consideration from vendors in 20212023 and beyond, there can be no assurance that vendors will continue to provide comparable amounts of incentives in the future.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist primarily of amounts due from vendors, prepaid expenses, debt securities, and income and other taxes receivable.
Goodwill
The Company reviews itsWe review our goodwill annually for impairment in the fourth quarter, or sooner if circumstances indicate that the carrying amount may exceed fair value. The Company testsWe test goodwill for impairment at the reporting unit level, which is an operating segment or a level below an operating segment (a component). A component is a reporting unit if the component constitutes a business for which discrete financial information and operating results are available and management regularly reviews that information. However, the Companywe may aggregate two or more components of an operating segment into a single reporting unit if the components have similar economic characteristics.
To review goodwill at a reporting unit for impairment, the Companywe generally electselect to first assessesassess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. Qualitative factors include adverse macroeconomic, industry or market conditions, cost factors, or financial performance. If the Company electswe elect not to perform a qualitative assessment or concludesconclude from itsour assessment of qualitative factors that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Companywe must perform a quantitative test to evaluate goodwill impairment.
To perform a quantitative test, the Company calculateswe calculate the fair value of the reporting unit and comparescompare that amount to the reporting unit's carrying value. The CompanyWe typically calculatescalculate the fair value by using a combination of a market approach and an income approach that is based on a discounted cash flow model. The assumptions used in the market approach generally include benchmark company market multiples and the assumptions used in the income approach generally include the projected cash flows of the reporting unit, which are based on projected revenue growth rates and operatingEBITDA margins, and the estimated weighted average cost of capital, working capital and terminal value. The Company usesWe use inputs and assumptions it believeswe believe are consistent with those a hypothetical marketplace participant would use. The Company recognizesWe recognize goodwill impairment (if any) as the excess of the reporting unit's carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
Refer to the goodwillGoodwill and other intangible assets footnoteOther Intangible Assets Footnote for further information on the results of the Company'sour annual goodwill impairment testing.
Long-Lived Assets Other Than Goodwill
The Company assesses itsWe assess our long-lived assets other than goodwill for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. To analyze recoverability, the Company projectswe project undiscounted net future cash flows over the remaining life of such assets. If these projected cash flows are less than the carrying amount, an impairment would be recognized, resulting in a write-down of assets with a corresponding charge to earnings. Impairment losses, if any, are measured based upon the difference between the carrying amount and the fair value of the assets. For the years ended December 31, 2022, 2021, and 2020 and 2019, the Companywe recognized long-lived asset impairments of $6,243 and $5,408, respectively,losses related to certain assets expected to be abandoned in connection with the 2019 Cost Savings Plan (referimpairments and disposals of $17 million, $61 million, and $6 million, respectively. (Refer to the restructuring footnoteGoodwill and Other Intangible Assets Footnote and the Property, Plant and Equipment Footnote for more information).
Genuine Parts Companyinformation on the losses that occurred in 2022 and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
2021, respectively).Other Assets
Other assets consist primarily of cash surrender value of life insurance policies, debt securities, equity method and other investments, guarantee fees receivable, and deferred compensation benefits.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and amortization are primarily determined on a straight-line basis over the following estimated useful lives of each asset: buildings, 10 to 40 years; machinery and equipment, 5 to 15 years; and the shorter of lease term or useful life for leasehold improvements.
Other Current Liabilities
Other current liabilities consist primarily of current lease obligations, reservesallowances for sales returns expected within the next year, accrued compensation, accrued income and other taxes, and other reserves for expenses incurred.
Other Long-term Liabilities
Other long-term liabilities consist primarily of reservesallowances for sales returns expected after the next year, guarantee obligations, accrued taxes and other non-current obligations.
Self-Insurance
The Company isWe are self-insured for the majority itsof our group health insurance costs. A reserve for claims incurred but not reported is developed by analyzing historical claims data provided by the Company’sour claims administrators. These reserves are included in accrued expenses in the accompanying consolidated balance sheets as the expenses are expected to be paid within one year.
Long-term insurance liabilities consist primarily of reserves for the Company'sour workers’ compensation program. In addition, the Company carries various large riskWe carry high deductible workers’ compensation policies for thea majority of workers’ compensationthese liabilities. The Company records the workers’ compensationWe record our reserves based on an analysis performed by an independent actuary. The analysis calculatesinvolves calculating loss development factors which are appliedand applying them to total reserves as providedsupplied by the variousour insurance companies who underwrite the program.providers. While the Company believes thatwe believe the assumptions used to calculatein these liabilitiescalculations are appropriate, significant differenceschanges in actual experience or significant changes in theseour assumptions maycould materially affect workers’the worker’s compensation costs.costs and reserves recorded.
Business Combinations
When the Company acquireswe acquire businesses, it applieswe apply the acquisition method of accounting and recognizesrecognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree at their fair values on the acquisition date, which requires significant estimates and assumptions. Goodwill is measured as the excess of the fair value of the consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method requires the Companyus to record provisional amounts for any items for which the accounting is not complete at the end of a reporting period. The CompanyWe must complete the accounting during the measurement period, which cannot exceed one year. Adjustments made during the measurement period could have a material impact on the Company'sour financial condition and results of operations.
The CompanyWe typically measuresmeasure customer relationshiprelationships and other intangible assets using an income approach. Significant estimates and assumptions used in this approach include discount rates and certain assumptions that form the basis of the forecasted cash flows expected to be generated from the asset (e.g., future revenue growth rates operating margins and attrition rates)EBITDA Margin). If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, the Companywe could record impairment charges. In addition, the Company haswe have estimated the economic lives of certain acquired tangible and intangible assets and these lives are used to calculate depreciation and amortization expense. If the Company'sour estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired.
Legal and Product Liabilities
The Company accruesWe accrue for potential losses related to legal disputes, litigation, product liabilities, and regulatory matters when it is probable (the future event or events are likely to occur) that the Companywe will incur a loss and the amount of the loss can be reasonably estimated.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
The amount of the product liability amount reflects the Company’sour reasonable estimate of losses based upon currently known facts. To calculate the liability, the Company estimateswe estimate potential losses relating to pending claims and also estimates the likelihood of additional, similar claims being filed against the Companyus in the future. To estimate potential losses on claims that could be filed in the future, the Company considerswe consider claims pending against the Company,us, claim filing rates, the number of codefendants and the extent to which they share in settlements, and the amount of loss by claim type. The estimated losses for pending and potential future claims are calculated on a discounted basis using risk-free interest rates derived from market data about monetary assets with maturities comparable to those of the projected product liabilities. The Company usesWe use an actuarial specialist to assist with measuring itsour product liabilities.
Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. Additionally, ASC 820, Fair Value Measurements, defines levels within a hierarchy based upon observable and non-observable inputs.
•Level 1.1- Observable inputs such as quoted prices in active markets;
•Level 2.2- Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
•Level 3.3- Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions
At December 31, 20202022 and 2019,2021, the fair value of the Company'sour senior unsecured notes was approximately $2,680,545$2.9 billion and $2,013,542,$2.5 billion, respectively, which are designated as Level 2 in the fair value hierarchy. Our valuation technique is based primarily on prices and other relevant information generated by observable transactions involving identical or comparable assets or liabilities.
Derivative instruments are recognized in the consolidated balance sheets at fair value and are designated as Level 2 in the fair value hierarchy. They are valued using inputs other than quoted prices, such as foreign exchange rates and yield curves.
Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analyses of goodwill, other intangible assets, and long-lived assets. These involve fair value measurements on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, trade accounts receivable, trade accounts payable, and borrowings under the line of credit approximate their respective fair values based on the short-term nature of these instruments.
Fair value measurement using unobservable inputs is inherently uncertain, and the use of different methodologies or assumptions to determine the fair value instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2021.
Derivatives and Hedging
The Company isWe are exposed to various risks arising from business operations and market conditions, including fluctuations in interest rates and certain foreign currencies. When deemed appropriate, the Company useswe use derivative and non-derivative instruments as risk management tools to mitigate the potential impact of interest rate and foreign exchange rate risks. The objective of using these tools is to reduce fluctuations in the Company’sour earnings, cash flows and net investments in certain foreign subsidiaries associated with changes in these rates. Derivative financial instruments are not used for trading or other speculative purposes. The Company hasWe have not historically incurred, and doesdo not expect to incur in the future, any losses as a result of counterparty default related to derivative instruments.
The CompanyWe formally documentsdocument relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking cash flow hedges to specific forecasted transactions or variability of cash flow to be paid. The CompanyWe also formally assesses,assess, both at the hedge’s inception and on an ongoing basis, whether the designated derivative and non-derivative instruments that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items. When a designated instrument is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, hedge accounting is discontinued prospectively.
Shipping and Handling Costs
Shipping and handling costs are classified as selling, administrative and other expenses in the accompanying consolidated statements of income and totaled approximately $301,900, $303,900,$407 million, $350 million, and $278,500,$302 million, for the years ended December 31, 2020, 2019,2022, 2021, and 2018,2020, respectively.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
Advertising Costs
Advertising costs are expensed as incurred and totaled $193,900, $201,600,$236 million, $211 million, and $203,500$194 million in the years ended December 31, 2022, 2021, and 2020, respectively.
Restructuring Costs
In October 2019, we approved certain restructuring actions (the "2019 Cost Savings Plan") across our subsidiaries primarily targeted at simplifying organizational structures and 2018, respectively.distribution networks. Among other things, the 2019 Cost Savings Plan resulted in workforce reductions and facility closures and consolidations. We executed a voluntary retirement program for our U.S. and Canadian subsidiaries in the fourth quarter of 2019 in connection with this plan. We incurred $50 million in costs for the plan in the year ended December 31, 2020. No further material costs have been incurred.
Accounting for Legal Costs
The Company’sWe expense legal costs expectedrelated to be incurred in connection with loss contingencies are expensed as such coststhey are incurred.
Share-Based Compensation
The Company maintainsWe maintain various long-term incentive plans, which provide for the granting of stock options, stock appreciation rights ("SARs"), restricted stock, restricted stock units ("RSUs"), performance awards, dividend equivalents and other share-based awards. SARs represent a right to receive upon exercise an amount, payable in shares of common stock, equal to the excess, if any, of the fair market value of the Company’sour common stock on the date of exercise over the base value of the grant. The terms of such SARs require net settlement in shares of common stock and do not provide for cash settlement. RSUs represent a contingent right to receive one share of the Company’sour common stock at a future date. The majority of awards previously granted vest on a pro-rata basis for periods ranging from one to fivethree years and are expensed accordingly on a straight-line basis. Forfeitures are accounted for as they occur. The Company issuesWe issue new shares upon exercise or conversion of awards under these plans.
Income Taxes
The Company accountsWe account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amount and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes. In addition, valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. In making this determination, the Company considerswe consider all available positive and negative evidence including projected future taxable income, future reversals of existing temporary differences, recent financial operations and tax planning strategies.
The Company recognizesWe recognize a tax benefit from uncertain tax positions when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.
Net Income from Continuing Operations per Common Share
Basic net income from continuing operations per common share is computed by dividing net income from continuing operations by the weighted average number of common shares outstanding during the year. The computation of diluted net income from continuing operations per common share includes the dilutive effect of stock options, stock appreciation rights and nonvested restricted stock awards options. Options to purchase approximately 1,602, 210,4 thousand, 186 thousand, and 1,4901.6 million shares of common stock ranging from $72 - $105$179 per share were outstanding at December 31, 2020, 2019,2022, 2021, and 2018,2020, respectively. These options were excluded from the computation of diluted net income from continuing operations per common share because the options’ exercise prices were greater than the average market prices of common stock in each respective year.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
Recent Accounting Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standard Updates (“ASUs”) to the FASB Accounting Standards Codification (“ASC”). The Company considersWe consider the
applicability and impact of all ASUs and any not listed below were assessed and determined to be not applicable or are expected to have a minimal impact on the Company'sour consolidated financial statements.
Credit Losses (Topic 326)
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. Among other things, the ASU and its amendments replace the incurred loss impairment model for receivables and loan guarantees with a current expected credit loss model. The new model measures impairment based on expected credit losses over the remaining contractual life of an asset, considering available information about the collectability of cash flows, past events, current conditions, and reasonable and supportable forecasts. Additional quantitative and qualitative disclosures are required. The CompanyWe adopted ASU 2016-13 and its amendments as of January 1, 2020, which included recognizing a cumulative-effect adjustment to reduce opening retained earnings by $11,432,$11 million, net of taxes.
Compensation - Retirement BenefitsIncome Taxes (Topic 715)740)
In August 2018,December 2019, the FASB issued ASU 2018-14,2019-12, Changes toSimplifying the Disclosure RequirementsAccounting for Defined Benefit PlansIncome Taxes. . The updated accounting guidance modifiesremoves certain exceptions for performing intraperiod tax allocations, recognizing deferred taxes for investments, and calculating income taxes in interim periods. The guidance also simplifies the disclosure requirementsaccounting for employersfranchise taxes, transactions that sponsor defined benefit pensionresult in a step-up in the tax basis of goodwill, and the effect of enacted changes in tax laws or other postretirement plans by removing, adding and clarifying certain disclosures.rates in interim periods. The Company adopted this new accounting standard on January 1, 2020 on a retrospective basis. The adoption of this ASU did not have an impact on the Company’s financial position, results of operations, or cash flows.
Income Statement - Reporting Comprehensive Income (Topic 220)
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU permits a company to make a one-time election to reclassify stranded tax effects caused by the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The ASU also requires companies to disclose their accounting policies for releasing income tax effects from accumulated other comprehensive income. ASU 2018-02 was effective for periods beginning after December 15, 2018, with an election to adopt early. The Company adopted ASU 2018-022019-12 as of January 1, 20192021, and recognized an adjustment to increase retained earnings and to adjust accumulated other comprehensive loss by approximately $122,526.
Intangibles - Goodwill and Other (Topic 350)
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The ASU simplifies the subsequent measurement of goodwill by eliminating the second step from the goodwill impairment test. ASU 2017-04 requires applying a one-step quantitative test and recording the amount of goodwill impairment as the excess of the reporting unit's carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 does not amend the optional qualitative assessment of goodwill impairment. The Company adopted ASU 2017-04 as of October 1, 2019 and performed its annual evaluation of goodwill in accordance with this standard.
Leases (Topic 842)
In February 2016, the FASB issued ASU 2016-02, Leases, which, among other things, requires an entity to recognize a right-of-use asset and a lease liability on the balance sheet for substantially all leases, including operating leases. Expanded disclosures with additional qualitative and quantitative information are also required. ASU 2016-02 and its amendments were effective for interim and annual reporting periods beginning after December 15, 2018 and early adoption was permitted.
The Company adopted ASU 2016-02 and its amendments as of January 1, 2019 using the modified retrospective method and utilized the optional transition method to apply the legacy guidance in ASC 840, Leases, including its disclosure requirements, in the comparative periods presented. The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward its historical assessments of: (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company elected a policy of not recording leases on its consolidated balance sheets when the leases have a term of 12 months or less and the Company is not reasonably certain to elect
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
an option to purchase the leased asset. The Company recognizes payments on these leases within selling, administrative and other expenses on a straight-line basis over the lease term.
The Company's adoption of the standard resulted in a cumulative-effect adjustment to increase opening retained earnings by $4,797, net$6 million.
Liabilities—Supplier Finance Programs (Subtopic 405-50)
In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs. This standard requires disclosure of taxes, asthe key terms of outstanding supply chain finance programs and a rollforward of the related amounts due to vendors participating in these programs. The new standard does not affect the recognition, measurement or financial statement presentation of any amounts due. The ASU becomes effective January 1, 2019. The standard did not materially impact2023, except for the Company's consolidated net income or liquidity. The standard did not have an impact on debt-covenant compliance under the Company's current debt agreements.
2. Accumulated Other Comprehensive Loss
The following tables present the changes in accumulated other comprehensive loss (“AOCL”) by component:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Changes in Accumulated Other
Comprehensive Loss by Component |
| | Pension and Other Post-Retirement Benefits | | Cash Flow Hedges | | Foreign Currency Translation | | Total |
| Beginning balance, January 1, 2020 | $ | (704,415) | | | $ | (20,671) | | | $ | (416,222) | | | $ | (1,141,308) | |
| Other comprehensive income (loss) before reclassifications | (17,343) | | | (21,509) | | | 91,239 | | | 52,387 | |
| Amounts reclassified from accumulated other comprehensive loss | 28,890 | | | 12,173 | | | 11,356 | | | 52,419 | |
| Net current period other comprehensive income (loss) | 11,547 | | | (9,336) | | | 102,595 | | | 104,806 | |
| Ending balance, December 31, 2020 | $ | (692,868) | | | $ | (30,007) | | | $ | (313,627) | | | $ | (1,036,502) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Changes in Accumulated Other
Comprehensive Loss by Component |
| | Pension and Other Post-Retirement Benefits | | Cash Flow Hedges | | Foreign Currency Translation | | Total |
| Beginning balance, January 1, 2019 | $ | (626,322) | | | $ | (4,632) | | | $ | (484,124) | | | $ | (1,115,078) | |
| Other comprehensive income (loss) before reclassifications | 22,120 | | | (18,419) | | | 33,201 | | | 36,902 | |
| Amounts reclassified from accumulated other comprehensive loss (1) | 22,313 | | | 2,380 | | | 34,701 | | | 59,394 | |
| Net current period other comprehensive income (loss) | 44,433 | | | (16,039) | | | 67,902 | | | 96,296 | |
| Cumulative effect from adoption of ASU 2018-02 | (122,526) | | | 0 | | | 0 | | | (122,526) | |
| Ending balance, December 31, 2019 | $ | (704,415) | | | $ | (20,671) | | | $ | (416,222) | | | $ | (1,141,308) | |
2. Segment Data
Our reportable segments consist of the Automotive Parts Group ("Automotive") and Industrial Parts Group ("Industrial"). Within the reportable segments, certain of our operating segments are aggregated since they have similar economic characteristics, products and services, type and class of customers, and distribution methods.
Our Automotive segment distributes replacement parts (other than body parts) for substantially all makes and models of automobiles, trucks, and other vehicles.
Our Industrial segment distributes a wide variety of industrial bearings, mechanical and fluid power transmission equipment, including hydraulic and pneumatic products, material handling components and related parts and supplies.
Inter-segment sales are not significant. Segment profit for each industry segment is calculated as net sales less costs of goods sold, operating expenses, and certain non-operating expenses attributable to the segment (e.g., foreign currency), excluding general corporate expenses, net interest expense, intangible asset amortization, and other unallocated amounts that are primarily driven by corporate initiatives.. Approximately $472 million and $438 million of income before income taxes were generated in jurisdictions outside the U.S. for the years ended December 31, 2022, and 2021, respectively. Approximately $327 million of loss before income taxes was generated in jurisdictions outside the U.S. for the year ended December 31, 2020. Net sales and net property, plant and equipment by country relate directly to our operations in the respective country. Corporate assets are principally cash and cash equivalents and headquarters’ facilities and equipment.
The following table presents a summary of our reportable segment financial information from continuing operations:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Net sales: | | | | | | |
| Automotive | | $ | 13,666,634 | | | $ | 12,544,131 | | | $ | 10,860,695 | |
| Industrial | | 8,429,339 | | | 6,326,379 | | | 5,676,738 | |
| Total net sales | | $ | 22,095,973 | | | $ | 18,870,510 | | | $ | 16,537,433 | |
| Segment profit: | | | | | | |
| Automotive | | $ | 1,191,674 | | | $ | 1,073,427 | | | $ | 867,743 | |
| Industrial | | 886,636 | | | 595,232 | | | 481,854 | |
| Total segment profit | | $ | 2,078,310 | | | $ | 1,668,659 | | | $ | 1,349,597 | |
| Interest expense, net | | (73,886) | | | (62,150) | | | (91,048) | |
| Corporate expense | | (269,364) | | | (174,842) | | | (149,754) | |
| Intangible asset amortization | | (157,437) | | | (103,273) | | | (94,962) | |
| Other unallocated costs | | (5,021) | | | (128,048) | | | (634,465) | |
| Income before income taxes from continuing operations | | $ | 1,572,602 | | | $ | 1,200,346 | | | $ | 379,368 | |
The following table presents a summary of the other unallocated costs:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Other unallocated costs: | | | | | | |
| Gain on sales of real estate (1) | | $ | 102,803 | | | $ | — | | | $ | — | |
| Gain on insurance proceeds (2) | | 1,507 | | | 3,862 | | | 13,448 | |
| Product liability adjustment (3) | | (28,730) | | | — | | | — | |
| Product liability damages award (4) | | — | | | (77,421) | | | — | |
| Loss on software disposal (5) | | — | | | (61,063) | | | — | |
| Gain on equity investment (6) | | — | | | 10,229 | | | — | |
| Goodwill impairment charge (7) | | — | | | — | | | (506,721) | |
| Restructuring costs and special termination costs (8) | | — | | | — | | | (50,019) | |
| Realized currency and other divestiture losses (9) | | — | | | — | | | (11,356) | |
| Inventory adjustment (10) | | — | | | — | | | (40,000) | |
| Transaction and other costs (11) | | (80,601) | | | (3,655) | | | (39,817) | |
| Total other unallocated costs | | $ | (5,021) | | | $ | (128,048) | | | $ | (634,465) | |
(1)Amount includesreflects a gain on the sale of real estate that had been leased to S.P. Richards.
(2)Amount reflects insurance recoveries in excess of losses incurred on inventory, property, plant and equipment and other fire-related costs.
(3)Amount to remeasure product liability for a revised estimate of the number of claims to be incurred in future periods, among other assumptions.
(4)Amount reflects damages reinstated by the Washington Supreme Court order on July 8, 2021 in connection with a 2017 automotive product liability claim.
(5)Amount reflects a loss on an internally developed software project that was disposed of due to a change in management strategy related to advances in alternative technologies.
(6)Amount relates to gains recognized upon remeasurement of certain equity investments to fair value upon acquiring the remaining equity of those entities.
(7)Amount reflects a goodwill impairment charge related to our European reporting unit.
(8)Amount reflects restructuring and special termination costs related to the 2019 Cost Savings Plan. The costs are primarily associated with severance and other employee costs, including a voluntary retirement program, and facility and closure costs related to the consolidation of operations.
(9)Amount reflects realized currency losses related to divestitures.
(10) Amount reflects a $40 million increase to cost of $34,701 that were reclassified out of foreign currency translation into earnings in connection with the March 7, 2019 sale of Grupo Auto Todo and the September 30, 2019 sale of EIS. Refergoods sold due to the acquisitions, divestitures and discontinued operations footnote for further details.
The AOCL componentscorrection of an immaterial error related to the pension benefitsaccounting in prior years for consideration received from vendors.
(11) Amount for 2022 primarily includes costs of $67 million associated with the January 3, 2022 acquisition and integration of KDG which includes a $17 million impairment charge. The impairment charge was driven by a decision to retire certain legacy trade names, classified as other intangible assets, prior to the end of their estimated useful lives as part of executing our KDG integration and rebranding strategy. Separately, this adjustment includes an $11 million loss related to an investment. Amount for 2021 include transaction and other costs related to acquisitions. For 2020, amount includes a $17 million loss on investment, $10 million of incremental costs associated with COVID-19 and costs associated with certain divestitures. COVID-19 related costs include incremental costs incurred relating to fees to cancel marketing events and increased cleaning and sanitization materials, among other things.
The following table presents a summary of our reportable segment total assets:
| | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| Assets: | | | | |
| Automotive | | $ | 8,755,363 | | | $ | 8,508,487 | |
| Industrial | | 2,474,392 | | | 1,909,053 | |
| Corporate | | 865,001 | | | 612,854 | |
| Goodwill and other intangible assets | | 4,400,623 | | | 3,321,708 | |
| Total assets | | $ | 16,495,379 | | | $ | 14,352,102 | |
The following table presents a summary of select financial information by reportable segment from continuing operations:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Depreciation and amortization: | | | | | | |
| Automotive | | $ | 146,819 | | | $ | 143,052 | | | $ | 120,932 | |
| Industrial | | 29,670 | | | 24,100 | | | 16,315 | |
| Corporate | | 13,893 | | | 20,546 | | | 40,633 | |
| Intangible asset amortization | | 157,437 | | | 103,273 | | | 94,962 | |
| Total depreciation and amortization | | $ | 347,819 | | | $ | 290,971 | | | $ | 272,842 | |
| Capital expenditures: | | | | | | |
| Automotive | | $ | 235,182 | | | $ | 198,268 | | | $ | 133,523 | |
| Industrial | | 33,165 | | | 35,626 | | | 19,287 | |
| Corporate | | 71,285 | | | 32,242 | | | 692 | |
| Total capital expenditures | | $ | 339,632 | | | $ | 266,136 | | | $ | 153,502 | |
| Net sales: | | | | | | |
| United States | | $ | 14,965,462 | | | $ | 12,136,689 | | | $ | 10,863,348 | |
| Europe | | 3,071,964 | | | 2,908,156 | | | 2,408,913 | |
| Canada | | 1,960,227 | | | 1,779,663 | | | 1,526,202 | |
| Australasia | | 2,044,432 | | | 2,002,188 | | | 1,691,190 | |
| Mexico | | 53,888 | | | 43,814 | | | 47,780 | |
| Total net sales | | $ | 22,095,973 | | | $ | 18,870,510 | | | $ | 16,537,433 | |
| Net property, plant and equipment: | | | | | | |
| United States | | $ | 790,121 | | | $ | 750,267 | | | $ | 728,802 | |
| Europe | | 200,898 | | | 179,001 | | | 164,268 | |
| Canada | | 113,574 | | | 102,484 | | | 102,409 | |
| Australasia | | 220,839 | | | 201,971 | | | 165,596 | |
| Mexico | | 582 | | | 676 | | | 968 | |
| Total net property, plant and equipment | | $ | 1,326,014 | | | $ | 1,234,399 | | | $ | 1,162,043 | |
Net sales are included indisaggregated by geographical region for each of our reportable segments, as we deem this presentation best depicts how the computationnature, amount, timing and uncertainty of net periodic benefit income in the employee benefit plans footnote.sales and cash flows are affected by economic factors. The nature of the cash flow hedges are discussed in the derivatives and hedging footnote. Generally, tax effects in AOCL are established at the currently enacted tax rate and reclassified tofollowing table presents disaggregated geographical net (loss) income in the same period that the related pre-tax AOCL reclassifications are recognized.sales from contracts with customers by reportable segment:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| North America: | | | | | |
| Automotive | $ | 9,015,501 | | | $ | 8,103,896 | | | $ | 7,177,543 | |
| Industrial | 7,964,076 | | | 5,856,270 | | | 5,259,787 | |
| Total North America | $ | 16,979,577 | | | $ | 13,960,166 | | | $ | 12,437,330 | |
| Australasia: | | | | | |
| Automotive | $ | 1,579,169 | | | $ | 1,532,079 | | | $ | 1,274,239 | |
| Industrial | 465,263 | | | 470,109 | | | 416,951 | |
| Total Australasia | $ | 2,044,432 | | | $ | 2,002,188 | | | $ | 1,691,190 | |
| Europe - Automotive | $ | 3,071,964 | | | $ | 2,908,156 | | | $ | 2,408,913 | |
| Total net sales | $ | 22,095,973 | | | $ | 18,870,510 | | | $ | 16,537,433 | |
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
3. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill during the years ended December 31, 20202022 and 20192021 by reportable segment, as well as other identifiable intangible assets, are summarized as follows:
| | | | Goodwill | | | Goodwill | |
| | | Automotive | | Industrial | | Total | | Other Intangible Assets, Net | | Automotive | | Industrial | | Total | | Other Intangible Assets, Net |
| Balance as of January 1, 2019 | $ | 1,721,823 | | | $ | 324,997 | | | $ | 2,046,820 | | | $ | 1,327,898 | | |
| Balance as of January 1, 2021 | | Balance as of January 1, 2021 | $ | 1,505,523 | | | $ | 411,954 | | | $ | 1,917,477 | | | $ | 1,498,257 | |
| Additions | Additions | 194,561 | | | 185,679 | | | 380,240 | | | 340,799 | | Additions | 85,182 | | | 2,701 | | | 87,883 | | | 72,189 | |
| Divestitures | (294) | | | (115,437) | | | (115,731) | | | (89,030) | | |
| | Amortization | Amortization | — | | | — | | | — | | | (92,206) | | Amortization | — | | | — | | | — | | | (103,273) | |
| Impairments | — | | | — | | | — | | | (2,194) | | |
| Foreign currency translation | Foreign currency translation | (18,595) | | | 785 | | | (17,810) | | | 6,830 | | Foreign currency translation | (83,243) | | | (6,810) | | | (90,053) | | | (60,772) | |
| Balance as of December 31, 2019 | 1,897,495 | | | 396,024 | | | 2,293,519 | | | 1,492,097 | | |
| Balance as of December 31, 2021 | | Balance as of December 31, 2021 | 1,507,462 | | | 407,845 | | | 1,915,307 | | | 1,406,401 | |
| Additions | Additions | 15,061 | | | 5,261 | | | 20,322 | | | 21,890 | | Additions | 149,896 | | | 609,892 | | | 759,788 | | | 663,077 | |
| Amortization | Amortization | — | | | — | | | — | | | (94,962) | | Amortization | — | | | — | | | — | | | (157,437) | |
| Impairments | Impairments | (506,721) | | | 0 | | | (506,721) | | | 0 | | Impairments | — | | | — | | | — | | | (17,461) | |
| Foreign currency translation | Foreign currency translation | 99,688 | | | 10,669 | | | 110,357 | | | 79,232 | | Foreign currency translation | (77,824) | | | (9,158) | | | (86,982) | | | (82,070) | |
| Balance as of December 31, 2020 | $ | 1,505,523 | | | $ | 411,954 | | | $ | 1,917,477 | | | $ | 1,498,257 | | |
| Balance as of December 31, 2022 | | Balance as of December 31, 2022 | $ | 1,579,534 | | | $ | 1,008,579 | | | $ | 2,588,113 | | | $ | 1,812,510 | |
We completed our annual goodwill impairment testing as of October 1, 2022 using a mixture of quantitative and qualitative assessments for our various reporting units. To complete a qualitative assessment, we evaluate historical revenue and operating profit growth trends, market conditions and other factors to determine whether it is more likely than not that the reporting unit's goodwill is impaired. We complete quantitative assessments for reporting units that fail our qualitative assessments, or otherwise on a periodic basis. To complete a quantitative assessment, we calculate a reporting unit's fair value using a combination of income and market approaches, which involve significant unobservable inputs (Level 3). In the income approach, we primarily use these assumptions: projected revenue growth rates, EBITDA margins, the estimated weighted average cost of capital, and terminal value. In the market approach, we primarily use benchmark company market multiples. We believe the inputs and assumptions we use are consistent with those a hypothetical marketplace participant would use. Once calculated, we verify whether the reporting unit's fair value is higher than its carrying amount. If the fair value is lower, we recognize an impairment, generally for the difference.
Based on these assessments, we did not recognize any goodwill impairments during 2022 or 2021. Due to several factors that coalesced in the second quarter of 2020, the Companywe performed an interim impairment test as of May 31, 2020 for itsour European reporting unit and recorded a goodwill impairment charge of $506,721. The factors primarily resulted from$507 million.
If there are sustained declines in macroeconomic or business conditions in future periods affecting the ongoing market volatilityprojected earnings and uncertainty caused by the COVID-19 pandemic, which extended into the second quarter and impacted several critical impairment testing assumptions including weighted average cost of capital and market multiples, and near-term revenue and operating margin projections for the reporting unit. During the second quarter, the Company also assessed the finite-lived, identifiable tangible and intangible assets at the European reporting unit for impairment under the undiscounted cash flows approach and concluded there was no impairment.
The Europeanat our reporting unit’s fair value was calculated using a combination of both income and market approaches and involved significant unobservable inputs (Level 3 inputs). The assumptions used in the income approach include projected revenue growth rates, operating margins, the estimated weighted average cost of capital and terminal value. The weighted-average cost of capital used in the income approach was adjusted to reflect the specific risks and uncertainties associated with the COVID-19 pandemic in developing the cash flow projections. The assumptions used in the market approach include benchmark company market multiples. The Company used inputs and assumptions it believed are consistent with those a hypothetical marketplace participant would use.
The Company completed its annual qualitative goodwill assessment as of October 1, 2020. Based on the Company's assessment, which included reviewing historical revenue and operating profit growth trends and evaluating the inputs to a weighted average cost of capital, the Company has determined that it is not more likely than not that the goodwill is impaired for all reporting units.
Should actual results differ from certain key assumptions used in the interim or annual impairment tests, including revenue and operating margin growth rates, which are both impacted by economic conditions, or shouldunits, among other key impairment testing assumptions change in subsequent periods,things, there can be no assurance that goodwill at one or more reporting units may not be impaired.
In June 2022, we recognized a $17 million non-cash impairment charge related to our decision to retire certain legacy Industrial trade names, classified as other intangible assets, prior to the end of their estimated useful lives as part of the KDG integration and rebranding strategy. We evaluate other intangible assets for potential impairment indicators annually, or more frequently if circumstances change.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
Other Intangible Assets
The gross carrying amounts and accumulated amortization relating to other intangible assets at December 31, 20202022 and 20192021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net |
| Customer relationships | $ | 1,578,153 | | | $ | (388,120) | | | $ | 1,190,033 | | | $ | 1,481,470 | | | $ | (287,851) | | | $ | 1,193,619 | |
| Trademarks | 358,253 | | | (50,227) | | | 308,026 | | | 334,643 | | | (36,501) | | | 298,142 | |
| Non-competition agreements | 5,719 | | | (5,521) | | | 198 | | | 5,268 | | | (4,932) | | | 336 | |
| $ | 1,942,125 | | | $ | (443,868) | | | $ | 1,498,257 | | | $ | 1,821,381 | | | $ | (329,284) | | | $ | 1,492,097 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net |
| Customer relationships | $ | 2,121,171 | | | $ | (566,111) | | | $ | 1,555,060 | | | $ | 1,590,733 | | | $ | (464,198) | | | $ | 1,126,535 | |
| Trademarks | 342,136 | | | (85,188) | | | 256,948 | | | 337,802 | | | (58,073) | | | 279,729 | |
| Non-competition agreements | 5,575 | | | (5,073) | | | 502 | | | 5,430 | | | (5,293) | | | 137 | |
| $ | 2,468,882 | | | $ | (656,372) | | | $ | 1,812,510 | | | $ | 1,933,965 | | | $ | (527,564) | | | $ | 1,406,401 | |
Amortization expense for other intangible assets totaled $94,962, $92,206,$157 million, $103 million, and $83,489$95 million for the years ended December 31, 2020, 2019,2022, 2021, and 2018,2020, respectively. Estimated other intangible assets amortization expense for the succeeding five years is as follows:
| | 2021 | $ | 100,630 | | |
| 2022 | 100,623 | | |
| 2023 | 2023 | 99,984 | | 2023 | $ | 145,357 | |
| 2024 | 2024 | 99,236 | | 2024 | 131,443 | |
| 2025 | 2025 | 98,915 | | 2025 | 130,103 | |
| 2026 | | 2026 | 128,508 | |
| 2027 | | 2027 | 127,706 | |
| | $ | 499,388 | | | $ | 663,117 | |
4. Property, Plant and Equipment
Property, plant and equipment as of December 31, 20202022 and December 31, 2019,2021, consisted of the following:
| | | 2020 | | 2019 | | 2022 | | 2021 |
| Land | Land | | $ | 131,117 | | | $ | 128,353 | | Land | | $ | 115,845 | | | $ | 126,513 | |
| Buildings and leasehold improvements | Buildings and leasehold improvements | | 899,723 | | | 779,124 | | Buildings and leasehold improvements | | 834,786 | | | 873,912 | |
| Machinery, equipment and other | Machinery, equipment and other | | 1,529,298 | | | 1,466,899 | | Machinery, equipment and other | | 1,811,060 | | | 1,573,680 | |
| Property, plant and equipment, at cost | Property, plant and equipment, at cost | | 2,560,138 | | | 2,374,376 | | Property, plant and equipment, at cost | | 2,761,691 | | | 2,574,105 | |
| Less: accumulated depreciation | Less: accumulated depreciation | | 1,398,095 | | | 1,200,688 | | Less: accumulated depreciation | | 1,435,677 | | | 1,339,706 | |
| Property, plant and equipment, net | Property, plant and equipment, net | | $ | 1,162,043 | | | $ | 1,173,688 | | Property, plant and equipment, net | | $ | 1,326,014 | | | $ | 1,234,399 | |
During the second quarter of 2022, we recognized a $103 million gain on the sale of real estate that had been leased to S.P. Richards Company ("SPR"). Refer to the discontinued operations section of the Acquisitions, Divestitures and Discontinued Operations Footnote for additional information regarding the divestiture of our business products group.
5. Debt
The principal amounts of the Company’s borrowings subject to variable rates (after consideration of hedging arrangements) totaled approximately $114,002 and $554,902 at December 31, 2020 and 2019, respectively. The weighted average interest rate on the Company’s outstanding borrowings was approximately 2.65% and 2.18% at December 31, 2020 and 2019, respectively.
Certain borrowings require the Company to comply with a financial covenant with respect to a maximum debt to Adjusted EBITDA ratio. At December 31, 2020, the Company was in compliance with all such covenants. Due to the workers’ compensation and insurance reserve requirements in certain states, the Company also had unused letters of credit of approximately $69,899 and $65,322 outstanding at December 31, 2020 and 2019, respectively.
On October 27, 2020, the Company issued $500,000 aggregate principal amount of 1.875% Senior Unsecured Notes due 2030 at a price to the public of 99.069% of their face value with U.S. Bank National Association as trustee. Interest on the 1.875% Senior Unsecured Notes due 2030 is payable semi-annually on May 1 and November 1 of each year, which begins on May 1, 2021, and is computed on the basis of a 360-day year.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
On October 30, 2020, the Company entered into a new $1.5 billion Syndicated Facility Agreement (the "October 30, 2020 Syndicated Facility"). Simultaneously with the entry into the October 30, 2020 Syndicated Facility, the Company terminated and paid in full all outstanding indebtedness under the previous October 30, 2017 Syndicated Facility and repaid the existing term loan A facility.
Amounts outstanding under the Company’s credit facilities, net of debt issuance costs consist of the following:
| | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
| Unsecured Revolving Credit Facility, $1,500,000, LIBOR plus 1.50% variable, due October 30, 2025 | | $ | 0 | | | $ | 0 | |
| Unsecured Revolving Credit Facility, $1,500,000, LIBOR plus 1.50% variable, due October 30, 2022 (Terminated as of October 30, 2020) | | 0 | | | 477,873 | |
| Unsecured Term Loan A, $1,100,000, LIBOR plus 1.50% variable, due October 30, 2022 | | 0 | | | 962,500 | |
| October 27, 2020, Senior Unsecured Notes, $500,000, 1.875% fixed, due November 1, 2030 | | 500,000 | | | 0 | |
| July 29, 2016, Series G Senior Unsecured Notes, $50,000, 3.14% fixed, due July 29, 2021 | | 50,000 | | | 50,000 | |
| December 2, 2013, Series F Senior Unsecured Notes, $250,000, 3.74% fixed, due December 2, 2023 | | 250,000 | | | 250,000 | |
| June 30, 2019, Series A Senior Unsecured Notes, A$155,000, 3.60% fixed, due June 30, 2024 | | 119,133 | | | 108,422 | |
| October 30, 2017, Series J Senior Unsecured Notes, €225,000, 1.90% fixed, due October 30, 2024 | | 276,773 | | | 252,000 | |
| June 30, 2019, Series B Senior Unsecured Notes, A$155,000, 3.93% fixed, due June 30, 2026 | | 119,133 | | | 108,422 | |
| November 30, 2016, Series H Senior Unsecured Notes, $250,000, 3.74% fixed, due November 30, 2026 | | 250,000 | | | 250,000 | |
| October 30, 2017, Series K Senior Unsecured Notes, €250,000, 2.31% fixed, due October 30, 2027 | | 307,525 | | | 280,000 | |
| October 30, 2017, Series I Senior Unsecured Notes, $120,000, 4.20% fixed, due October 30, 2027 | | 120,000 | | | 120,000 | |
| May 31, 2019, Series A Senior Unsecured Notes, ���50,000, 2.05% fixed, due May 31, 2029 | | 61,505 | | | 56,000 | |
| October 30, 2017, Series L Senior Unsecured Notes, €125,000, 2.52% fixed, due October 30, 2029 | | 153,762 | | | 140,000 | |
| May 31, 2019, Series B Senior Unsecured Notes, €100,000, 2.24% fixed, due May 31, 2031 | | 123,010 | | | 112,000 | |
| October 30, 2017, Series M Senior Unsecured Notes, €100,000, 2.82% fixed, due October 30, 2032 | | 123,010 | | | 112,000 | |
| May 31, 2019, Series C Senior Unsecured Notes, €100,000, 2.45% fixed, due May 31, 2034 | | 123,010 | | | 112,000 | |
| Other unsecured debt | | 114,002 | | | 40,340 | |
| Total unsecured debt | | 2,690,863 | | | 3,431,557 | |
| Unamortized debt issuance costs | | (9,136) | | | (5,458) | |
| Unamortized discounts | | (4,582) | | | 0 | |
| Total debt | | 2,677,145 | | | 3,426,099 | |
| Less debt due within one year | | 160,531 | | | 624,043 | |
| Long-term debt, excluding current portion | | $ | 2,516,614 | | | $ | 2,802,056 | |
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
Approximate maturities under the Company’s credit facilities are as follows:
| | | | | |
| 2021 | $ | 162,429 | |
| 2022 | 1,573 | |
| 2023 | 250,000 | |
| 2024 | 395,906 | |
| 2025 | 0 | |
| Thereafter | 1,880,955 | |
| $ | 2,690,863 | |
6. Accounts Receivable Sales Agreement
On May 29, 2020 the Company entered intoWe have an agreement (the “A/A/R Sales Agreement”)sales agreement to sell short-term receivables from certain customer trade accounts to an unaffiliated financial institution.institution on a revolving basis. The A/R Sales Agreement has a 364 day3 year term, which the Company intendswe intend to renew each year.renew.
As part of the A/R Sales Agreement, the Company continuously sellswe routinely sell designated pools of receivables as they are originated by it and certain U.S. subsidiaries to a separate bankruptcy-remote special purpose entity (“SPE”). The assets of the SPE would be first available to satisfy the creditor claims of the unaffiliated financial institution. The Company controlsWe control and therefore consolidatesconsolidate the SPE in itsour consolidated financial statements.
At the inception of the A/R Sales Agreement, theThe SPE transferred ownership and control of approximately $500,000 incertain receivables that met certain qualifying conditions to the unaffiliated financial institution in exchange for cash. On October 29, 2020 the Company transferred ownership and control of an additional $300,000 in receivables under the A/R Sales Agreement bringing the total to $800,000. The Company accountsWe account for transactions with the unaffiliated financial institution as sales of financial assets, with the associated receivables derecognized from the Company'sour consolidated balance sheet. The remaining receivables held by the special purpose subsidiarySPE were pledged to secure the collectability of the sold receivables. The amount of receivables pledged as collateral as of December 31, 20202022 and December 31, 2021 is approximately $771,000.$1.1 billion and $973 million, respectively.
The Company continuesWe continue to be involved with the receivables transferred by the SPE to the unaffiliated financial institution by providing collection services. As cash is collected on sold receivables, the SPE continuously transfers ownership and control of new qualifying receivables to the unaffiliated financial institution so that the total principal amount outstanding of receivables sold is approximately $800,000$1.0 billion at any point in time (which is the maximum amount allowed under the amended agreement). The future amount of receivables outstanding as sold could decrease, based on the level of activity and other factors. Total principal amount outstanding of receivables sold is approximately $1.0 billion and $800 million as of December 31, 2022 and December 31, 2021, respectively.
The following table summarizes the activity and amounts outstanding under the A/R Sales Agreement as of period end:
| | | | | | | | |
| | December 31, 2020 |
Receivables sold to the financial institution and derecognized since inception | | $ | 3,928,024 | |
Cash collected on sold receivables since inception | | $ | 3,128,023 | |
Total principal amount outstanding of receivables sold at period end | | $ | 800,001 | |
| | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| Receivables sold to the financial institution and derecognized | | $ | 8,946,730 | | | $ | 7,520,474 | |
| Cash collected on sold receivables | | $ | 8,746,740 | | | $ | 7,520,465 | |
CashContinuous cash activity related to the A/R Sales Agreement is presentedreflected in cash from operating activities in the consolidated statement of cash flows. We received a benefit to cash from operations of approximately $200 million from increasing the amount of receivables sold under the A/R Sales Agreement in the year ended December 31, 2022.
The SPE incurs fees due to the unaffiliated financial institution related to the accounts receivable sales transactions. Those fees, which are immaterial,totaled $27 million, $11 million, and $6 million in 2022, 2021, and 2020, respectively, are recorded within other non-operating expense (income) expenses in the consolidated statements of income. The SPE has a recourse obligation to repurchase from the unaffiliated financial institution any previously sold receivables that are not collected due to the occurrence of certain events, including credit quality deterioration and customer sales returns. The reserve recognized for this recourse obligation as of December 31, 20202022 and December 31, 2021 is not material. The servicing liability related to the Company'sour collection services also is not material, given the high quality of the customers underlying the receivables and the anticipated short collection period.
6. Debt
The weighted average interest rate on our outstanding borrowings was approximately 2.33% and 2.35% at December 31, 2022 and 2021, respectively.
Certain borrowings require us to comply with a financial covenant with respect to a maximum debt to EBITDA ratio. At December 31, 2022, we were in compliance with all such covenants. Due to the workers’ compensation and insurance reserve requirements in certain states, we also had unused letters of credit of approximately $71 million and $73 million outstanding at December 31, 2022 and 2021, respectively.
On January 6, 2022, we issued $500 million of unsecured 1.75% Senior Notes due 2025. Simultaneously, we issued $500 million of unsecured 2.75% Senior Notes due 2032. For both offerings, interest is payable semi-annually on February 1 and August 1 of each year, beginning August 1, 2022. We utilized the proceeds from these offerings to repay borrowings under our Revolving Credit Facility, which were incurred to finance a significant portion of the Kaman Distribution Group ("KDG") acquisition.
Amounts outstanding under our credit facilities, net of Contentsdebt issuance costs consist of the following:
Genuine Parts Company and Subsidiaries | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| Unsecured Revolving Credit Facility, $1,500,000, LIBOR plus 1.13% variable, due September 30, 2026 | | $ | — | | | $ | — | |
| January 6, 2022, Senior Unsecured Notes, $500,000, 1.75% fixed, due February 1, 2025 | | 500,000 | | | — | |
| January 6, 2022, Senior Unsecured Notes, $500,000, 2.75% fixed, due February 1, 2032 | | 500,000 | | | — | |
| October 27, 2020, Senior Unsecured Notes, $500,000, 1.88% fixed, due November 1, 2030 | | 500,000 | | | 500,000 | |
| December 2, 2013, Series F Senior Unsecured Notes, $250,000, 3.24% fixed, due December 2, 2023 | | 250,000 | | | 250,000 | |
| June 30, 2019, Series A Senior Unsecured Notes, A$155,000, 3.10% fixed, due June 30, 2024 | | 105,664 | | | 112,375 | |
| October 30, 2017, Series J Senior Unsecured Notes, €225,000, 1.40% fixed, due October 30, 2024 | | 240,840 | | | 254,835 | |
| June 30, 2019, Series B Senior Unsecured Notes, A$155,000, 3.43% fixed, due June 30, 2026 | | 105,664 | | | 112,375 | |
| November 30, 2016, Series H Senior Unsecured Notes, $250,000, 3.24% fixed, due November 30, 2026 | | 250,000 | | | 250,000 | |
| October 30, 2017, Series K Senior Unsecured Notes, €250,000, 1.81% fixed, due October 30, 2027 | | 267,600 | | | 283,150 | |
| October 30, 2017, Series I Senior Unsecured Notes, $120,000, 3.70% fixed, due October 30, 2027 | | 120,000 | | | 120,000 | |
| May 31, 2019, Series A Senior Unsecured Notes, €50,000, 1.55% fixed, due May 31, 2029 | | 53,520 | | | 56,630 | |
| October 30, 2017, Series L Senior Unsecured Notes, €125,000, 2.02% fixed, due October 30, 2029 | | 133,800 | | | 141,575 | |
| May 31, 2019, Series B Senior Unsecured Notes, €100,000, 1.74% fixed, due May 31, 2031 | | 107,040 | | | 113,260 | |
| October 30, 2017, Series M Senior Unsecured Notes, €100,000, 2.32% fixed, due October 30, 2032 | | 107,040 | | | 113,260 | |
| May 31, 2019, Series C Senior Unsecured Notes, €100,000, 1.95% fixed, due May 31, 2034 | | 107,040 | | | 113,260 | |
| Other unsecured debt | | 2,977 | | | 840 | |
| Total unsecured debt | | 3,351,185 | | | 2,421,560 | |
| Unamortized debt issuance costs | | (12,236) | | | (8,041) | |
| Unamortized discounts | | (10,126) | | | (4,156) | |
| Total debt | | 3,328,823 | | | 2,409,363 | |
| Less debt due within one year | | 252,029 | | | — | |
| Long-term debt, excluding current portion | | $ | 3,076,794 | | | $ | 2,409,363 | |
Notes to Consolidated Financial Statements
December 31, 2020
Approximate maturities under our credit facilities are as follows:
| | | | | |
| 2023 | $ | 252,029 | |
| 2024 | 347,452 | |
| 2025 | 500,000 | |
| 2026 | 355,664 | |
| 2027 | 387,600 | |
| Thereafter | 1,508,440 | |
| $ | 3,351,185 | |
7. Derivatives and Hedging
The following table summarizes the location and carrying amounts of the derivative instruments and the foreign currency denominated debt, a non-derivative financial instrument, that are designated and qualify as part of hedging relationships:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2020 | | December 31, 2019 |
| Instrument | | Balance sheet location | | Notional | | Balance | | Notional | | Balance |
| Cash flow hedges: | | | | | | | | | | |
| Interest rate swaps | | Other current liabilities | | $ | 0 | | | $ | 0 | | | $ | 800,000 | | | $ | 24,792 | |
| Net investment hedges: | | | | | | | | | | |
| Forward contracts | | Prepaid expenses and other current assets | | $ | 800,000 | | | $ | 7,668 | | | $ | 925,810 | | | $ | 39,965 | |
| Forward contracts | | Other current liabilities | | $ | 360,990 | | | $ | 19,442 | | | $ | 0 | | | $ | 0 | |
| Foreign currency debt | | Long-term debt | | € | 700,000 | | | $ | 861,070 | | | € | 700,000 | | | $ | 784,000 | |
Cash FlowNet Investment Hedges
The Company uses interest rate swaps to mitigate variability in forecasted interest payments on a portion of the Company’s U.S. dollar-denominated unsecured variable rate debt. The interest rate swaps effectively convert a portion of the floating rate interest payment into a fixed rate interest payment. The Company designates the interest rate swaps as qualifying hedging instruments and accounts for them as cash flow hedges. On May 1, 2020, the Company dedesignated its interest rate swaps and modified them to match the terms of its modified debt agreement and as a result the $48,492 payable as of that date was deemed a financing transaction. The Company redesignated the portion of the modified interest rate swap that is not related to the financing agreement as a qualifying hedging instrument. Gains and losses from fair value adjustments on the qualifying hedging instruments are initially classified in AOCL and are reclassified to interest expense on the dates interest payments are accrued. On October 30, 2020 the Company terminated its interest rate swaps and settled the outstanding balances through cash payments totaling $41,000, which were primarily classified in financing activities on the Consolidated Statement of Cash Flows because they primarily related to the financing agreement. The remaining amount in AOCL is being amortized to interest expense on a straight-line basis over the remaining life of the hedged instrument.
Hedges of Net Investments in Foreign Operations
The Company hasWe have designated certain derivative instruments and a portion of itsour foreign currency denominated debt, a non-derivative financial instrument, as hedges of the foreign currency exchange rate exposure of the Company'sour Euro-denominated net investment in a European subsidiary. The Company appliesWe apply the spot method to assess the hedge effectiveness of the derivative instruments and this assessment for each instrument excludes the initial value related to the difference at contract inception between the foreign exchange spot rate and the forward rate (i.e., the forward points). The initial value of this excluded component is recognized as a reduction to interest expense in a systematic and rational manner over the term of the derivative instrument. All other changes in value for the net investment hedges are included in accumulated other comprehensive lossAOCL within foreign currency translation and would only be reclassified to earnings if the European subsidiary were liquidated, or otherwise disposed. Upon settlement, the cash paid or received generally is reflected in investing activities in the statement of cash flows.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2022 | | December 31, 2021 |
| Instrument | | Balance sheet location | | Notional | | Balance | | Notional | | Balance |
| Net investment hedges: | | | | | | | | | | |
| Forward contracts | | Prepaid expenses and other current assets | | $ | 606,950 | | | $ | 46,670 | | | $ | 925,810 | | | $ | 73,819 | |
| Forward contracts | | Other current liabilities | | $ | 106,800 | | | $ | 3,064 | | | $ | 235,180 | | | $ | 2,935 | |
| Foreign currency debt | | Long-term debt | | € | 700,000 | | | $ | 749,280 | | | € | 700,000 | | | $ | 792,820 | |
The table below presents pre-tax gains and losses related to cash flow hedges and net investment hedges:
| | | (Loss) Gain Recognized in AOCL Before Reclassifications | | Gain Recognized in Interest Expense For Excluded Components | | Gain (Loss) Recognized in AOCL Before Reclassifications | | Gain Recognized in Interest Expense For Excluded Components |
| | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
| Year Ended December 31, | Year Ended December 31, | | | | | | | | | | | | | Year Ended December 31, | | | | | | | | | | | | |
| Cash Flow Hedges: | Cash Flow Hedges: | | Cash Flow Hedges: | |
| Interest rate contract | Interest rate contract | | $ | (29,464) | | | $ | (21,972) | | | $ | (7,896) | | | $ | — | | | $ | — | | | $ | — | | Interest rate contract | | $ | — | | | $ | — | | | $ | (29,464) | | | $ | — | | | $ | — | | | $ | — | |
| Net Investment Hedges: | Net Investment Hedges: | | Net Investment Hedges: | |
| Cross-currency swap | | 0 | | | 2,936 | | | 6,006 | | | 0 | | | 2,294 | | | 6,740 | | |
| Forward contracts | Forward contracts | | (85,390) | | | 20,679 | | | 0 | | | 27,146 | | | 17,892 | | | 0 | | Forward contracts | | 103,240 | | | 56,362 | | | (85,390) | | | 27,923 | | | 26,295 | | | 27,146 | |
| Foreign currency debt | Foreign currency debt | | (77,070) | | | 17,010 | | | 38,850 | | | — | | | — | | | — | | Foreign currency debt | | 43,540 | | | 68,250 | | | (77,070) | | | — | | | — | | | — | |
| Total | Total | | $ | (191,924) | | | $ | 18,653 | | | $ | 36,960 | | | $ | 27,146 | | | $ | 20,186 | | | $ | 6,740 | | Total | | $ | 146,780 | | | $ | 124,612 | | | $ | (191,924) | | | $ | 27,923 | | | $ | 26,295 | | | $ | 27,146 | |
Amounts reclassified from accumulated other comprehensive loss to interest expense for the periods presented were not material.
8. Leased Properties
The CompanyWe primarily leaseslease real estate for certain retail stores, branches, distribution centers, office space and land. The CompanyWe also leaseslease equipment (primarily vehicles).
Most real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term from one to 20 years or more. The exercise of lease renewal options is at the Company'sour discretion. The Company evaluatesWe evaluate renewal options at lease inception and on an ongoing basis, and includesinclude renewal options that it iswe are reasonably certain to exercise in itsthe expected lease terms when classifying leases and measuring lease liabilities. We elected a policy of not recording leases on the consolidated balance sheets when the leases have a term of 12 months or less and we are not reasonably certain to elect an option to purchase the leased asset. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.
The table below presents the locations of the operating lease assets and liabilities on the consolidated balance sheets:
| | | Balance Sheet Line Item | | December 31, 2020 | | December 31, 2019 | | Balance Sheet Line Item | | December 31, 2022 | | December 31, 2021 |
| Operating lease assets | Operating lease assets | | Operating lease assets | | $ | 1,038,877 | | | $ | 995,667 | | Operating lease assets | | Operating lease assets | | $ | 1,104,678 | | | $ | 1,053,689 | |
| | Operating lease liabilities: | Operating lease liabilities: | | Operating lease liabilities: | |
| Current operating lease liabilities | Current operating lease liabilities | | Other current liabilities | | $ | 270,739 | | | $ | 255,207 | | Current operating lease liabilities | | Other current liabilities | | $ | 286,713 | | | $ | 280,575 | |
| Noncurrent operating lease liabilities | Noncurrent operating lease liabilities | | Operating lease liabilities | | 789,294 | | | 756,519 | | Noncurrent operating lease liabilities | | Operating lease liabilities | | $ | 836,019 | | | $ | 789,175 | |
| Total operating lease liabilities | Total operating lease liabilities | | $ | 1,060,033 | | | $ | 1,011,726 | | Total operating lease liabilities | | $ | 1,122,732 | | | $ | 1,069,750 | |
The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term.
The Company'sOur leases generally do not provide an implicit rate, and therefore the Company uses itswe use our incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Companywe would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. The CompanyWe used incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date.
The Company'sOur weighted average remaining lease term and weighted average discount rate for operating leases are:
| | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
| Weighted average remaining lease term (in years) | | 5.35 | | 5.50 |
| Weighted average discount rate | | 2.47 | % | | 2.82 | % |
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
| | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| Weighted average remaining lease term (in years) | | 5.32 | | 5.19 |
| Weighted average discount rate | | 2.51 | % | | 2.03 | % |
The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liabilities recognized on the consolidated balance sheets as of December 31, 2020:2022:
| | 2021 | $ | 295,841 | | |
| 2022 | 252,303 | | |
| 2023 | 2023 | 188,357 | | 2023 | $ | 325,370 | |
| 2024 | 2024 | 128,278 | | 2024 | 269,385 | |
| 2025 | 2025 | 81,625 | | 2025 | 198,100 | |
| 2026 | | 2026 | 138,333 | |
| 2027 | | 2027 | 95,975 | |
| Thereafter | Thereafter | 186,135 | | Thereafter | 216,085 | |
| Total undiscounted future minimum lease payments | Total undiscounted future minimum lease payments | 1,132,539 | | Total undiscounted future minimum lease payments | 1,243,248 | |
| Less: Difference between undiscounted lease payments and discounted operating lease liabilities | Less: Difference between undiscounted lease payments and discounted operating lease liabilities | 72,506 | | Less: Difference between undiscounted lease payments and discounted operating lease liabilities | 120,516 | |
| Total operating lease liabilities | Total operating lease liabilities | $ | 1,060,033 | | Total operating lease liabilities | $ | 1,122,732 | |
Future minimum lease payments include $60,198$53 million related to options to extend lease terms that are reasonably certain of being exercised. Future minimum lease payments exclude $165 million related to operating leases that have not yet commenced. These leases are expected to commence in 2023 and 2024 with lease terms of 3 to 25 years.
The table below presents operating lease costs and supplemental cash flow information related to leases:
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Operating lease costs | | $ | 313,315 | | | $ | 310,028 | |
| Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 323,336 | | | $ | 311,170 | |
| Operating lease assets obtained in exchange for new operating lease liabilities | | $ | 302,114 | | | $ | 330,103 | |
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Operating lease costs | | $ | 350,025 | | | $ | 336,228 | | | $ | 313,315 | |
| Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 358,767 | | | $ | 340,243 | | | $ | 323,336 | |
| Operating lease assets obtained in exchange for new operating lease liabilities | | $ | 411,052 | | | $ | 358,393 | | | $ | 302,114 | |
Operating lease costs (as defined under ASU 2016-02) are included within selling, administrative and other expenses on the consolidated statements of income. Short-term lease costs, variable lease costs and sublease income were not material for the periods presented.
Rental expense for operating leases (as defined prior to the adoption of ASU 2016-02) was approximately $334,000 for the year ended December 31, 2018.
Cash paid for amounts included in the measurement of operating lease liabilities is included in operating activities in the condensed consolidated statements of cash flows.
9. Share-Based Compensation
Share-based compensation costs of $22,621, $28,703, and $17,737, were recorded for the years ended December 31, 2020, 2019, and 2018, respectively. The total income tax benefits recognized in the consolidated statements of income for share-based compensation arrangements were approximately $6,108, $8,700, and $5,600 for 2020, 2019, and 2018, respectively. At December 31, 2020, total compensation cost related to nonvested awards not yet recognized was approximately $33,754. There have been no modifications to valuation methodologies or methods during the years ended December 31, 2020, 2019, or 2018.
As of December 31, 2020, there were 7,601 shares of common stock available for issuance pursuant to future equity-based compensation awards.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
A summary of the Company’s restricted stock units activity and related information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nonvested Share Awards (RSUs) | | Shares | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| Nonvested at beginning of year | | 677 | | | $ | 95 | | | | | |
| Granted | | 426 | | | $ | 72 | | | | | |
| Vested | | (89) | | | $ | 89 | | | | | |
| Forfeited | | (160) | | | $ | 92 | | | | | |
| Nonvested at end of year | | 854 | | | $ | 85 | | | 1.9 | | $ | 85,775 | |
A summary of the Company’s stock appreciation rights activity and related information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Appreciation Rights (SARs) | | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| Outstanding at beginning of year | | 2,154 | | | $ | 88 | | | | | |
| Granted | | 0 | | | $ | 0 | | | | | |
| Exercised | | (331) | | | $ | 80 | | | | | |
| Forfeited | | (36) | | | $ | 94 | | | | | |
| Outstanding at end of year | | 1,787 | | | $ | 89 | | | 3.5 | | $ | 20,515 | |
| Exercisable at end of year | | 1,787 | | | $ | 89 | | | 3.5 | | $ | 20,515 | |
The aggregate intrinsic value of SARs and RSUs exercised during the years ended December 31, 2020, 2019, and 2018 was $14,417, $36,200 and $32,600, respectively. The fair value of RSUs is based on the 60-day average price of the Company's stock on the date of grant for the year ended December 31, 2020. The fair value of RSUs is based on the price of the Company’s stock on the date of grant for the years ended December 31, 2019 and 2018. The fair value of SARs is estimated using a Black-Scholes option pricing model. The Company ceased issuing SARs in 2017. The total fair value of SARs and RSUs vested during the years ended December 31, 2020, 2019, and 2018 were $10,014, $26,200, and $20,800, respectively.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
10. Income Taxes
Significant components of the Company’s deferred tax assets and liabilities are as follows:
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Deferred tax assets related to: | | | | |
| Expenses not yet deducted for tax purposes | | $ | 343,308 | | | $ | 271,358 | |
| Operating lease liabilities | | 289,114 | | | 281,853 | |
| Pension liability not yet deducted for tax purposes | | 257,526 | | | 261,909 | |
| Capital loss | | 10,875 | | | 18,317 | |
| Net operating loss | | 56,028 | | | 43,932 | |
| | 956,851 | | | 877,369 | |
| Deferred tax liabilities related to: | | | | |
| Employee and retiree benefits | | 226,356 | | | 215,899 | |
| Inventory | | 90,213 | | | 92,577 | |
| Operating lease assets | | 282,486 | | | 274,630 | |
| Other intangible assets | | 365,825 | | | 343,649 | |
| Property, plant and equipment | | 73,333 | | | 63,518 | |
| Other | | 29,961 | | | 38,936 | |
| | 1,068,174 | | | 1,029,209 | |
| Net deferred tax liability before valuation allowance | | (111,323) | | | (151,840) | |
| Valuation allowance | | (35,930) | | | (35,282) | |
| Total net deferred tax liability | | $ | (147,253) | | | $ | (187,122) | |
The Company currently holds approximately $213,504 in net operating losses, of which approximately $156,144 will carry forward indefinitely. The remaining net operating losses of approximately $57,360 will begin to expire in 2024.
The components of income before income taxes are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| United States | | $ | 706,594 | | | $ | 613,910 | | | $ | 712,951 | |
| Foreign | | (327,226) | | | 245,373 | | | 281,687 | |
| Income before income taxes | | $ | 379,368 | | | $ | 859,283 | | | $ | 994,638 | |
The components of income tax expense are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Current: | | | | | | |
| Federal | | $ | 130,680 | | | $ | 162,883 | | | $ | 130,144 | |
| State | | 35,474 | | | 45,488 | | | 36,457 | |
| Foreign | | 77,541 | | | 60,376 | | | 76,910 | |
| Deferred: | | | | | | |
| Federal | | 2,048 | | | (21,617) | | | 13,295 | |
| State | | 801 | | | (11,273) | | | 5,427 | |
| Foreign | | (30,571) | | | (23,049) | | | (17,129) | |
| | $ | 215,973 | | | $ | 212,808 | | | $ | 245,104 | |
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
The reasons for the difference between total tax expense and the amount computed by applying the statutory Federal income tax rate to income before income taxes are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Statutory rate applied to income (1) | | $ | 79,667 | | | $ | 180,449 | | | $ | 208,874 | |
| Plus state income taxes, net of Federal tax benefit | | 28,658 | | | 27,030 | | | 33,088 | |
| Taxation of foreign operations, net (2) | | (9,072) | | | (17,663) | | | (7,862) | |
| U.S. tax reform - transition tax (3) | | 0 | | | 4,492 | | | 4,875 | |
| U.S. tax reform - deferred tax remeasurement (3) | | 0 | | | 0 | | | 424 | |
| Non-deductible goodwill impairment tax effect | | 106,411 | | | 0 | | | 0 | |
| Foreign rate change - deferred tax remeasurement | | 9,045 | | | 6,215 | | | (1,461) | |
| Book tax basis difference in investment | | 0 | | | 0 | | | (11,944) | |
| Valuation allowance | | 1,995 | | | 4,503 | | | 20,505 | |
| Other | | (731) | | | 7,782 | | | (1,395) | |
| | $ | 215,973 | | | $ | 212,808 | | | $ | 245,104 | |
(1)U.S. statutory rates applied to income are as follows: 2020, 2019 and 2018 at 21%.
(2)The Company's effective tax rate reflects the net benefit of having operations outside of the U.S. which are taxed at statutory rates different from the U.S. statutory rate, with some income being fully or partially exempt from income taxes due to various operating and financing activities.
(3)Impact of the Tax Cuts and Jobs Act, enacted December 22, 2017.
The Company accounts for Global Intangible Low Taxed income in the year the tax is incurred as a period cost.
The Company, or one of its subsidiaries, files income tax returns in the U.S., various states, and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state and local tax examinations by tax authorities for years before 2017 or subject to non-United States income tax examinations for years ended prior to 2013. The Company is currently under audit in the U.S. and some of its foreign jurisdictions. Some audits may conclude in the next 12 months and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts. It is not possible to estimate the effect, if any, of the amount of such change during the next 12 months to previously recorded uncertain tax positions in connection with the audits. The Company does not anticipate that total unrecognized tax benefits will significantly change in the next 12 months.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Balance at beginning of year | | $ | 21,461 | | | $ | 18,428 | | | $ | 14,697 | |
| Additions based on tax positions related to the current year | | 3,771 | | | 3,701 | | | 2,034 | |
| Additions for tax positions of prior years | | 3,480 | | | 620 | | | 4,787 | |
| Reductions for tax positions for prior years | | (1,382) | | | (965) | | | (725) | |
| Reduction for lapse in statute of limitations | | (3,765) | | | 0 | | | (2,338) | |
| Settlements | | (328) | | | (323) | | | (27) | |
| Balance at end of year | | $ | 23,237 | | | $ | 21,461 | | | $ | 18,428 | |
The amount of gross unrecognized tax benefits, including interest and penalties, as of December 31, 2020 and 2019 was approximately $25,870 and $24,347, respectively, of which approximately $21,426 and $18,286, respectively, if recognized, would affect the effective tax rate.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
During the years ended December 31, 2020, 2019, and 2018, the Company paid, received refunds, or accrued insignificant amounts of interest and penalties. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.
As of December 31, 2020, the Company estimates that it has an outside basis difference in certain foreign subsidiaries of approximately $520,000, which includes the cumulative undistributed earnings from the Company's foreign subsidiaries. The Company continues to be indefinitely reinvested in this outside basis difference. Determining the amount of net unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practicable. This is due to the complexities associated with the calculation to determine residual taxes on the undistributed earnings, including the availability of foreign tax credits, applicability of any additional local withholding tax and other indirect tax consequences that may arise due to the distribution of these earnings.
11. Employee Benefit Plans
The Company’sOur defined benefit pension plans cover employees in the U.S., Canada, and Europe who meet eligibility requirements. The plan covering U.S. employees is noncontributory, and the Companywe implemented a hard freeze for the U.S. qualified defined benefit plan as of December 31, 2013. No further benefits were provided after this date for additional credited service or earnings, and all participants became fully vested as of December 31, 2013. The Canadian plan is contributory, and benefits are based on career average compensation. The Company’sOur funding policy is to contribute an amount equal to the minimum required contribution under applicable pension legislation. For the plans in the U.S. and Canada, the Companywe may increase itsour contribution above the minimum, if appropriate to itsour tax and cash position and the plans’ funded position. The European plans are funded in accordance with local regulations.
The CompanyWe also sponsorssponsor supplemental retirement plans covering employees in the U.S. and Canada. The Company usesWe use a measurement date of December 31 for itsour pension and supplemental retirement plans.
Several assumptions are used to determine the benefit obligations, plan assets, and net periodic income. The discount rate for the U.S. pension plan is calculated using a bond matching approach to select specific bonds that would satisfy the projected benefit payments. The bond matching approach reflects the process that would be used to settle the pension obligations. The discount rate for non U.S. plans are set by using Willis Towers Watson's RATE:Link model. For each plan, this approach reflects yields available on high quality corporate bonds that would generate the cash flow necessary to pay the plan's benefits when due. The expected return on plan assets is based on a calculated market-related value of plan assets, where gains and losses on plan assets are amortized over a five year period and accumulate in other comprehensive income. Other non-investment unrecognized gains and losses are amortized in future net income based on a “corridor” approach, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year. The unrecognized gains and losses in excess of the corridor criteria are amortized over the average future lifetime or service of plan participants, depending on the plan. These assumptions are updated at each annual measurement date.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
Changes in benefit obligations for the years ended December 31, 20202022 and 20192021 were:
| | | 2020 | | 2019 | | 2022 | | 2021 |
| Changes in benefit obligation | Changes in benefit obligation | | | | | Changes in benefit obligation | | | | |
| Benefit obligation at beginning of year | Benefit obligation at beginning of year | | $ | 2,496,600 | | | $ | 2,278,043 | | Benefit obligation at beginning of year | | $ | 2,532,973 | | | $ | 2,678,966 | |
| Service cost | Service cost | | 12,105 | | | 9,558 | | Service cost | | 10,204 | | | 12,218 | |
| Interest cost | Interest cost | | 83,732 | | | 97,441 | | Interest cost | | 75,248 | | | 71,693 | |
| Plan participants’ contributions | Plan participants’ contributions | | 1,864 | | | 2,246 | | Plan participants’ contributions | | 1,892 | | | 1,908 | |
| Actuarial loss | | 218,534 | | | 246,352 | | |
| Actuarial gain | | Actuarial gain | | (546,266) | | | (87,966) | |
| Foreign currency exchange rate changes | Foreign currency exchange rate changes | | 9,394 | | | 9,073 | | Foreign currency exchange rate changes | | (15,744) | | | (1,184) | |
| Gross benefits paid | Gross benefits paid | | (144,508) | | | (119,789) | | Gross benefits paid | | (135,907) | | | (142,327) | |
| Plan amendments | | 0 | | | 3,327 | | |
| Curtailments | Curtailments | | (472) | | | (6,569) | | Curtailments | | — | | | (80) | |
| Settlements | Settlements | | 0 | | | (67,831) | | Settlements | | (276) | | | (255) | |
| Special termination costs | | 0 | | | 42,757 | | |
| Acquired plans | Acquired plans | | 1,717 | | | 1,992 | | Acquired plans | | 1,039 | | | — | |
| Benefit obligation at end of year | Benefit obligation at end of year | | $ | 2,678,966 | | | $ | 2,496,600 | | Benefit obligation at end of year | | $ | 1,923,163 | | | $ | 2,532,973 | |
The benefit obligations for the Company’sour U.S. pension plans included in the above were $2,373,884$1.7 billion and $2,228,066$2.2 billion at December 31, 20202022 and 2019,2021, respectively. The total accumulated benefit obligation for the Company’sour defined benefit pension plans in the U.S., Canada, and Europe was approximately $2,649,418$1.9 billion and $2,466,322$2.5 billion at December 31, 20202022 and 2019,2021, respectively.
For the U.S. pension plan, there was a net actuarial liability lossgain of $175,200$442 million and an asset gainloss of $184,200.$581 million. The liability lossgain was comprised primarily of a $173,000 loss$466 million gain due to discount rate changes. For the U.S. supplemental retirement plan, there was a net actuarial liability lossgain of $20,300$61 million comprised primarily of a $21,400 loss$63 million gain due to discount rate changes.
In 2019, the Company recorded $42,757 in special termination costs related to benefits provided through the Company's defined benefit plans to employees that accepted the voluntary retirement program (“VRP”) as part of the Company's 2019 Cost Savings Plan. Refer to the restructuring footnote for more information.
The assumptions used to measure the pension benefit obligations for the plans at December 31, 20202022 and 2019,2021, were:
| | | | | | | | | | | |
| 2020 | | 2019 |
| Weighted average discount rate | 2.72 | % | | 3.43 | % |
| Rate of increase in future compensation levels | 3.11 | % | | 3.13 | % |
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
| | | | | | | | | | | |
| 2022 | | 2021 |
| Weighted average discount rate | 5.61 | % | | 3.04 | % |
| Rate of increase in future compensation levels | 3.16 | % | | 3.13 | % |
Changes in plan assets for the years ended December 31, 20202022 and 20192021 were:
| | | 2020 | | 2019 | | 2022 | | 2021 |
| Changes in plan assets | Changes in plan assets | | | | | Changes in plan assets | | | | |
| Fair value of plan assets at beginning of year | Fair value of plan assets at beginning of year | | $ | 2,311,227 | | | $ | 2,043,379 | | Fair value of plan assets at beginning of year | | $ | 2,756,803 | | | $ | 2,545,359 | |
| Actual return on plan assets | Actual return on plan assets | | 347,560 | | | 427,597 | | Actual return on plan assets | | (493,359) | | | 330,402 | |
| Foreign currency exchange rate changes | Foreign currency exchange rate changes | | 7,451 | | | 9,826 | | Foreign currency exchange rate changes | | (15,599) | | | 80 | |
| Employer contributions | Employer contributions | | 21,765 | | | 15,799 | | Employer contributions | | 15,504 | | | 21,635 | |
| Plan participants’ contributions | Plan participants’ contributions | | 1,864 | | | 2,246 | | Plan participants’ contributions | | 1,892 | | | 1,908 | |
| Benefits paid | Benefits paid | | (144,508) | | | (119,789) | | Benefits paid | | (135,907) | | | (142,327) | |
| Settlements | Settlements | | 0 | | | (67,831) | | Settlements | | (276) | | | (254) | |
| Fair value of plan assets at end of year | Fair value of plan assets at end of year | | $ | 2,545,359 | | | $ | 2,311,227 | | Fair value of plan assets at end of year | | $ | 2,129,058 | | | $ | 2,756,803 | |
The fair values of plan assets for the Company’sour U.S. pension plans included in the above were $2,258,246$1.9 billion and $2,051,474$2.5 billion at December 31, 20202022 and 2019,2021, respectively.
For the years ended December 31, 20202022 and 2019,2021, the aggregate projected benefit obligation and aggregate fair value of plan assets for plans with projected benefit obligations in excess of plan assets were as follows: | | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| Aggregate projected benefit obligation | | $ | 208,939 | | | $ | 323,593 | |
| Aggregate fair value of plan assets | | $ | — | | | $ | 47,445 | |
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Aggregate projected benefit obligation | | $ | 328,517 | | | $ | 298,565 | |
| Aggregate fair value of plan assets | | $ | 45,728 | | | $ | 39,672 | |
For the years ended December 31, 20202022 and 2019,2021, the aggregate accumulated benefit obligation and aggregate fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets were as follows:
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Aggregate accumulated benefit obligation | | $ | 290,271 | | | $ | 270,230 | |
| Aggregate fair value of plan assets | | $ | 34,164 | | | $ | 39,672 | |
| | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| Aggregate accumulated benefit obligation | | $ | 192,421 | | | $ | 247,277 | |
| Aggregate fair value of plan assets | | $ | — | | | $ | — | |
The asset allocations for the Company’sour funded pension plans at December 31, 20202022 and 2019,2021, and the target allocation for 2021,2023, by asset category were:
| | | | Target Allocation | | Percentage of Plan Assets at December 31 | | Target Allocation | | Percentage of Plan Assets at December 31 |
| | | 2021 | 2020 | | 2019 | | 2023 | 2022 | | 2021 |
| Asset Category | Asset Category | | | | | | Asset Category | | | | | |
| Equity securities | Equity securities | 68 | % | | 70 | % | | 70 | % | Equity securities | 58 | % | | 59 | % | | 57 | % |
| Debt securities | Debt securities | 32 | % | | 30 | % | | 30 | % | Debt securities | 41 | % | | 41 | % | | 43 | % |
| Other | | Other | 1 | % | | — | % | | — | % |
| | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
The Company’sOur benefit plan committees in the U.S. and Canada establish investment policies and strategies and regularly monitor the performance of the funds. The plans in Europe are unfunded and, therefore, there are no plan assets. The pension plan strategy implemented by the Company’sour management is to achieve long-term objectives and invest the pension assets in accordance with the applicable pension legislation in the U.S. and Canada as well as fiduciary standards. The long-term primary investment objectives for the pension plans are to provide for a reasonable amount of long-term growth of capital, without undue exposure to risk, protect the assets from erosion of purchasing power, and provide investment results that meet or exceed the pension plans’ actuarially assumed long-term rates of return. The Company’sOur investment strategy with respect to pension plan assets is to generate a return in excess of the passive portfolio benchmark (47% S&P 500 Index, 5% Russell Midcap Index, 7% Russell 2000 Index, 5% MSCI EAFE Index, 5% DJ Global Moderate Index,(38% US Large-cap stocks, 9% US Mid-cap stocks, 10% International stocks, 3% MSCI Emerging Market Net,stocks and 28%40% Barclays U.S. Govt/Credit)Gov/Credit Index).
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
The fair values of the plan assets as of December 31, 20202022 and 2019,2021, by asset category, are shown in the tables below. Various inputs are considered when determining the value of the Company’sour pension plan assets. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. Level 1 represents observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 represents other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.). Level 3 represents significant unobservable inputs (including the Company’sour own assumptions in determining the fair value of investments). Certain investments are measured at fair value using the net asset value ("NAV") per share as a practical expedient and have not been classified in the fair value hierarchy.
The valuation methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes itswe believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Equity securities are valued at the closing price reported on the active market on which the individual securities are traded on the last day of the calendar plan year. Debt securities including corporate bonds, U.S. Government securities, and asset-backed securities are valued using price evaluations reflecting the bid and/or ask sides of the market for an investment as of the last day of the calendar plan year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 |
| | Total | | Assets Measured at NAV | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Equity Securities | | | | | | | | | | |
| Common stocks — mutual funds — equity | | $ | 586,196 | | | $ | 204,303 | | | $ | 381,893 | | | $ | 0 | | | $ | 0 | |
| Genuine Parts Company common stock | | 202,711 | | | 0 | | | 202,711 | | | 0 | | | 0 | |
| Other stocks | | 989,258 | | | 0 | | | 989,258 | | | 0 | | | 0 | |
| | | | | | | | | | |
| Debt Securities | | | | | | | | | | |
| Short-term investments | | 30,746 | | | 0 | | | 30,746 | | | 0 | | | 0 | |
| Cash and equivalents | | 18,631 | | | 0 | | | 18,631 | | | 0 | | | 0 | |
| Government bonds | | 257,221 | | | 0 | | | 192,288 | | | 64,933 | | | 0 | |
| Corporate bonds | | 393,450 | | | 0 | | | 0 | | | 393,450 | | | 0 | |
| Asset-backed and mortgage-backed securities | | 10,161 | | | 0 | | | 0 | | | 10,161 | | | 0 | |
| Other-international | | 39,992 | | | 0 | | | 37,041 | | | 2,951 | | | 0 | |
| Municipal bonds | | 14,724 | | | 0 | | | 0 | | | 14,724 | | | 0 | |
| Mutual funds—fixed income | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | |
| Other | | | | | | | | | | |
| Cash surrender value of life insurance policies | | 2,269 | | | 0 | | | 0 | | | 0 | | | 2,269 | |
| Total | | $ | 2,545,359 | | | $ | 204,303 | | | $ | 1,852,568 | | | $ | 486,219 | | | $ | 2,269 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2022 |
| | Total | | Assets Measured at NAV | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Equity Securities | | | | | | | | | | |
| Common stocks — mutual funds — equity | | $ | 285,103 | | | $ | 48,521 | | | $ | 236,582 | | | $ | — | | | $ | — | |
| Genuine Parts Company common stock | | 261,869 | | | — | | | 261,869 | | | — | | | — | |
| Other stocks | | 711,830 | | | — | | | 711,830 | | | — | | | — | |
| | | | | | | | | | |
| Debt Securities | | | | | | | | | | |
| Short-term investments | | 41,076 | | | — | | | 41,076 | | | — | | | — | |
| Cash and equivalents | | 8,632 | | | — | | | 8,632 | | | — | | | — | |
| Government bonds | | 344,787 | | | — | | | 411 | | | 344,376 | | | — | |
| Corporate bonds | | 412,896 | | | — | | | — | | | 412,896 | | | — | |
| Asset-backed and mortgage-backed securities | | 9,925 | | | — | | | — | | | 9,925 | | | — | |
| Convertible Securities | | 1,159 | | | — | | | — | | | 1,159 | | | — | |
| Other-international | | 37,304 | | | — | | | 37,304 | | | — | | | — | |
| Municipal bonds | | 14,442 | | | — | | | — | | | 14,442 | | | — | |
| | | | | | | | | | |
| Other | | | | | | | | | | |
| Options and Futures | | 35 | | | — | | | 35 | | | — | | | — | |
| Total | | $ | 2,129,058 | | | $ | 48,521 | | | $ | 1,297,739 | | | $ | 782,798 | | | $ | — | |
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
| | | | | 2019 | | | 2021 |
| | Total | | Assets Measured at NAV | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | | Assets Measured at NAV | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Equity Securities | Equity Securities | | | | | | | | | | | Equity Securities | | | | | | | | | | |
| Common stocks — mutual funds — equity | Common stocks — mutual funds — equity | | $ | 527,151 | | | $ | 187,500 | | | $ | 339,651 | | | $ | 0 | | | $ | 0 | | Common stocks — mutual funds — equity | | $ | 388,591 | | | $ | 64,669 | | | $ | 323,922 | | | $ | — | | | $ | — | |
| Genuine Parts Company common stock | Genuine Parts Company common stock | | 214,418 | | | 0 | | | 214,418 | | | 0 | | | 0 | | Genuine Parts Company common stock | | 210,510 | | | — | | | 210,510 | | | — | | | — | |
| Other stocks | Other stocks | | 865,078 | | | 0 | | | 865,070 | | | 0 | | | 8 | | Other stocks | | 971,020 | | | — | | | 971,020 | | | — | | | — | |
| | Debt Securities | Debt Securities | | Debt Securities | |
| Short-term investments | Short-term investments | | 34,516 | | | 0 | | | 34,516 | | | 0 | | | 0 | | Short-term investments | | 46,815 | | | — | | | 46,815 | | | — | | | — | |
| Cash and equivalents | Cash and equivalents | | 15,833 | | | 0 | | | 15,833 | | | 0 | | | 0 | | Cash and equivalents | | 22,084 | | | — | | | 22,084 | | | — | | | — | |
| Government bonds | Government bonds | | 259,939 | | | 0 | | | 167,394 | | | 92,545 | | | 0 | | Government bonds | | 425,877 | | | — | | | 4,513 | | | 421,364 | | | — | |
| Corporate bonds | Corporate bonds | | 255,352 | | | 0 | | | 0 | | | 255,352 | | | 0 | | Corporate bonds | | 598,216 | | | — | | | — | | | 598,216 | | | — | |
| Asset-backed and mortgage-backed securities | Asset-backed and mortgage-backed securities | | 9,316 | | | 0 | | | 0 | | | 9,316 | | | 0 | | Asset-backed and mortgage-backed securities | | 12,894 | | | — | | | — | | | 12,894 | | | — | |
| Other-international | Other-international | | 27,903 | | | 0 | | | 27,903 | | | 0 | | | 0 | | Other-international | | 61,008 | | | — | | | 46,133 | | | 14,875 | | | — | |
| Municipal bonds | Municipal bonds | | 10,153 | | | 0 | | | 0 | | | 10,153 | | | 0 | | Municipal bonds | | 19,621 | | | — | | | — | | | 19,621 | | | — | |
| Mutual funds—fixed income | | 89,298 | | | 89,298 | | | 0 | | | 0 | | | 0 | | |
| | Other | Other | | Other | |
| Cash surrender value of life insurance policies | Cash surrender value of life insurance policies | | 2,270 | | | 0 | | | 0 | | | 0 | | | 2,270 | | Cash surrender value of life insurance policies | | 167 | | | — | | | 167 | | | — | | | — | |
| Total | Total | | $ | 2,311,227 | | | $ | 276,798 | | | $ | 1,664,785 | | | $ | 367,366 | | | $ | 2,278 | | Total | | $ | 2,756,803 | | | $ | 64,669 | | | $ | 1,625,164 | | | $ | 1,066,970 | | | $ | — | |
Equity securities include Genuine Parts Company common stock in the amounts of $202,711 (8%$262 million (12% of total plan assets) and $214,418 (9%$211 million (8% of total plan assets) at December 31, 20202022 and 2019,2021, respectively. Dividend payments received by the plan on Companycompany stock totaled approximately $6,378$5 million and $6,156$5 million in 20202022 and 2019,2021, respectively. Fees paid during the year for services rendered by parties in interest were based on customary and reasonable rates for such services.
The changes in the fair value measurement of plan assets using significant unobservable inputs (Level 3) during 2020 and 2019 were not material.
Based on the investment policy for the pension plans, as well as an asset study that was performed based on the Company’sour asset allocations and future expectations, the Company’sour expected rate of return on plan assets for measuring 20212023 pension income is 6.88%7.09% for the plans. The asset study forecasted expected rates of return for the approximate duration of the Company’sour benefit obligations, using capital market data and historical relationships.
The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheets at December 31:
| | | 2020 | | 2019 | | 2022 | | 2021 |
| Other long-term asset | Other long-term asset | | $ | 149,182 | | | $ | 73,520 | | Other long-term asset | | $ | 414,834 | | | $ | 499,978 | |
| Other current liability | Other current liability | | (17,572) | | | (11,692) | | Other current liability | | (12,537) | | | (12,546) | |
| Pension and other post-retirement liabilities | Pension and other post-retirement liabilities | | (265,216) | | | (247,201) | | Pension and other post-retirement liabilities | | (196,402) | | | (263,602) | |
| | $ | (133,606) | | | $ | (185,373) | | | $ | 205,895 | | | $ | 223,830 | |
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
Amounts recognized in accumulated other comprehensive loss(loss) income consist of:
| | | 2020 | | 2019 | | 2022 | | 2021 |
| Net actuarial loss | Net actuarial loss | | $ | 939,290 | | | $ | 952,133 | | Net actuarial loss | | $ | 682,884 | | | $ | 625,339 | |
| Prior service cost | Prior service cost | | 8,648 | | | 9,343 | | Prior service cost | | 7,273 | | | 7,958 | |
| | $ | 947,938 | | | $ | 961,476 | | | $ | 690,157 | | | $ | 633,297 | |
The following table reflects the total benefits expected to be paid from the pension plans’ or the Company’sour assets. Of the pension benefits expected to be paid in 2021,2023, approximately $17,574$13 million is expected to be paid from employer assets. Expected employer contributions below reflect amounts expected to be contributed to funded plans. Information about the expected cash flows for the pension plans follows:
| | Employer contribution | Employer contribution | | Employer contribution | |
| 2021 (expected) | $ | 5,724 | | |
| 2023 (expected) | | 2023 (expected) | $ | 4,449 | |
| Expected benefit payments: | Expected benefit payments: | | Expected benefit payments: | |
| 2021 | $ | 136,183 | | |
| 2022 | $ | 134,054 | | |
| 2023 | 2023 | $ | 137,788 | | 2023 | $ | 138,411 | |
| 2024 | 2024 | $ | 140,987 | | 2024 | $ | 140,826 | |
| 2025 | 2025 | $ | 144,405 | | 2025 | $ | 143,591 | |
| 2026 through 2030 | $ | 741,572 | | |
| 2026 | | 2026 | $ | 145,953 | |
| 2027 | | 2027 | $ | 147,677 | |
| 2027 through 2030 | | 2027 through 2030 | $ | 736,560 | |
Net periodic benefit income included the following components:
| | | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 |
| Service cost | Service cost | | $ | 12,105 | | | $ | 9,558 | | | $ | 10,410 | | Service cost | | $ | 10,204 | | | $ | 12,218 | | | $ | 12,105 | |
| Interest cost | Interest cost | | 83,732 | | | 97,441 | | | 88,247 | | Interest cost | | 75,248 | | | 71,693 | | | 83,732 | |
| Expected return on plan assets | Expected return on plan assets | | (154,111) | | | (154,137) | | | (154,006) | | Expected return on plan assets | | (150,318) | | | (153,822) | | | (154,111) | |
| Amortization of prior service cost (credit) | | 692 | | | (67) | | | (147) | | |
| Amortization of prior service cost | | Amortization of prior service cost | | 691 | | | 690 | | | 692 | |
| Amortization of actuarial loss | Amortization of actuarial loss | | 39,613 | | | 31,000 | | | 39,721 | | Amortization of actuarial loss | | 37,065 | | | 49,897 | | | 39,613 | |
| Net periodic benefit income | Net periodic benefit income | | $ | (17,969) | | | $ | (16,205) | | | $ | (15,775) | | Net periodic benefit income | | $ | (27,110) | | | $ | (19,324) | | | $ | (17,969) | |
Service cost is recorded in selling, administrative and other expenses in the consolidated statements of income while all other components except for special termination costs are recorded within other non-operating expenses (income). The special termination costs incurred in connection with the 2019 Cost Savings Plan are presented on their own line within non-operating expenses (income).Pension benefits also include amounts related to supplemental retirement plans.
Other changes in plan assets and benefit obligations recognized in other comprehensive income are as follows:
| | | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 |
| Current year actuarial loss (gain) | Current year actuarial loss (gain) | | $ | 24,613 | | | $ | (33,677) | | | $ | 117,867 | | Current year actuarial loss (gain) | | $ | 97,412 | | | $ | (264,547) | | | $ | 24,613 | |
| Recognition of actuarial loss | Recognition of actuarial loss | | (39,613) | | | (31,000) | | | (39,721) | | Recognition of actuarial loss | | (37,065) | | | (49,897) | | | (39,613) | |
| Current year prior service cost | | 0 | | | 3,327 | | | 0 | | |
| Recognition of prior service (cost) credit | | (692) | | | 67 | | | 147 | | |
| Recognition of curtailment gain (loss) | | 435 | | | (155) | | | 0 | | |
| Recognition of prior service cost | | Recognition of prior service cost | | (691) | | | (690) | | | (692) | |
| Recognition of curtailment (loss) gain | | Recognition of curtailment (loss) gain | | — | | | (5) | | | 435 | |
| Other | Other | | 0 | | | (50) | | | 0 | | Other | | 68 | | | (29) | | | — | |
| Total recognized in other comprehensive (loss) income | Total recognized in other comprehensive (loss) income | | $ | (15,257) | | | $ | (61,488) | | | $ | 78,293 | | Total recognized in other comprehensive (loss) income | | $ | 59,724 | | | $ | (315,168) | | | $ | (15,257) | |
| Total recognized in net periodic benefit income and other comprehensive (loss) income | Total recognized in net periodic benefit income and other comprehensive (loss) income | | $ | (33,226) | | | $ | (77,693) | | | $ | 62,518 | | Total recognized in net periodic benefit income and other comprehensive (loss) income | | $ | 32,614 | | | $ | (334,492) | | | $ | (33,226) | |
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
The assumptions used in measuring the net periodic benefit income for the plans follow:
| | | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 |
| Weighted average discount rate | Weighted average discount rate | 3.43 | % | | 4.36 | % | | 3.70 | % | Weighted average discount rate | 3.04 | % | | 2.72 | % | | 3.43 | % |
| Rate of increase in future compensation levels | Rate of increase in future compensation levels | 3.13 | % | | 3.14 | % | | 3.11 | % | Rate of increase in future compensation levels | 3.13 | % | | 3.11 | % | | 3.13 | % |
| Expected long-term rate of return on plan assets | Expected long-term rate of return on plan assets | 7.11 | % | | 7.12 | % | | 7.14 | % | Expected long-term rate of return on plan assets | 6.34 | % | | 6.88 | % | | 7.11 | % |
The Company has 1We have one defined contribution plan in the U.S. that covers substantially all of itsour domestic employees. Employees receive a matching contribution of 100% of the first 5% of the employees’ salary. Total plan expense was approximately $54,885$69 million in 2020, $64,9902022, $60 million in 2019,2021, and $62,335$55 million in 2018.2020.
10. Acquisitions, Divestitures and Discontinued Operations
Acquisitions
For each acquisition, we allocate the purchase price to the assets acquired and the liabilities assumed based on their fair values as of their respective acquisition dates. The results of operations for acquired businesses are included in our consolidated statements of income beginning on their respective acquisition dates.
2022
We acquired several businesses for approximately $1.6 billion, net of cash acquired, during the year ended December 31, 2022. Approximately $1.3 billion was related to our Industrial segment, primarily the acquisition of KDG discussed further below, and $300 million was related to Automotive.
We recognized approximately $562 million of revenue, net of store closures, and $239 million of goodwill and other intangible assets related to our Automotive acquisitions during the year ended December 31, 2022. The other intangible assets acquired consisted of customer relationships of $76 million, trademarks of $9 million, and other intangibles of $4 million with weighted average amortization lives of 18, 15, and 3 years, respectively.
On January 3, 2022, the company, through its wholly-owned subsidiary, Motion Industries, Inc., acquired all of the equity interests in KDG for a purchase price of approximately $1.3 billion in cash, net of cash acquired of approximately $30 million. KDG contributed approximately 5% of net sales included in our consolidated statement of income from January 3, 2022 to December 31, 2022. The KDG acquisition was financed using a combination of borrowing under the existing unsecured revolving credit facility, proceeds of $200 million from the selling of additional receivables under our amended A/R Sales Agreement, and $109 million of cash.
The Company has a defined contribution plan that covers full-time Canadian employees after six months of employment and part-time employees upon meeting provincial minimum standards. Employees receive a matching contribution of 100%following table summarizes the fair values of the first 5%assets acquired and liabilities assumed at the acquisition date for the KDG acquisition as well as adjustments made when finalizing the acquisition accounting during the year ended December 31, 2022 (referred to as the "measurement period adjustments"). The measurement period adjustments primarily resulted from revisions to the valuation of inventory and intangible assets, deferred taxes, and long-term liabilities.
| | | | | | | | | | | | | | |
| | As of January 3, 2022 |
| | Initial Balance | Measurement Period Adjustments | As Adjusted |
| Trade accounts receivable | | $ | 156,000 | | $ | — | | $ | 156,000 | |
| Merchandise inventories | | 166,000 | | (14,000) | | 152,000 | |
| Prepaid expenses and other current assets | | 39,000 | | (1,000) | | 38,000 | |
| Property, plant and equipment | | 26,000 | | (2,000) | | 24,000 | |
| Operating lease assets | | 49,000 | | (5,000) | | 44,000 | |
| Other assets | | 1,000 | | — | | 1,000 | |
| Other intangible assets | | 574,000 | | (6,000) | | 568,000 | |
| Goodwill | | 592,000 | | 9,000 | | 601,000 | |
| Total assets acquired | | 1,603,000 | | (19,000) | | 1,584,000 | |
| Trade accounts payable | | 85,000 | | — | | 85,000 | |
| Other current liabilities | | 32,000 | | — | | 32,000 | |
| Operating lease liabilities | | 17,000 | | (1,000) | | 16,000 | |
| Deferred tax liabilities | | 121,000 | | (13,000) | | 108,000 | |
| Other long-term liabilities | | 39,000 | | (8,000) | | 31,000 | |
| Total liabilities assumed | | 294,000 | | (22,000) | | 272,000 | |
| Net assets acquired | | $ | 1,309,000 | | $ | 3,000 | | $ | 1,312,000 | |
The other intangible assets acquired included $527 million of customer relationship intangibles and a $41 million favorable trade name licensing agreement, with amortization lives of 17 and 1.5 years, respectively. The other intangible assets have a total weighted amortization life of 16 years. We used the multi-period excess earnings method under the income approach to measure KDG's customer relationships, which is sensitive to certain assumptions including discount rates and certain assumptions that form the basis for the forecasted results (e.g., future revenue growth rates and EBITDA margins). These assumptions are forward-looking in nature and are dependent on the future performance of the employees’ salary. Totalacquired business and could be affected by future economic and market conditions.
The goodwill was assigned to the Industrial segment and is attributable primarily to expected synergies and the assembled workforce. Approximately $261 million of the goodwill recognized as part of the acquisition was tax deductible.
For the twelve months ended December 31, 2022, approximately $5 million of inventory amortization step-up cost related to this acquisition was included in cost of goods sold. Further, $62 million of transaction and other one-time costs, inclusive of an impairment charge, were included in selling, administrative, and other expenses in the consolidated statements of income. Refer to the Goodwill and Other Intangible Assets Footnote for more information on the impairment charge.
If the KDG acquisition had occurred on January 1, 2021 and if its results of operations had been included in our consolidated results since that date, our unaudited pro forma consolidated statements of income would have reflected net sales of approximately $22.1 billion and $19.9 billion and net income on a per share diluted basis of $8.47 and $6.02 for the years ended December 31, 2022 and 2021, respectively. The pro forma information is not necessarily indicative of the results of operations that we would have reported had the transaction actually occurred at the beginning of this period, nor is it necessarily indicative of future results.
The adjustments to the pro forma amounts include, but are not limited to, applying our accounting policies, amortization related to fair value adjustments to intangible assets, one-time acquisition accounting adjustments, interest expense on acquisition related debt and debt not assumed, and any associated tax effects. The pro forma results do not include any cost savings or other synergies that may result from the acquisition.
Earnings related to KDG included in our consolidated statement of income from January 3, 2022 to December 31, 2022 are impracticable to provide due to KDG’s ongoing integration into Motion, which commenced shortly after the acquisition date.
2021
We acquired several businesses for approximately $282 million, net of cash acquired, during the year ended December 31, 2021.
During the year ended December 31, 2021, we recognized approximately $220 million and $25 million of revenue, net of store closures, related to our 2021 Automotive and Industrial acquisitions, respectively. We recorded approximately $160 million of goodwill and other intangible assets associated with the 2021 acquisitions. Other intangible assets acquired consisted of customer relationships with a weighted average amortization life of 20 years.
We did not recognize any significant measurement period adjustments related to finalizing acquisition accounting during the year ended December 31, 2021.
2020
We acquired several businesses for approximately $86 million, net of cash acquired, during the year ended December 31, 2020.
Divestitures
We received proceeds from divestitures of businesses totaling $34 million, $18 million and $387 million during the years ended December 31, 2022, 2021 and 2020, respectively.
Discontinued Operations
Business Products Group
Effective June 30, 2020, we completed the divestiture of our Business Products Group by selling Supply Source Enterprises, Inc. ("SSE") and SPR in separate transactions. These divestitures were part of our long-term strategic initiative to streamline our operations and optimize our portfolio so that we can drive shareholder value by focusing on our global Automotive and Industrial businesses. The Business Products Group was previously a reportable segment of the company. These divestitures, together with prior period divestitures of Garland C. Norris (effective December 13, 2019), SPR Canada (effective January 1, 2020) and Safety Zone Canada (effective March 2, 2020), represented a single plan expenseto exit the Business Products Group segment and was considered a strategic shift that had a major effect on our operations and financial results. Therefore, the results of operations, financial position and cash flows for the Business Products Group were reported as discontinued operations for all periods presented.
Our results of operations for discontinued operations were: | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Net sales | | $ | — | | | $ | — | | | $ | 846,944 | |
| Cost of goods sold | | — | | | — | | | 632,007 | |
| Gross profit | | — | | | — | | | 214,937 | |
| Operating and non-operating expenses | | — | | | — | | | 179,461 | |
| Loss on disposal | | — | | | — | | | 223,928 | |
| Loss before income taxes | | — | | | — | | | (188,452) | |
| Income taxes | | — | | | — | | | 4,045 | |
| Net loss from discontinued operations | | $ | — | | | $ | — | | | $ | (192,497) | |
In December 2022, we came to an agreement to sell our remaining investment in SPR in connection with a pending acquisition of SPR by a third party. The acquisition closed and we sold our investment in SPR on January 31, 2023. Any remaining transition services will cease by June 30, 2023. As of December 31, 2022, we reduced the net carrying value of our SPR investment by $3 million to $55 million, which was reclassed from other assets to current
assets on the consolidated balance sheet, and recognized a charge within non-operating expenses (income) on the consolidated statement of income for the three months ended December 31, 2022.
11. Share-Based Compensation
Share-based compensation costs of $38 million, $26 million, and $23 million, were recorded for the years ended December 31, 2022, 2021, and 2020, respectively. The total income tax benefits recognized in the consolidated statements of income for share-based compensation arrangements were approximately $10 million, $7 million, and $6 million for 2022, 2021, and 2020, respectively. At December 31, 2022, total compensation cost related to nonvested awards not yet recognized was approximately $4,486$64 million. There have been no modifications to valuation methodologies or methods during the years ended December 31, 2022, 2021, or 2020.
As of December 31, 2022, there were 6.9 million shares of common stock available for issuance pursuant to future equity-based compensation awards.
A summary of our restricted stock units activity and related information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nonvested Share Awards (RSUs) | | Shares | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| Nonvested at beginning of year | | 829 | | | $ | 98.25 | | | | | |
| Granted | | 506 | | | $ | 129.87 | | | | | |
| Vested | | (276) | | | $ | 104.22 | | | | | |
| Forfeited | | (65) | | | $ | 105.01 | | | | | |
| Nonvested at end of year | | 994 | | | $ | 110.45 | | | 1.4 | | $ | 172,409 | |
A summary of our stock appreciation rights activity and related information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Appreciation Rights (SARs) | | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| Outstanding at beginning of year | | 634 | | | $ | 90.93 | | | | | |
| Granted | | — | | | $ | — | | | | | |
| Exercised | | (310) | | | $ | 89.22 | | | | | |
| Forfeited | | (7) | | | $ | 89.27 | | | | | |
| Outstanding at end of year | | 317 | | | $ | 92.65 | | | 2.4 | | $ | 25,607 | |
| Exercisable at end of year | | 317 | | | $ | 92.65 | | | 2.4 | | $ | 25,607 | |
The aggregate intrinsic value of SARs exercised and RSUs vested during the years ended December 31, 2022, 2021, and 2020 was $62 million, $73 million, and $14 million, respectively. The fair value of RSUs is based on the price of our stock on the date of grant for the years ended December 31, 2022 and 2021. The fair value of RSUs is based on the 60-day average price of our stock on the date of grant for the year ended December 31, 2020. The fair value of SARs is estimated using a Black-Scholes option pricing model. We ceased issuing SARs in 2017. The total fair value of SARs and RSUs vested during the years ended December 31, 2022, 2021, and 2020 were $29 million, $25 million, and $4,433$10 million, respectively.
12. Accumulated Other Comprehensive Loss
The following tables present the changes in 2019.AOCL by component:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Changes in Accumulated Other
Comprehensive Loss by Component |
| | Pension and Other Post-Retirement Benefits | | Cash Flow Hedges | | Foreign Currency Translation | | Total |
| Beginning balance, January 1, 2022 | $ | (463,227) | | | $ | (15,042) | | | $ | (379,470) | | | $ | (857,739) | |
| Other comprehensive (loss) before reclassifications | (71,258) | | | — | | | (143,890) | | | (215,148) | |
| Amounts reclassified from accumulated other comprehensive loss | 27,875 | | | 12,470 | | | — | | | 40,345 | |
| Net current period other comprehensive (loss) | (43,383) | | | 12,470 | | | (143,890) | | | (174,803) | |
| Ending balance, December 31, 2022 | $ | (506,610) | | | $ | (2,572) | | | $ | (523,360) | | | $ | (1,032,542) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Changes in Accumulated Other
Comprehensive Loss by Component |
| | Pension and Other Post-Retirement Benefits | | Cash Flow Hedges | | Foreign Currency Translation | | Total |
| Beginning balance, January 1, 2021 | $ | (692,868) | | | $ | (30,007) | | | $ | (313,627) | | | $ | (1,036,502) | |
| Other comprehensive income before reclassifications | 192,382 | | | — | | | (65,843) | | | 126,539 | |
| Amounts reclassified from accumulated other comprehensive loss | 37,259 | | | 14,965 | | | — | | | 52,224 | |
| Net current period other comprehensive income | 229,641 | | | 14,965 | | | (65,843) | | | 178,763 | |
| Ending balance, December 31, 2021 | $ | (463,227) | | | $ | (15,042) | | | $ | (379,470) | | | $ | (857,739) | |
The AOCL components related to the pension benefits are included in the computation of net periodic benefit income in the Employee Benefit Plans Footnote. The nature of the cash flow hedges are discussed in the Derivatives and Hedging Footnote. Generally, tax effects in AOCL are established at the currently enacted tax rate and reclassified to net income in the same period that the related pre-tax AOCL reclassifications are recognized.
13. Income Taxes
Significant components of our deferred tax assets and liabilities are as follows:
| | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| Deferred tax assets related to: | | | | |
| Expenses not yet deducted for tax purposes | | $ | 312,445 | | | $ | 301,302 | |
| Operating lease liabilities | | 314,804 | | | 300,705 | |
| Pension liability not yet deducted for tax purposes | | 168,925 | | | 171,256 | |
| Capital loss | | — | | | 7,333 | |
| Net operating loss | | 49,787 | | | 48,865 | |
| | 845,961 | | | 829,461 | |
| Deferred tax liabilities related to: | | | | |
| Employee and retiree benefits | | 225,947 | | | 235,847 | |
| Inventory | | 77,866 | | | 87,062 | |
| Operating lease assets | | 305,885 | | | 295,801 | |
| Other intangible assets | | 468,733 | | | 365,557 | |
| Property, plant and equipment | | 91,706 | | | 72,740 | |
| Other | | 38,597 | | | 18,176 | |
| | 1,208,734 | | | 1,075,183 | |
| Net deferred tax liability before valuation allowance | | (362,773) | | | (245,722) | |
| Valuation allowance | | (27,362) | | | (34,227) | |
| Total net deferred tax liability | | $ | (390,135) | | | $ | (279,949) | |
We currently hold approximately $183 million in gross net operating losses, of which approximately $108 million will carry forward indefinitely. The remaining net operating losses of approximately $75 million will begin to expire in 2024.
The components of income before income taxes are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| United States | | $ | 1,100,584 | | | $ | 762,472 | | | $ | 706,594 | |
| Foreign | | 472,018 | | | 437,874 | | | (327,226) | |
| Income before income taxes | | $ | 1,572,602 | | | $ | 1,200,346 | | | $ | 379,368 | |
The components of income tax expense are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Current: | | | | | | |
| Federal | | $ | 196,634 | | | $ | 116,425 | | | $ | 130,680 | |
| State | | 70,453 | | | 34,311 | | | 35,474 | |
| Foreign | | 120,594 | | | 119,144 | | | 77,541 | |
| Deferred: | | | | | | |
| Federal | | 12,727 | | | 24,233 | | | 2,048 | |
| State | | 4,981 | | | 9,485 | | | 801 | |
| Foreign | | (15,488) | | | (2,042) | | | (30,571) | |
| | $ | 389,901 | | | $ | 301,556 | | | $ | 215,973 | |
The reasons for the difference between total tax expense and the amount computed by applying the statutory Federal income tax rate to income before income taxes are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Statutory rate applied to income (1) | | $ | 330,246 | | | $ | 252,073 | | | $ | 79,667 | |
| Plus state income taxes, net of Federal tax benefit | | 59,593 | | | 34,599 | | | 28,658 | |
| Taxation of foreign operations, net (2) | | 3,347 | | | 2,299 | | | (9,072) | |
| Non-deductible goodwill impairment tax effect | | — | | | — | | | 106,411 | |
| Foreign rate change - deferred tax remeasurement | | — | | | 17,032 | | | 9,045 | |
| Valuation allowance | | (7,153) | | | (2,486) | | | 1,995 | |
| Other | | 3,868 | | | (1,961) | | | (731) | |
| | $ | 389,901 | | | $ | 301,556 | | | $ | 215,973 | |
(1)U.S. statutory rates applied to income are as follows: 2022, 2021 and 2020 at 21%.
(2)Our effective tax rate reflects the impact of having operations outside of the U.S. which are taxed at statutory rates different from the U.S. statutory rate, with some income being fully or partially exempt from income taxes due to various operating and financing activities.
We account for Global Intangible Low Taxed income in the year the tax is incurred as a period cost.
We, or one of our subsidiaries, file income tax returns in the U.S., various states, and foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local tax examinations by tax authorities for years before 2019 or subject to foreign income tax examinations for years ended prior to 2013. We are currently under audit in some of our state and foreign jurisdictions. Some audits may conclude in the next 12 months and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts. It is not possible to estimate the effect, if any, of the amount of such change during the next 12 months to previously recorded uncertain tax positions in connection with the audits; however, we do not anticipate that total unrecognized tax benefits will significantly change in the next 12 months.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Balance at beginning of year | | $ | 19,501 | | | $ | 23,237 | | | $ | 21,461 | |
| Additions based on tax positions related to the current year | | 1,475 | | | 2,196 | | | 3,771 | |
| Additions for tax positions of prior years | | 89 | | | 156 | | | 3,480 | |
| Reductions for tax positions for prior years | | (523) | | | (733) | | | (1,382) | |
| Reduction for lapse in statute of limitations | | (921) | | | (2,843) | | | (3,765) | |
| Settlements | | — | | | (2,512) | | | (328) | |
| Balance at end of year | | $ | 19,621 | | | $ | 19,501 | | | $ | 23,237 | |
The amount of gross unrecognized tax benefits, including interest and penalties, as of December 31, 2022 and 2021 was approximately $21 million and $20 million, respectively, of which approximately $19 million and $19 million, respectively, if recognized, would affect the effective tax rate.
During the tax years ended December 31, 2022, 2021 and 2020, we paid, received refunds, or accrued insignificant interest and penalties. We recognize potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.
As of December 31, 2022, we estimate that we have an outside basis difference in certain foreign subsidiaries of approximately $928 million, which includes the cumulative undistributed earnings from our foreign subsidiaries. We continue to be indefinitely reinvested in this outside basis difference. Determining the amount of net unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practicable. This is due to the complexities associated with the calculation to determine residual taxes on the undistributed earnings,
including the availability of foreign tax credits, applicability of any additional local withholding tax and other indirect tax consequences that may arise due to the distribution of these earnings.
12.14. Guarantees
The Company guaranteesWe guarantee the borrowings of certain independently controlled automotive parts stores and businesses (“independents”) and certain other affiliates in which the Company haswe have a noncontrolling equity ownership interest (“affiliates”). Presently, the independents are generally consolidated by unaffiliated enterprises that have controlling financial interests through ownership of a majority voting interest in the independents. The Company hasWe have no voting interest or equity conversion rights in any of the independents. The Company doesWe do not control the independents or the affiliates but receivesreceive a fee for the guarantees. The Company hasWe have concluded that the independents are variable interest entities, but that the Company iswe are not the primary beneficiary. Specifically, the equity holders of the independents have the power to direct the activities that most significantly impact the entities’ economic performance including, but not limited to, decisions about hiring and terminating personnel, local marketing and promotional initiatives, pricing and selling activities, credit decisions, monitoring and maintaining appropriate inventories, and store hours. Separately, the Companywe concluded that the affiliates are not variable interest entities. The Company’sOur maximum exposure to loss as a result of its involvement with these independents and affiliates is generally equal to the total borrowings subject to the Company’sour guarantees. While such borrowings of the independents and affiliates are outstanding, the Company iswe are required to maintain compliance with certain covenants, including a debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio and certain limitations on additional borrowings.covenants. At December 31, 2020, the Company was2022, we were in compliance with all such covenants.
At December 31, 2020,2022, the total borrowings of the independents and affiliates subject to guarantee by the Companyus were approximately $884,721.$916 million. These loans generally mature over periods from one to six years. The CompanyWe regularly monitorsmonitor the performance of these loans and the ongoing operating results, financial condition and ratings from credit rating agencies of the independents and affiliates that participate in the guarantee programs. In the event that the Company iswe are required to make payments in connection with these guarantees, the Companywe would obtain and liquidate certain collateral pledged by the independents or affiliates (e.g., accounts receivable and inventory) to recover all or a substantial portion of the amounts paid under the guarantees. The Company recognizesWe recognize a liability equal to current expected credit losses over the lives of the loans in the guaranteed loan portfolio, based on a consideration of historical experience, current conditions, the nature and expected value of any collateral, and reasonable and supportable forecasts. To date, the Company haswe have had no significant losses in connection with guarantees of independents’ and affiliates’ borrowings and the current expected credit loss reserve is not material. As of December 31, 2020,2022, there are no material guaranteed loans for which the borrower is experiencing financial difficulty and recovery is expected to be provided substantially through the operation or sale of the collateral.
The Company hasWe have recognized certain assets and liabilities amounting to $81,000$67 million and $90,000$81 million for the guarantees related to the independents’ and affiliates’ borrowings at December 31, 20202022 and 2019,2021, respectively. These assets and liabilities are included in other assets and other long-term liabilities in the consolidated balance sheets. The liabilities relate to the Company'sour noncontingent obligation to stand ready to perform under the guarantee programs and they are distinct from the Company'sour current expected credit loss reserve.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
13.15. Commitments and Contingencies
Legal MattersDiscontinued Operations
Business Products Group
Effective June 30, 2020, we completed the divestiture of our Business Products Group by selling Supply Source Enterprises, Inc. ("SSE") and SPR in separate transactions. These divestitures were part of our long-term strategic initiative to streamline our operations and optimize our portfolio so that we can drive shareholder value by focusing on our global Automotive and Industrial businesses. The Company is subject to various legal proceedings, many involving routine litigation incidental to the businesses, including approximately 1,819 pending product liability lawsuits resulting from its national distribution of automotive parts and supplies. Many of these involve claims of personal injury allegedly resulting from the use of automotive parts distributed by the Company. The amount accrued for pending and future claims as of December 31, 2020 and 2019Business Products Group was $169,461 and $146,230, respectively. While litigation of any type contains an element of uncertainty, the Company believes that its insurance coverage and its defense, and ultimate resolution of pending and reasonably anticipated claims will continue to occur within the ordinary coursepreviously a reportable segment of the Company’s businesscompany. These divestitures, together with prior period divestitures of Garland C. Norris (effective December 13, 2019), SPR Canada (effective January 1, 2020) and Safety Zone Canada (effective March 2, 2020), represented a single plan to exit the Business Products Group segment and was considered a strategic shift that resolution of these claims will not havehad a materialmajor effect on our operations and financial results. Therefore, the Company’s business, results of operations, or financial condition.position and cash flows for the Business Products Group were reported as discontinued operations for all periods presented.
Pending Claims
On April 17, 2017, a jury awarded damages against the Company of $81,500 in a litigated automotive product liability dispute. Through post-trial motions and offsets from previous settlements, the initial verdict was reduced to $77,100. The Company believed the verdict was not supported by the facts or the law and was contrary to the Company’s role in the automotive parts industry. The Company challenged the verdict through an appeal to a higher court. On February 19, 2020, the Washington Court of Appeals issued an order entirely reversing the jury’s finding on damages and ordering a new trial on damages. The plaintiffs subsequently appealed this order to the Washington Supreme Court. On July 7, 2020, the Washington Supreme Court indicated that it would consider a further appeal on this matter and oral arguments occurred on November 10, 2020. A ruling from Washington Supreme Court is expected in 2021. At the time of the filing of these financial statements, based upon the Company’s legal defenses and insurance coverage, the Company does not believe this matter will have a material impact to the consolidated financial statements.
Fire at S.P. Richards Headquarters and Distribution Center
On July 19, 2019, a fire occurred at a building owned by the Company in Atlanta, Georgia, which primarily held the S.P. Richards headquarters office and was connected to its Atlanta distribution center. The Company maintains property and casualty loss insurance coverage. The Company recognized a gain of $13,448 during the year ended December 31, 2020 for insurance recoveries in excess of losses it has incurred on inventory, property, plant and equipment and other fire-related costs. The gain is included within other non-operating expenses (income) on the consolidated statements of income.
14. Acquisitions, Divestitures and Discontinued Operations
Acquisitions
For each acquisition, the Company allocates the purchase price to the assets acquired and the liabilities assumed based on their fair values as of their respective acquisition dates. TheOur results of operations for acquired businesses are includeddiscontinued operations were: | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Net sales | | $ | — | | | $ | — | | | $ | 846,944 | |
| Cost of goods sold | | — | | | — | | | 632,007 | |
| Gross profit | | — | | | — | | | 214,937 | |
| Operating and non-operating expenses | | — | | | — | | | 179,461 | |
| Loss on disposal | | — | | | — | | | 223,928 | |
| Loss before income taxes | | — | | | — | | | (188,452) | |
| Income taxes | | — | | | — | | | 4,045 | |
| Net loss from discontinued operations | | $ | — | | | $ | — | | | $ | (192,497) | |
In December 2022, we came to an agreement to sell our remaining investment in the Company’s consolidated statementsSPR in connection with a pending acquisition of income beginningSPR by a third party. The acquisition closed and we sold our investment in SPR on their respective acquisition dates.
2020
The Company acquired several businesses for approximately $86,384, netJanuary 31, 2023. Any remaining transition services will cease by June 30, 2023. As of cash acquired, during the year ended December 31, 2020. The Company has not recognized any significant measurement period adjustments related2022, we reduced the net carrying value of our SPR investment by $3 million to finalizing acquisition accounting during the year ended December 31, 2020.
2019
The Company's cash used in acquisitions of businesses totaled $732,142, net of cash acquired, during the year ended December 31, 2019. In the Automotive Parts Group, the acquired businesses included all of its equity interests in Hennig Fahrzeugteile Group ("Hennig") in January 2019 and of PartsPoint Group in June 2019,$55 million, which together generate estimated annual revenues of approximately $520,000, as well as several bolt-on acquisitions.
In the Industrial Parts Group, the Company acquired all of the equity interests in Axis New England and Axis New York ("Axis") in March 2019, which generate estimated annual revenue of approximately $55,000, and the remaining 65% equity investment in Inenco Group Pty Ltd (now referredwas reclassed from other assets to as Motion Asia Pacific) in July 2019. Motion Asia Pacific is one of Australasia's leading industrial distributors of key product categories such as bearings, power transmission and seals and it generates estimated annual revenues of approximately $400,000. Prior to the 65% acquisition, the Company accounted for its 35% investment in Motion Asia Pacific under the equity method of accounting. Upon acquisition the Company recognized thecurrent
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
35% investment at its acquisition-date fair value of $123,385. The difference between the acquisition-date fair value and the carrying amount of the equity method investment resulted in the recognition of a gain of $38,663assets on the acquisition date. The acquisition-date fair value was determined usingconsolidated balance sheet, and recognized a market and income approach with the assistance of a third party valuation firm. The gain is included in the line item "other"charge within non-operating expenses (income) on the consolidated statement of income for the yearthree months ended December 31, 2019.2022.
11. Share-Based Compensation
Share-based compensation costs of $38 million, $26 million, and $23 million, were recorded for the years ended December 31, 2022, 2021, and 2020, respectively. The total income tax benefits recognized in the consolidated statements of income for share-based compensation arrangements were approximately $10 million, $7 million, and $6 million for 2022, 2021, and 2020, respectively. At December 31, 2022, total compensation cost related to nonvested awards not yet recognized was approximately $64 million. There have been no modifications to valuation methodologies or methods during the years ended December 31, 2022, 2021, or 2020.
As of December 31, 2022, there were 6.9 million shares of common stock available for issuance pursuant to future equity-based compensation awards.
A summary of our restricted stock units activity and related information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nonvested Share Awards (RSUs) | | Shares | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| Nonvested at beginning of year | | 829 | | | $ | 98.25 | | | | | |
| Granted | | 506 | | | $ | 129.87 | | | | | |
| Vested | | (276) | | | $ | 104.22 | | | | | |
| Forfeited | | (65) | | | $ | 105.01 | | | | | |
| Nonvested at end of year | | 994 | | | $ | 110.45 | | | 1.4 | | $ | 172,409 | |
A summary of our stock appreciation rights activity and related information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Appreciation Rights (SARs) | | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| Outstanding at beginning of year | | 634 | | | $ | 90.93 | | | | | |
| Granted | | — | | | $ | — | | | | | |
| Exercised | | (310) | | | $ | 89.22 | | | | | |
| Forfeited | | (7) | | | $ | 89.27 | | | | | |
| Outstanding at end of year | | 317 | | | $ | 92.65 | | | 2.4 | | $ | 25,607 | |
| Exercisable at end of year | | 317 | | | $ | 92.65 | | | 2.4 | | $ | 25,607 | |
The total acquisition dateaggregate intrinsic value of SARs exercised and RSUs vested during the years ended December 31, 2022, 2021, and 2020 was $62 million, $73 million, and $14 million, respectively. The fair value of RSUs is based on the consideration transferredprice of our stock on the date of grant for the businesses and of any previously held equity interests was $860,712, net of cash acquired of $16,591, and it consisted of the following:
| | | | | | | | |
| | December 31, 2019 |
Cash | | $ | 732,142 | |
Fair value of 35% investment in Motion Asia Pacific held prior to business combination | | 123,385 | |
Fair value of other investments held prior to business combination | | 5,185 | |
Total | | $ | 860,712 | |
The following table summarizes the final fair values of the assets acquired and liabilities assumed at the acquisition dates for the aggregate of these businesses.
| | | | | | | | |
| | As of Acquisition Dates |
Trade accounts receivable | | $ | 148,543 | |
Merchandise inventories | | 319,579 | |
Prepaid expenses and other current assets | | 788 | |
Intangible assets | | 340,799 | |
Deferred tax assets | | 1,480 | |
Property, plant and equipment | | 70,958 | |
Operating lease assets | | 127,470 | |
Other assets | | 20,318 | |
Total identifiable assets acquired | | 1,029,935 | |
Current liabilities | | 122,307 | |
Long-term debt | | 164,662 | |
Operating lease liabilities | | 61,626 | |
Deferred tax liabilities | | 67,081 | |
Other long-term liabilities | | 132,187 | |
Total liabilities assumed | | 547,863 | |
Net identifiable assets acquired | | 482,072 | |
Noncontrolling interests in a subsidiary | | (1,600) | |
Goodwill | | 380,240 | |
Net assets acquired | | $ | 860,712 | |
The acquired intangible assets of approximately $340,799 were assigned to customer relationships of $304,302, trademarks of $32,907, and other intangibles of $3,590 with weighted average amortization lives of 16.6, 21.7, and 5.0 years respectively, for a total weighted average amortization life of 17.0 years.
The goodwill recognized as part of the acquisitions is generally not tax deductible. The goodwill is attributable primarily to the expected synergies and assembled workforces of the acquired businesses.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
2018
For the year ended December 31, 2018,2022 and 2021. The fair value of RSUs is based on the Company acquired several businesses60-day average price of our stock on the date of grant for approximately $262,510, net of cash acquired. The Company recorded approximately $167,000 of goodwill and other intangible assets associated with the 2018 acquisitions. Other intangible assets acquired consisted of customer relationships of $76,000 with weighted average amortization lives of 15 years.
Divestitures
2020
The Company received proceeds from divestitures of businesses totaling $387,379 during the year ended December 31, 2020. Refer to the discontinued operations section below for additional information.
2019
The Company received proceeds from divestituresfair value of businesses totaling $434,609SARs is estimated using a Black-Scholes option pricing model. We ceased issuing SARs in 2017. The total fair value of SARs and RSUs vested during the yearyears ended December 31, 2019. 2022, 2021, and 2020 were $29 million, $25 million, and $10 million, respectively.
12. Accumulated Other Comprehensive Loss
The divestitures are not considered strategic shifts that will have a major effect onfollowing tables present the Company’s operations or financial results; therefore, they are not reported as discontinued operations. changes in AOCL by component:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Changes in Accumulated Other
Comprehensive Loss by Component |
| | Pension and Other Post-Retirement Benefits | | Cash Flow Hedges | | Foreign Currency Translation | | Total |
| Beginning balance, January 1, 2022 | $ | (463,227) | | | $ | (15,042) | | | $ | (379,470) | | | $ | (857,739) | |
| Other comprehensive (loss) before reclassifications | (71,258) | | | — | | | (143,890) | | | (215,148) | |
| Amounts reclassified from accumulated other comprehensive loss | 27,875 | | | 12,470 | | | — | | | 40,345 | |
| Net current period other comprehensive (loss) | (43,383) | | | 12,470 | | | (143,890) | | | (174,803) | |
| Ending balance, December 31, 2022 | $ | (506,610) | | | $ | (2,572) | | | $ | (523,360) | | | $ | (1,032,542) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Changes in Accumulated Other
Comprehensive Loss by Component |
| | Pension and Other Post-Retirement Benefits | | Cash Flow Hedges | | Foreign Currency Translation | | Total |
| Beginning balance, January 1, 2021 | $ | (692,868) | | | $ | (30,007) | | | $ | (313,627) | | | $ | (1,036,502) | |
| Other comprehensive income before reclassifications | 192,382 | | | — | | | (65,843) | | | 126,539 | |
| Amounts reclassified from accumulated other comprehensive loss | 37,259 | | | 14,965 | | | — | | | 52,224 | |
| Net current period other comprehensive income | 229,641 | | | 14,965 | | | (65,843) | | | 178,763 | |
| Ending balance, December 31, 2021 | $ | (463,227) | | | $ | (15,042) | | | $ | (379,470) | | | $ | (857,739) | |
The Company recognized realized currency losses of $34,701 duringAOCL components related to the year ended December 31, 2019. These lossespension benefits are included in the line item "other" within non-operating expenses (income) oncomputation of net periodic benefit income in the consolidated statementEmployee Benefit Plans Footnote. The nature of the cash flow hedges are discussed in the Derivatives and Hedging Footnote. Generally, tax effects in AOCL are established at the currently enacted tax rate and reclassified to net income in the same period that the related pre-tax AOCL reclassifications are recognized.
13. Income Taxes
Significant components of our deferred tax assets and liabilities are as follows:
| | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| Deferred tax assets related to: | | | | |
| Expenses not yet deducted for tax purposes | | $ | 312,445 | | | $ | 301,302 | |
| Operating lease liabilities | | 314,804 | | | 300,705 | |
| Pension liability not yet deducted for tax purposes | | 168,925 | | | 171,256 | |
| Capital loss | | — | | | 7,333 | |
| Net operating loss | | 49,787 | | | 48,865 | |
| | 845,961 | | | 829,461 | |
| Deferred tax liabilities related to: | | | | |
| Employee and retiree benefits | | 225,947 | | | 235,847 | |
| Inventory | | 77,866 | | | 87,062 | |
| Operating lease assets | | 305,885 | | | 295,801 | |
| Other intangible assets | | 468,733 | | | 365,557 | |
| Property, plant and equipment | | 91,706 | | | 72,740 | |
| Other | | 38,597 | | | 18,176 | |
| | 1,208,734 | | | 1,075,183 | |
| Net deferred tax liability before valuation allowance | | (362,773) | | | (245,722) | |
| Valuation allowance | | (27,362) | | | (34,227) | |
| Total net deferred tax liability | | $ | (390,135) | | | $ | (279,949) | |
We currently hold approximately $183 million in gross net operating losses, of which approximately $108 million will carry forward indefinitely. The remaining net operating losses of approximately $75 million will begin to expire in 2024.
The components of income before income taxes are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| United States | | $ | 1,100,584 | | | $ | 762,472 | | | $ | 706,594 | |
| Foreign | | 472,018 | | | 437,874 | | | (327,226) | |
| Income before income taxes | | $ | 1,572,602 | | | $ | 1,200,346 | | | $ | 379,368 | |
The components of income tax expense are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Current: | | | | | | |
| Federal | | $ | 196,634 | | | $ | 116,425 | | | $ | 130,680 | |
| State | | 70,453 | | | 34,311 | | | 35,474 | |
| Foreign | | 120,594 | | | 119,144 | | | 77,541 | |
| Deferred: | | | | | | |
| Federal | | 12,727 | | | 24,233 | | | 2,048 | |
| State | | 4,981 | | | 9,485 | | | 801 | |
| Foreign | | (15,488) | | | (2,042) | | | (30,571) | |
| | $ | 389,901 | | | $ | 301,556 | | | $ | 215,973 | |
The reasons for the difference between total tax expense and the amount computed by applying the statutory Federal income tax rate to income before income taxes are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Statutory rate applied to income (1) | | $ | 330,246 | | | $ | 252,073 | | | $ | 79,667 | |
| Plus state income taxes, net of Federal tax benefit | | 59,593 | | | 34,599 | | | 28,658 | |
| Taxation of foreign operations, net (2) | | 3,347 | | | 2,299 | | | (9,072) | |
| Non-deductible goodwill impairment tax effect | | — | | | — | | | 106,411 | |
| Foreign rate change - deferred tax remeasurement | | — | | | 17,032 | | | 9,045 | |
| Valuation allowance | | (7,153) | | | (2,486) | | | 1,995 | |
| Other | | 3,868 | | | (1,961) | | | (731) | |
| | $ | 389,901 | | | $ | 301,556 | | | $ | 215,973 | |
(1)U.S. statutory rates applied to income are as follows: 2022, 2021 and 2020 at 21%.
(2)Our effective tax rate reflects the impact of having operations outside of the U.S. which are taxed at statutory rates different from the U.S. statutory rate, with some income being fully or partially exempt from income taxes due to various operating and financing activities.
We account for Global Intangible Low Taxed income in the year the tax is incurred as a period cost.
We, or one of our subsidiaries, file income tax returns in the U.S., various states, and foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local tax examinations by tax authorities for years before 2019 or subject to foreign income tax examinations for years ended prior to 2013. We are currently under audit in some of our state and foreign jurisdictions. Some audits may conclude in the next 12 months and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts. It is not possible to estimate the effect, if any, of the amount of such change during the next 12 months to previously recorded uncertain tax positions in connection with the audits; however, we do not anticipate that total unrecognized tax benefits will significantly change in the next 12 months.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Balance at beginning of year | | $ | 19,501 | | | $ | 23,237 | | | $ | 21,461 | |
| Additions based on tax positions related to the current year | | 1,475 | | | 2,196 | | | 3,771 | |
| Additions for tax positions of prior years | | 89 | | | 156 | | | 3,480 | |
| Reductions for tax positions for prior years | | (523) | | | (733) | | | (1,382) | |
| Reduction for lapse in statute of limitations | | (921) | | | (2,843) | | | (3,765) | |
| Settlements | | — | | | (2,512) | | | (328) | |
| Balance at end of year | | $ | 19,621 | | | $ | 19,501 | | | $ | 23,237 | |
The amount of gross unrecognized tax benefits, including interest and penalties, as of December 31, 2022 and 2021 was approximately $21 million and $20 million, respectively, of which approximately $19 million and $19 million, respectively, if recognized, would affect the effective tax rate.
During the tax years ended December 31, 2019.2022, 2021 and 2020, we paid, received refunds, or accrued insignificant interest and penalties. We recognize potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Grupo Auto TodoAs of December 31, 2022, we estimate that we have an outside basis difference in certain foreign subsidiaries of approximately $928 million, which includes the cumulative undistributed earnings from our foreign subsidiaries. We continue to be indefinitely reinvested in this outside basis difference. Determining the amount of net unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practicable. This is due to the complexities associated with the calculation to determine residual taxes on the undistributed earnings,
including the Company sold allavailability of foreign tax credits, applicability of any additional local withholding tax and other indirect tax consequences that may arise due to the distribution of these earnings.
14. Guarantees
We guarantee the borrowings of certain independently controlled automotive parts stores and businesses (“independents”) and certain other affiliates in which we have a noncontrolling equity ownership interest (“affiliates”). Presently, the independents are generally consolidated by unaffiliated enterprises that have controlling financial interests through ownership of a majority voting interest in the independents. We have no voting interest or equity conversion rights in any of the independents. We do not control the independents or the affiliates but receive a fee for the guarantees. We have concluded that the independents are variable interest entities, but that we are not the primary beneficiary. Specifically, the equity holders of the independents have the power to direct the activities that most significantly impact the entities’ economic performance including, but not limited to, decisions about hiring and terminating personnel, local marketing and promotional initiatives, pricing and selling activities, credit decisions, monitoring and maintaining appropriate inventories, and store hours. Separately, we concluded that the affiliates are not variable interest entities. Our maximum exposure to loss as a result of its equityinvolvement with these independents and affiliates is generally equal to the total borrowings subject to our guarantees. While such borrowings of the independents and affiliates are outstanding, we are required to maintain compliance with certain covenants. At December 31, 2022, we were in Grupo Auto Todo,compliance with all such covenants.
At December 31, 2022, the total borrowings of the independents and affiliates subject to guarantee by us were approximately $916 million. These loans generally mature over periods from one to six years. We regularly monitor the performance of these loans and the ongoing operating results, financial condition and ratings from credit rating agencies of the independents and affiliates that participate in the guarantee programs. In the event that we are required to make payments in connection with these guarantees, we would obtain and liquidate certain collateral pledged by the independents or affiliates (e.g., accounts receivable and inventory) to recover all or a Mexican subsidiary withinsubstantial portion of the Automotive Parts Group. Grupo Auto Todo contributed revenuesamounts paid under the guarantees. We recognize a liability equal to current expected credit losses over the lives of $15,900the loans in the guaranteed loan portfolio, based on a consideration of historical experience, current conditions, the nature and expected value of any collateral, and reasonable and supportable forecasts. To date, we have had no significant losses in connection with guarantees of independents’ and affiliates’ borrowings and the current expected credit loss reserve is not material. As of December 31, 2022, there are no material guaranteed loans for which the borrower is experiencing financial difficulty and recovery is expected to be provided substantially through the operation or sale of the collateral.
We have recognized certain assets and liabilities amounting to $67 million and $81 million for the year endedguarantees related to the independents’ and affiliates’ borrowings at December 31, 20192022 and $93,000 for2021, respectively. These assets and liabilities are included in other assets and other long-term liabilities in the year ended December 31, 2018.consolidated balance sheets. The liabilities relate to our noncontingent obligation to stand ready to perform under the guarantee programs and they are distinct from our current expected credit loss reserve.
EIS
During the third quarter of 2019, the Company approved a transaction to sell EIS, a wholly owned subsidiary within the Industrial Parts Group. The transaction closed on September 30, 2019. EIS contributed revenues of $588,031 for the year ended December 31, 201915. Commitments and $817,249 for the year ended December 31, 2018.Contingencies
Discontinued Operations
Business Products Group
Effective June 30, 2020, the Companywe completed the divestiture of itsour Business Products Group by selling Supply Source Enterprises, Inc. ("SSE") and S.P. Richards Company ("SPR")SPR in separate transactions. These divestitures arewere part of the Company'sour long-term strategic initiative to streamline itsour operations and optimize itsour portfolio so that itwe can drive shareholder value by focusing on itsour global Automotive and Industrial Parts Groups.businesses. The Business Products Group was previously a reportable segment of the Company.company. These divestitures, together with prior period divestitures of Garland C. Norris (effective December 13, 2019), SPR Canada (effective January 1, 2020) and Safety Zone Canada (effective March 2, 2020), representrepresented a single plan to exit the Business Products Group segment and arewas considered a strategic shift that will havehad a major effect on the Company’sour operations and financial results. Therefore, the results of operations, financial position and cash flows for the Business Products Group arewere reported as discontinued operations for all periods presented.
The Company maintainsOur results of operations for discontinued operations were: | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Net sales | | $ | — | | | $ | — | | | $ | 846,944 | |
| Cost of goods sold | | — | | | — | | | 632,007 | |
| Gross profit | | — | | | — | | | 214,937 | |
| Operating and non-operating expenses | | — | | | — | | | 179,461 | |
| Loss on disposal | | — | | | — | | | 223,928 | |
| Loss before income taxes | | — | | | — | | | (188,452) | |
| Income taxes | | — | | | — | | | 4,045 | |
| Net loss from discontinued operations | | $ | — | | | $ | — | | | $ | (192,497) | |
In December 2022, we came to an agreement to sell our remaining investment in SPR in connection with a pending acquisition of SPR by a third party. The acquisition closed and we sold our investment in SPR on January 31, 2023. Any remaining transition services will cease by June 30, 2023. As of December 31, 2022, we reduced the net carrying value of $67,601,our SPR investment by $3 million to $55 million, which is included withinwas reclassed from other assets to current
assets on the consolidated balance sheet, as of December 31, 2020. During the three months ended December 31, 2020, the Companyand recognized an allowance on the investment and correspondinga charge of $17,000 equal to the current expected credit losses based on a consideration of historical experience, current market conditions and reasonable and supportable forecasts related to this investment. This charge is included within non-operating expenses (income) on the consolidated statement of income for the three months ended December 31, 2022.
11. Share-Based Compensation
Share-based compensation costs of $38 million, $26 million, and $23 million, were recorded for the years ended December 31, 2022, 2021, and 2020, respectively. The total income tax benefits recognized in the consolidated statements of income for share-based compensation arrangements were approximately $10 million, $7 million, and $6 million for 2022, 2021, and 2020, respectively. At December 31, 2022, total compensation cost related to nonvested awards not yet recognized was approximately $64 million. There have been no modifications to valuation methodologies or methods during the years ended December 31, 2022, 2021, or 2020.
As of December 31, 2022, there were 6.9 million shares of common stock available for issuance pursuant to future equity-based compensation awards.
A summary of our restricted stock units activity and related information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nonvested Share Awards (RSUs) | | Shares | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| Nonvested at beginning of year | | 829 | | | $ | 98.25 | | | | | |
| Granted | | 506 | | | $ | 129.87 | | | | | |
| Vested | | (276) | | | $ | 104.22 | | | | | |
| Forfeited | | (65) | | | $ | 105.01 | | | | | |
| Nonvested at end of year | | 994 | | | $ | 110.45 | | | 1.4 | | $ | 172,409 | |
A summary of our stock appreciation rights activity and related information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Appreciation Rights (SARs) | | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| Outstanding at beginning of year | | 634 | | | $ | 90.93 | | | | | |
| Granted | | — | | | $ | — | | | | | |
| Exercised | | (310) | | | $ | 89.22 | | | | | |
| Forfeited | | (7) | | | $ | 89.27 | | | | | |
| Outstanding at end of year | | 317 | | | $ | 92.65 | | | 2.4 | | $ | 25,607 | |
| Exercisable at end of year | | 317 | | | $ | 92.65 | | | 2.4 | | $ | 25,607 | |
The aggregate intrinsic value of SARs exercised and RSUs vested during the years ended December 31, 2022, 2021, and 2020 was $62 million, $73 million, and $14 million, respectively. The fair value of RSUs is based on the price of our stock on the date of grant for the years ended December 31, 2022 and 2021. The fair value of RSUs is based on the 60-day average price of our stock on the date of grant for the year ended December 31, 2020. The fair value of SARs is estimated using a Black-Scholes option pricing model. We ceased issuing SARs in 2017. The total fair value of SARs and RSUs vested during the years ended December 31, 2022, 2021, and 2020 were $29 million, $25 million, and $10 million, respectively.
12. Accumulated Other Comprehensive Loss
The Company also remains involvedfollowing tables present the changes in AOCL by component:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Changes in Accumulated Other
Comprehensive Loss by Component |
| | Pension and Other Post-Retirement Benefits | | Cash Flow Hedges | | Foreign Currency Translation | | Total |
| Beginning balance, January 1, 2022 | $ | (463,227) | | | $ | (15,042) | | | $ | (379,470) | | | $ | (857,739) | |
| Other comprehensive (loss) before reclassifications | (71,258) | | | — | | | (143,890) | | | (215,148) | |
| Amounts reclassified from accumulated other comprehensive loss | 27,875 | | | 12,470 | | | — | | | 40,345 | |
| Net current period other comprehensive (loss) | (43,383) | | | 12,470 | | | (143,890) | | | (174,803) | |
| Ending balance, December 31, 2022 | $ | (506,610) | | | $ | (2,572) | | | $ | (523,360) | | | $ | (1,032,542) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Changes in Accumulated Other
Comprehensive Loss by Component |
| | Pension and Other Post-Retirement Benefits | | Cash Flow Hedges | | Foreign Currency Translation | | Total |
| Beginning balance, January 1, 2021 | $ | (692,868) | | | $ | (30,007) | | | $ | (313,627) | | | $ | (1,036,502) | |
| Other comprehensive income before reclassifications | 192,382 | | | — | | | (65,843) | | | 126,539 | |
| Amounts reclassified from accumulated other comprehensive loss | 37,259 | | | 14,965 | | | — | | | 52,224 | |
| Net current period other comprehensive income | 229,641 | | | 14,965 | | | (65,843) | | | 178,763 | |
| Ending balance, December 31, 2021 | $ | (463,227) | | | $ | (15,042) | | | $ | (379,470) | | | $ | (857,739) | |
The AOCL components related to the pension benefits are included in the computation of net periodic benefit income in the Employee Benefit Plans Footnote. The nature of the cash flow hedges are discussed in the Derivatives and Hedging Footnote. Generally, tax effects in AOCL are established at the currently enacted tax rate and reclassified to net income in the same period that the related pre-tax AOCL reclassifications are recognized.
13. Income Taxes
Significant components of our deferred tax assets and liabilities are as follows:
| | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| Deferred tax assets related to: | | | | |
| Expenses not yet deducted for tax purposes | | $ | 312,445 | | | $ | 301,302 | |
| Operating lease liabilities | | 314,804 | | | 300,705 | |
| Pension liability not yet deducted for tax purposes | | 168,925 | | | 171,256 | |
| Capital loss | | — | | | 7,333 | |
| Net operating loss | | 49,787 | | | 48,865 | |
| | 845,961 | | | 829,461 | |
| Deferred tax liabilities related to: | | | | |
| Employee and retiree benefits | | 225,947 | | | 235,847 | |
| Inventory | | 77,866 | | | 87,062 | |
| Operating lease assets | | 305,885 | | | 295,801 | |
| Other intangible assets | | 468,733 | | | 365,557 | |
| Property, plant and equipment | | 91,706 | | | 72,740 | |
| Other | | 38,597 | | | 18,176 | |
| | 1,208,734 | | | 1,075,183 | |
| Net deferred tax liability before valuation allowance | | (362,773) | | | (245,722) | |
| Valuation allowance | | (27,362) | | | (34,227) | |
| Total net deferred tax liability | | $ | (390,135) | | | $ | (279,949) | |
We currently hold approximately $183 million in gross net operating losses, of which approximately $108 million will carry forward indefinitely. The remaining net operating losses of approximately $75 million will begin to expire in 2024.
The components of income before income taxes are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| United States | | $ | 1,100,584 | | | $ | 762,472 | | | $ | 706,594 | |
| Foreign | | 472,018 | | | 437,874 | | | (327,226) | |
| Income before income taxes | | $ | 1,572,602 | | | $ | 1,200,346 | | | $ | 379,368 | |
The components of income tax expense are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Current: | | | | | | |
| Federal | | $ | 196,634 | | | $ | 116,425 | | | $ | 130,680 | |
| State | | 70,453 | | | 34,311 | | | 35,474 | |
| Foreign | | 120,594 | | | 119,144 | | | 77,541 | |
| Deferred: | | | | | | |
| Federal | | 12,727 | | | 24,233 | | | 2,048 | |
| State | | 4,981 | | | 9,485 | | | 801 | |
| Foreign | | (15,488) | | | (2,042) | | | (30,571) | |
| | $ | 389,901 | | | $ | 301,556 | | | $ | 215,973 | |
The reasons for the difference between total tax expense and the amount computed by applying the statutory Federal income tax rate to income before income taxes are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Statutory rate applied to income (1) | | $ | 330,246 | | | $ | 252,073 | | | $ | 79,667 | |
| Plus state income taxes, net of Federal tax benefit | | 59,593 | | | 34,599 | | | 28,658 | |
| Taxation of foreign operations, net (2) | | 3,347 | | | 2,299 | | | (9,072) | |
| Non-deductible goodwill impairment tax effect | | — | | | — | | | 106,411 | |
| Foreign rate change - deferred tax remeasurement | | — | | | 17,032 | | | 9,045 | |
| Valuation allowance | | (7,153) | | | (2,486) | | | 1,995 | |
| Other | | 3,868 | | | (1,961) | | | (731) | |
| | $ | 389,901 | | | $ | 301,556 | | | $ | 215,973 | |
(1)U.S. statutory rates applied to income are as follows: 2022, 2021 and 2020 at 21%.
(2)Our effective tax rate reflects the impact of having operations outside of the U.S. which are taxed at statutory rates different from the U.S. statutory rate, with SPRsome income being fully or partially exempt from income taxes due to various operating and financing activities.
We account for Global Intangible Low Taxed income in the year the tax is incurred as a limited period cost.
We, or one of timeour subsidiaries, file income tax returns in the U.S., various states, and foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local tax examinations by tax authorities for years before 2019 or subject to foreign income tax examinations for years ended prior to 2013. We are currently under audit in some of our state and foreign jurisdictions. Some audits may conclude in the next 12 months and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts. It is not possible to estimate the effect, if any, of the amount of such change during the next 12 months to previously recorded uncertain tax positions in connection with the audits; however, we do not anticipate that total unrecognized tax benefits will significantly change in the next 12 months.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Balance at beginning of year | | $ | 19,501 | | | $ | 23,237 | | | $ | 21,461 | |
| Additions based on tax positions related to the current year | | 1,475 | | | 2,196 | | | 3,771 | |
| Additions for tax positions of prior years | | 89 | | | 156 | | | 3,480 | |
| Reductions for tax positions for prior years | | (523) | | | (733) | | | (1,382) | |
| Reduction for lapse in statute of limitations | | (921) | | | (2,843) | | | (3,765) | |
| Settlements | | — | | | (2,512) | | | (328) | |
| Balance at end of year | | $ | 19,621 | | | $ | 19,501 | | | $ | 23,237 | |
The amount of gross unrecognized tax benefits, including interest and penalties, as of December 31, 2022 and 2021 was approximately $21 million and $20 million, respectively, of which approximately $19 million and $19 million, respectively, if recognized, would affect the effective tax rate.
During the tax years ended December 31, 2022, 2021 and 2020, we paid, received refunds, or accrued insignificant interest and penalties. We recognize potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.
As of December 31, 2022, we estimate that we have an outside basis difference in certain foreign subsidiaries of approximately $928 million, which includes the cumulative undistributed earnings from our foreign subsidiaries. We continue to be indefinitely reinvested in this outside basis difference. Determining the amount of net unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practicable. This is due to the complexities associated with the calculation to determine residual taxes on the undistributed earnings,
including the availability of foreign tax credits, applicability of any additional local withholding tax and other indirect tax consequences that may arise due to the distribution of these earnings.
14. Guarantees
We guarantee the borrowings of certain independently controlled automotive parts stores and businesses (“independents”) and certain other affiliates in which we have a noncontrolling equity ownership interest (“affiliates”). Presently, the independents are generally consolidated by unaffiliated enterprises that have controlling financial interests through various lease, sublease, freight distribution and transition service agreements. The Company hasownership of a majority voting interest in the independents. We have no voting interest or equity conversion rights in any of the independents. We do not control the independents or the affiliates but receive a fee for the guarantees. We have concluded that SPR is athe independents are variable interest entity,entities, but the Company isthat we are not the primary beneficiary and thereforebeneficiary. Specifically, the entity is not consolidated. Among other things,equity holders of the Company does not have any voting rights and does notindependents have the power to direct the activities that most significantly affect SPR'simpact the entities’ economic performance. Forperformance including, but not limited to, decisions about hiring and terminating personnel, local marketing and promotional initiatives, pricing and selling activities, credit decisions, monitoring and maintaining appropriate inventories, and store hours. Separately, we concluded that the affiliates are not variable interest entities. Our maximum exposure to loss as a limited periodresult of time as SPR completes its transition awayinvolvement with these independents and affiliates is generally equal to the total borrowings subject to our guarantees. While such borrowings of the independents and affiliates are outstanding, we are required to maintain compliance with certain covenants. At December 31, 2022, we were in compliance with all such covenants.
At December 31, 2022, the total borrowings of the independents and affiliates subject to guarantee by us were approximately $916 million. These loans generally mature over periods from one to six years. We regularly monitor the performance of these loans and the ongoing operating results, financial condition and ratings from credit rating agencies of the independents and affiliates that participate in the guarantee programs. In the event that we are required to make payments in connection with these guarantees, we would obtain and liquidate certain collateral pledged by the independents or affiliates (e.g., accounts receivable and inventory) to recover all or a substantial portion of the amounts paid under the guarantees. We recognize a liability equal to current expected credit losses over the lives of the loans in the guaranteed loan portfolio, based on a consideration of historical experience, current conditions, the nature and expected value of any collateral, and reasonable and supportable forecasts. To date, we have had no significant losses in connection with guarantees of independents’ and affiliates’ borrowings and the current expected credit loss reserve is not material. As of December 31, 2022, there are no material guaranteed loans for which the borrower is experiencing financial difficulty and recovery is expected to be provided substantially through the operation or sale of the collateral.
We have recognized certain assets and liabilities amounting to $67 million and $81 million for the guarantees related to the independents’ and affiliates’ borrowings at December 31, 2022 and 2021, respectively. These assets and liabilities are included in other assets and other long-term liabilities in the consolidated balance sheets. The liabilities relate to our noncontingent obligation to stand ready to perform under the guarantee programs and they are distinct from our current expected credit loss reserve.
15. Commitments and Contingencies
Legal Matters
We are subject to various legal proceedings, many involving routine litigation incidental to the businesses, including approximately 2,228 pending product liability lawsuits resulting from our national distribution of automotive parts and supplies. Many of these involve claims of personal injury allegedly resulting from the Company’s shared services platform,use of automotive parts we distributed. During the Companyfourth quarter of 2022, we revised our estimate of the number of claims to be incurred in future periods, among other assumptions, and recognized $29 million of expense included in selling, administrative and other expenses in the consolidated statements of income. The amount accrued for pending and future claims as of December 31, 2022 was $220 million, the central estimate within our range of $190 million to $270 million, discounted using a discount rate of 3.83%. The undiscounted product liability as of December 31, 2022 was $285 million. The amount accrued for pending and future claims as of December 31, 2021 was $181 million.
The amounts recorded are based on the best available information and assumptions that we believe are reasonable. While litigation of any type contains an element of uncertainty, we believe that our insurance coverage and our defense, and ultimate resolution of pending and reasonably anticipated claims will continue to occur within
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
continues to pay certain payablesthe ordinary course of our business and that resolution of these claims will not have a material adverse effect on SPR’s behalf and at SPR’s direction with full, weekly reimbursement from SPR under the terms of a transition services agreement.
The Company’sour business, results of operations for discontinued operations were:or financial condition.
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Net sales | | $ | 846,944 | | | $ | 1,870,071 | | | $ | 1,903,468 | |
| Cost of goods sold | | 632,007 | | | 1,413,485 | | | 1,439,436 | |
| Gross profit | | 214,937 | | | 456,586 | | | 464,032 | |
| Operating and non-operating expenses | | 179,461 | | | 476,521 | | | 383,058 | |
| Loss on disposal | | 223,928 | | | 9,048 | | | 0 | |
| (Loss) income before income taxes | | (188,452) | | | (28,983) | | | 80,974 | |
| Income taxes | | 4,045 | | | (3,593) | | | 20,034 | |
| Net (loss) income from discontinued operations | | $ | (192,497) | | | $ | (25,390) | | | $ | 60,940 | |
On April 17, 2017, a jury awarded damages against the company of $82 million in a litigated automotive product liability dispute. Through post-trial motions and offsets from previous settlements, the initial verdict was reduced to $77 million. We believed the verdict was not supported by the facts or the law and was contrary to our role in the automotive parts industry. We challenged the verdict through an appeal to a higher court. On February 19, 2020, the Washington Court of Appeals issued an order entirely reversing the jury's finding on damages and ordering a new trial on damages. The Company’s assetsplaintiffs subsequently appealed this order to the Washington Supreme Court. On July 7, 2020, the Washington Supreme Court indicated that it would consider a further appeal on this matter, and liabilities for discontinued operations, by major class, were:
| | | | | | | | |
| | December 31, 2019 |
Assets | | |
Trade accounts receivable, net | | $ | 194,903 | |
Merchandise inventories, net | | 387,307 | |
Prepaid expenses and other current assets | | 132,041 | |
Other intangible assets, net | | 76,829 | |
Operating lease assets | | 80,302 | |
Other assets | | 91,640 | |
Total assets of discontinued operations | | $ | 963,022 | |
| | |
Liabilities | | |
Trade accounts payable | | $ | 158,163 | |
Other current liabilities | | 59,954 | |
Long-term liabilities | | 68,906 | |
Total liabilities of discontinued operations | | $ | 287,023 | |
15. Segment Data
The Company’s reportable segments consist of automotive and industrial parts. Withinoral arguments occurred on November 10, 2020. On July 8, 2021, the reportable segments, certainWashington Supreme Court overturned the order of the Company’s operating segments are aggregated since they have similar economic characteristics, productsWashington Court of Appeals and services, type and classreinstated the trial court's damage award of customers, and distribution methods.
The Company’s automotive segment distributes replacement parts (other than body parts) for substantially all makes and models of automobiles, trucks,$77 million against the company. We recorded an adjustment to increase selling, administrative and other vehicles.
The Company’s industrial segment distributes a wide varietyexpenses by approximately $77 million, inclusive of industrial bearings, mechanicalstatutory interest and fluid power transmission equipment, including hydraulic and pneumatic products, material handling components and related parts and supplies.
Inter-segment sales are not significant. Segment profit for each industry segment is calculated as net sales less operating expenses excluding general corporate expenses, interest expense, equityinsurance coverage, in income from investees, intangible asset amortization, income attributable to noncontrolling interests and other unallocated amounts that are driven by corporate
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
initiatives. Approximately $327,226 of loss before income taxes for the year ended December 31, 20202021. The damage award and approximately $245,373 and $281,687 of income before income taxesstatutory interest was generated in jurisdictions outside the U.S. for the years ended 2019, and 2018, respectively. Net sales and net property, plant and equipment by country relate directly to the Company’s operations in the respective country. Corporate assets are principally cash and cash equivalents and headquarters’ facilities and equipment.
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Net sales: | | | | | | |
| Automotive | | $ | 10,860,695 | | | $ | 10,993,902 | | | $ | 10,533,021 | |
| Industrial | | 5,676,738 | | | 6,528,332 | | | 6,298,584 | |
| Total net sales | | $ | 16,537,433 | | | $ | 17,522,234 | | | $ | 16,831,605 | |
| Segment profit: | | | | | | |
| Automotive | | $ | 867,743 | | | $ | 831,951 | | | $ | 856,014 | |
| Industrial | | 481,854 | | | 521,830 | | | 487,360 | |
| Total segment profit | | $ | 1,349,597 | | | $ | 1,353,781 | | | $ | 1,343,374 | |
| Interest expense, net | | (91,048) | | | (91,405) | | | (93,281) | |
| Corporate expense | | (149,754) | | | (140,815) | | | (137,036) | |
| Intangible asset amortization | | (94,962) | | | (92,206) | | | (83,489) | |
| Other unallocated costs | | (634,465) | | | (170,072) | | | (34,930) | |
| Income before income taxes from continuing operations | | $ | 379,368 | | | $ | 859,283 | | | $ | 994,638 | |
The following table presents a summary of the other unallocated costs:
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Other unallocated costs: | | | | | | |
| Goodwill impairment charge (1) | | $ | (506,721) | | | $ | 0 | | | $ | 0 | |
| Restructuring costs (2) | | (50,019) | | | (100,023) | | | 0 | |
| Special termination costs (2) | | 0 | | | (42,757) | | | 0 | |
| Realized currency and other divestiture losses (3) | | (11,356) | | | (34,701) | | | 0 | |
| Gain on insurance proceeds related to SPR fire (4) | | 13,448 | | | 0 | | | 0 | |
| Gain on equity investment (5) | | 0 | | | 38,663 | | | 0 | |
| Inventory adjustment (6) | | (40,000) | | | 0 | | | 0 | |
| Transaction and other costs (7) | | (39,817) | | | (31,254) | | | (34,930) | |
| Total other unallocated costs | | $ | (634,465) | | | $ | (170,072) | | | $ | (34,930) | |
(1) Adjustment reflects a second quarter goodwill impairment charge related to our European reporting unit.
(2) Adjustment reflects restructuring and special termination costs related to the 2019 Cost Savings Plan announced in the fourth quarter of 2019. The costs are primarily associated with severance and other employee costs, including a voluntary retirement program, and facility and closure costs related to the consolidation of operations.
(3) Adjustment reflects realized currency losses related to divestitures.
(4) Adjustment reflects insurance recoveries in excess of losses incurred on inventory, property, plant and equipment and other fire-related costs related to the S.P. Richards Headquarters and Distribution Center.
(5) Adjustment relates to the gain recognized upon remeasuring the Company's preexisting 35% equity investment to fair value upon acquiring the remaining equity of Motion Asia Pacific on July 1, 2019.
(6) Adjustment reflects a $40 million increase to cost of goods sold recorded during the quarter ended December 31, 2020 due to the correction of an immaterial error related to the accounting in prior years for consideration received from vendors.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
(7) Adjustment includes a $17 million loss on investment, $10 million of incremental costs associated with COVID-19 and costs associated with certain divestitures. COVID-19 related costs include incremental costs incurred relating to fees to cancel marketing events and increased cleaning and sanitization materials, among other things. For the three and twelve months ended December 31, 2019, adjustment reflects transaction and other costs related to acquisitions and divestitures.
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Assets: | | | | | | |
| Automotive | | $ | 7,858,334 | | | $ | 7,376,408 | | | $ | 6,248,117 | |
| Industrial | | 1,911,520 | | | 1,993,457 | | | 1,792,662 | |
| Corporate | | 254,627 | | | 527,126 | | | 297,282 | |
| Goodwill and other intangible assets | | 3,415,734 | | | 3,785,616 | | | 3,374,718 | |
| Discontinued operations | | 0 | | | 963,022 | | | 970,261 | |
| Total assets | | $ | 13,440,215 | | | $ | 14,645,629 | | | $ | 12,683,040 | |
| | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization: | | | | | | |
| Automotive | | $ | 120,932 | | | $ | 122,905 | | | $ | 105,238 | |
| Industrial | | 16,315 | | | 17,577 | | | 14,518 | |
| Corporate | | 40,633 | | | 24,575 | | | 24,339 | |
| Intangible asset amortization | | 94,962 | | | 92,206 | | | 83,489 | |
| Total depreciation and amortization | | $ | 272,842 | | | $ | 257,263 | | | $ | 227,584 | |
| Capital expenditures: | | | | | | |
| Automotive | | $ | 133,523 | | | $ | 227,420 | | | $ | 198,910 | |
| Industrial | | 19,287 | | | 39,003 | | | 21,783 | |
| Corporate | | 692 | | | 11,450 | | | 5,813 | |
| Total capital expenditures | | $ | 153,502 | | | $ | 277,873 | | | $ | 226,506 | |
| Net sales: | | | | | | |
| United States | | $ | 10,863,348 | | | $ | 12,226,381 | | | $ | 12,083,120 | |
| Europe | | 2,408,913 | | | 2,223,498 | | | 1,860,912 | |
| Canada | | 1,526,202 | | | 1,614,659 | | | 1,565,393 | |
| Australasia | | 1,691,190 | | | 1,369,361 | | | 1,193,148 | |
| Mexico | | 47,780 | | | 88,335 | | | 129,032 | |
| Total net sales | | $ | 16,537,433 | | | $ | 17,522,234 | | | $ | 16,831,605 | |
| Net property, plant and equipment: | | | | | | |
| United States | | $ | 728,802 | | | $ | 763,746 | | | $ | 693,683 | |
| Europe | | 164,268 | | | 153,357 | | | 110,184 | |
| Canada | | 102,409 | | | 103,320 | | | 91,195 | |
| Australasia | | 165,596 | | | 147,457 | | | 95,578 | |
| Mexico | | 968 | | | 5,808 | | | 4,014 | |
| Total net property, plant and equipment | | $ | 1,162,043 | | | $ | 1,173,688 | | | $ | 994,654 | |
The following table presents disaggregated geographical net sales from contracts with customers by reportable segment. The Company believes this presentation best depicts how the nature, amount, timing and uncertainty of net sales and cash flows are affected by economic factors:
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| North America: | | | | | |
| Automotive | $ | 7,177,543 | | | $ | 7,613,047 | | | $ | 7,478,961 | |
| Industrial | 5,259,787 | | | 6,316,328 | | | 6,298,584 | |
| Total North America | $ | 12,437,330 | | | $ | 13,929,375 | | | $ | 13,777,545 | |
| Australasia: | | | | | |
| Automotive | $ | 1,274,239 | | | $ | 1,157,357 | | | $ | 1,193,148 | |
| Industrial | 416,951 | | | 212,004 | | | 0 | |
| Total Australasia | $ | 1,691,190 | | | $ | 1,369,361 | | | $ | 1,193,148 | |
| Europe - Automotive | $ | 2,408,913 | | | $ | 2,223,498 | | | $ | 1,860,912 | |
| Total net sales | $ | 16,537,433 | | | $ | 17,522,234 | | | $ | 16,831,605 | |
16. Restructuring
In October of 2019, the Company approved certain restructuring actions (the "2019 Cost Savings Plan") across its subsidiaries primarily targeted at simplifying organizational structures and distribution networks. Among other things, the 2019 Cost Savings Plan resulted in workforce reductions and facility closures and consolidations. The Company executed a VRP for its U.S. and Canadian subsidiaries in the fourth quarter of 2019 in connection with this plan.
The table below summarizes costs incurred for the 2019 Cost Savings Plan:
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Restructuring costs | | $ | 50,019 | | | $ | 100,023 | |
| Special termination costs | | 0 | | | 42,757 | |
| Total costs incurred | | $ | 50,019 | | | $ | 142,780 | |
The 2019 Cost Savings Plan was approved and funded by the Company's corporate office and therefore these costs are not allocated to the Company's segments. See the segment data footnote for more information. No material further costs are expected to be incurred for the 2019 Cost Savings Plan.
The table below summarizes the activity related to the restructuring costs discussed above. Asfully paid as of December 31, 2020, the current portion2021.
Environmental Liabilities
Item 103 of the restructuring liability is included in other current liabilities on the consolidated balance sheet.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Severance and other employee costs | | Facility and closure costs | | Accelerated operating lease costs | | Asset impairments | | Total |
| Liability as of January 1, 2020 | | $ | 72,192 | | | $ | 6,639 | | | $ | 0 | | | $ | 0 | | | $ | 78,831 | |
| Restructuring costs | | 20,631 | | | 16,421 | | | 6,724 | | | 6,243 | | | 50,019 | |
| Cash payments | | (72,365) | | | (13,245) | | | 0 | | | 0 | | | (85,610) | |
| Non-cash charges | | 0 | | | 0 | | | (6,724) | | | (6,243) | | | (12,967) | |
| Translation | | 936 | | | 318 | | | 0 | | | 0 | | 1,254 | |
| Liability as of December 31, 2020 | | $ | 21,394 | | | $ | 10,133 | | | $ | 0 | | | $ | 0 | | | $ | 31,527 | |
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
17. Quarterly Financial Data (Unaudited)
The followingcertain environmental matters when a governmental authority is a summary of the quarterly results of operations for the years ended December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
(In thousands, except per share data) | | March 31, 2020 | | June 30, 2020 | | Sept. 30, 2020 | | Dec. 31, 2020 |
| Net sales | | $ | 4,092,526 | | | $ | 3,823,227 | | | $ | 4,370,086 | | | $ | 4,251,594 | |
| Gross profit | | $ | 1,388,178 | | | $ | 1,290,487 | | | $ | 1,528,066 | | | $ | 1,448,110 | |
| Net income (loss) from continuing operations | | $ | 122,346 | | | $ | (363,501) | | | $ | 232,918 | | | $ | 171,632 | |
| Net income (loss) | | $ | 136,535 | | | $ | (564,372) | | | $ | 227,531 | | | $ | 171,204 | |
| Earnings per share from continuing operations: | | | | | | | | |
| Basic | | $ | 0.84 | | | $ | (2.52) | | | $ | 1.61 | | | $ | 1.19 | |
| Diluted | | $ | 0.84 | | | $ | (2.52) | | | $ | 1.61 | | | $ | 1.18 | |
| Earnings per share: | | | | | | | | |
| Basic | | $ | 0.94 | | | $ | (3.91) | | | $ | 1.58 | | | $ | 1.19 | |
| Diluted | | $ | 0.94 | | | $ | (3.91) | | | $ | 1.57 | | | $ | 1.18 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| (In thousands, except per share data) | | March 31, 2019 | | June 30, 2019 | | Sept. 30, 2019 | | Dec. 31, 2019 |
| Net sales | | $ | 4,259,129 | | | $ | 4,457,931 | | | $ | 4,525,284 | | | $ | 4,279,890 | |
| Gross profit | | $ | 1,392,798 | | | $ | 1,482,704 | | | $ | 1,505,233 | | | $ | 1,478,948 | |
| Net income from continuing operations | | $ | 145,684 | | | $ | 209,519 | | | $ | 212,256 | | | $ | 79,016 | |
| Net income | | $ | 160,250 | | | $ | 224,430 | | | $ | 227,487 | | | $ | 8,918 | |
| Earnings per share from continuing operations: | | | | | | | | |
| Basic | | $ | 1.00 | | | $ | 1.43 | | | $ | 1.46 | | | $ | 0.54 | |
| Diluted | | $ | 0.99 | | | $ | 1.43 | | | $ | 1.45 | | | $ | 0.54 | |
| Earnings per share: | | | | | | | | |
| Basic | | $ | 1.10 | | | $ | 1.54 | | | $ | 1.56 | | | $ | 0.06 | |
| Diluted | | $ | 1.09 | | | $ | 1.53 | | | $ | 1.56 | | | $ | 0.06 | |
We recorded the quarterly earnings per share amounts as if each quarter was a discrete period. As a result, the sum of the basic and diluted earnings per share will not necessarily total the annual basic and diluted earnings per share.
Certain of the quarterly results identified in the table above include material, unusual or infrequently occurring items as follows on a pre-tax basis:
In the second quarter of 2020, the Company recorded a goodwill impairment charge of $506,721. Referparty to the goodwillproceedings and other intangible assets footnote within the Notessuch proceedings involve potential monetary sanctions that we reasonably believe will exceed an applied threshold not to the Consolidated Financial Statementsexceed $1 million. Applying this threshold, there are no environmental matters to disclose for additional information.
In the fourth quarter of 2019, the Company recognized $142,780 in total restructuring costs and special termination costs. The Company recognized $50,019 in total restructuring costs for the year ending December 31, 2020. Refer to the restructuring footnote in the Notes to Consolidated Financial Statements for additional information.
During the fourth quarter of 2020, the Company determined that inventory was overstated because certain consideration received from vendors was not properly recognized as a reduction to carrying amount of inventory in the years ending December 31, 2019 and prior. The Company corrected this misstatement and recorded an adjustment to decrease inventory and increase cost of goods sold by $40,000 during the quarter ended December 31, 2020. In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company concluded that this misstatement was not material to the Company's previously issued annual and interim financial statements. The Company also concluded the correction of this misstatement during the quarter ended December 31, 2020 was not material to the 2020 consolidated financial statements.period.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
Management’s conclusion regarding the effectiveness of disclosure controls and procedures
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company’sour management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the Company’sour disclosure controls and procedures, as such term is defined in SEC Rule 13a-15(e). Based on that evaluation, the Company’sour management, including the CEO and CFO, concluded that the Company’sour disclosure controls and procedures were effective, as of December 31, 2020,2022, to ensure that material information was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s report on internal control over financial reporting
The management of Genuine Parts Company and its Subsidiaries (the “Company”“company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.
The Company’sOur internal control system was designed to provide reasonable assurance to the Company’sour management and to the board of directors regarding the preparation and fair presentation of the Company’sour published consolidated financial statements. The Company’sOur internal control over financial reporting includes those policies and procedures that:
i. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;company;
ii. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Companycompany are being made only in accordance with authorizations of management and directors of the Company;company; and
iii. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’sour assets that could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
The Company’sOur management, including our CEO and CFO, assessed the effectiveness of the Company’sour internal control over financial reporting as of December 31, 2020.2022. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) ("COSO") in “Internal Control-Integrated Framework.” Based on this assessment, management concluded that the Company’sour internal control over financial reporting was effective as of December 31, 2020.2022.
On January 3, 2022, the company, through its wholly-owned subsidiary, Motion Industries, Inc., acquired all of the equity interests in KDG for a purchase price of approximately $1.3 billion in cash. Consistent with guidance issued by the SEC that an assessment of a recently acquired business may be omitted from management’s report on internal control over financial reporting for one year following the acquisition, management excluded an assessment of the effectiveness of our internal control over financial reporting related to KDG. As of and for the fiscal year ended December 31, 2022 KDG represents approximately 5% of our consolidated total net sales and approximately 8% of our consolidated total assets.
Changes in internal control over financial reporting
There have been no changes in the Company’sour internal control over financial reporting during the Company’sour fourth fiscal quarter ended December 31, 20202022 that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
The effectiveness of the Company'sour internal control over financial reporting as of December 31, 20202022 has been audited by Ernst & Young LLP, an independent registered public accounting firm, which also audited our Consolidated Financial Statements for the year ended December 31, 2020.2022. Ernst & Young LLP's report on our internal control over financial reporting is set forth below.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Genuine Parts Company and Subsidiaries
Opinion on Internal Control overOver Financial Reporting
We have audited Genuine Parts Company and Subsidiaries’ internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Genuine Parts Company and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Genuine Parts Company and Subsidiaries as of December 31, 20202022, and 2019,2021, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020,2022, and the related notes and our report dated February 19, 202123, 2023, expressed an unqualified opinion thereon.
Basis offor Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 19, 202123, 2023
ITEM 9B. OTHER INFORMATION.
Not applicable.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS.
Executive officers of the Companycompany are electedappointed by the Board of Directors and each serves at the pleasure of the Board of Directors until his or her successor has been elected and qualified, or until his or her earlier death, resignation, removal, retirement or disqualification. The current executive officers of the Companycompany are:
Paul D. Donahue, age 64,66, was appointed Chairman of the Board and Chief Executive Officer of the Companycompany in April of 2019. He served as President and Chief Executive Officer from May 2016 - April 2019. Mr. Donahue was President of the Companycompany from January 2012 until April 2019, and he has been a Director of the Companycompany since April 2012. Previously, Mr. Donahue served as President of the Company’scompany’s U.S. Automotive Parts Group from July 2009 to February 1, 2016. Mr. Donahue served as Executive Vice President of the Companycompany from August 2007 until his appointment as President in 2012. Previously, Mr. Donahue was President and Chief Operating Officer of S.P. Richards Company from 2004 to 2007 and was Executive Vice President-Sales and Marketing in 2003, the year he joined the Company.company.
William P. Stengel, age 43,45, was appointed President and Chief Operating Officer of the Companycompany on January 15, 2021.1, 2023. Mr. Stengel previously served as President of the company from January 2021 and Executive Vice President and Chief Transformation Officer of the Companycompany from November 2019. Previously, Mr. Stengel worked for HD Supply, an Atlanta-based industrial distributor, where he served as President and Chief Executive Officer of HD Supply Facilities Maintenance, from June of 2017 to October of 2018. Prior to his role as President/CEO, he served as Chief Operating Officer for HD Supply Facilities Maintenance from September of 2016 to May of 2017 and prior to that role, he served as Chief Commercial Officer of HD Supply Facilities Maintenance from January of 2016 to September of 2016. Mr. Stengel served as Senior Vice President, Strategic Business Development and Investor Relations of HD Supply from June of 2013 to January of 2016. Prior to HD Supply, Mr. Stengel worked in the Strategic Business Development group at theThe Home Depot as well as at Bank of America and Stonebridge Associates in various investment banking roles.
Carol B. YanceyBert Nappier, age 57, has been48, was appointed Executive Vice President and Chief Financial Officer of the Company since March 2013, and also held the additional title of Corporate Secretary of the Company up to February 2015. Ms. Yancey was Senior Vice President - Finance and Corporate Secretary from 2005 until her appointmenton May 2, 2022. Mr. Nappier served as Executive Vice President, - Finance in November 2012. Previously, Ms. Yancey was named Vice President of the Company in 1999 and Corporate Secretary in 1995.Treasurer at FedEx Corporation (“FedEx”) from June 2020 to January 2022, where he led teams responsible for corporate finance, cash management, global tax planning and strategy, risk management and corporate development. Prior to that shedate, Mr. Nappier served in various other roles at FedEx, including as President, FedEx Express Europe and Chief Executive Officer, TNT Express, Senior Vice President, International Chief Financial Officer and Staff Vice President, Staff Vice President and Corporate Controller. Before joining FedEx in 2005, Mr. Nappier served as Assistant Corporate Secretary from 1994 to 1995, Director of Shareholder Relations from 1992 to 1994,SEC Reporting and Director of Investor RelationsAccounting for Wright Medical Technology, Inc. and an Audit Manager at Ernst & Young LLP, with six years in 1991, when she joined the Company.public accounting.
James R. Neill, age 59,61, was appointed Executive Vice President ofand Chief Human ResourcesResource Officer of the Companycompany in February of 2020. Prior to that, he served as Senior Vice President of Human Resources from April 2014 to February of 2020. Mr. Neill was Senior Vice President of Employee Development and HR Services from April 2013 until his appointment as Senior Vice President of Human Resources of the Company.company. Previously, Mr. Neill served as the Senior Vice President of Human Resources at Motion Industries from 2008 to 2013. Mr. Neill joined Motion in 2006 as Vice President of Human Resources and served in that role from 2006 to 2007.
Randall P. Breaux, age 58,60, was appointed President of Motion Industries on January 1, 2019. Mr. Breaux was Executive Vice President of Marketing, Distribution, and Strategic Planning at Motion from January 2018 until his appointment to President. Previously, he served as Senior Vice President of Marketing, Distribution, and Purchasing from 2015 to 2017. Mr. Breaux joined Motion in 2011 as Senior Vice President of Marketing, Product Management, and Strategic Planning.
Kevin E. Herron, age 58,60, was appointed President of the U.S. Automotive Parts groupGroup on January 1, 2019. Mr. Herron previously served as Executive Vice President - U.S. Automotive Parts Group from 2018 to 2019, and previous to that role, he was Group Senior Vice President of the U.S. Automotive Parts Group from 2014 to 2018. From 2010 to 2014 he was Division Vice President for the Midwest of the U.S. Automotive Parts Group, and prior to that he was Regional Vice President for UAP, the Canadian division of the Automotive Parts Group. He held that role from 2006 to 2010. Prior to that, Mr. Herron served as Regional Vice President of Corporate Stores from 2004 to 2006, and previously he was District Manager in Maine from 1995 to 2003 and held the same title in Vermont during 1994. Prior to those roles, he was Area Manager in Syracuse, New York from 1991 to 1993. Mr. Herron began his career at the Companycompany as a management trainee in Syracuse and served in that role from 1989 to 1990.
Further information required by this item is set forth under the heading “Nominees for Director”, under the heading “Corporate Governance - Code of Conduct and Ethics”Conduct”, under the heading “Corporate Governance - Board Committees - Audit Committee”, and under the heading “Corporate Governance - Director Nominating Process” of the Proxy Statement and is incorporated herein by reference. We have adopted a Code of Conduct, and Ethics, which is available on the “Investor Relations” section of our website. Any amendments to, or waivers of, the Code of Code of EthicsConduct will be disclosed on our website promptly following the date of such amendment or waiver.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this item is set forth under the headings “Executive Compensation”, “Additional Information Regarding Executive Compensation”, “2020“2022 Grants of Plan-Based Awards”, “2020“2022 Outstanding Equity Awards at Fiscal Year-End”, “2020“2022 Option Exercises and Stock Vested”, “2020“2022 Pension Benefits”, “2020“2022 Nonqualified Deferred Compensation”, “Post Termination Payments and Benefits”, “Compensation, Nominating and Governance Committee Report”, “Compensation, Nominating and Governance Committee Interlocks and Insider Participation” and “Compensation of Directors” of the Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Certain information required by this item is set forth below. Additional information required by this item is set forth under the headings “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management” of the Proxy Statement and is incorporated herein by reference.
Equity Compensation Plan Information
The following table gives information as of December 31, 20202022 about the common stock that may be issued under all of the Company’scompany’s existing equity compensation plans:
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| Plan Category | (a) Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights(1) | | (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |
| Equity Compensation Plans Approved by Shareholders: | 876,123 | | (2) | $ | 82.66 | | | — | | |
| 1,957,126 | | (3) | $ | 95.00 | | | 7,601,126 | | (5) |
| Equity Compensation Plans Not Approved by Shareholders: | 120,123 | | (4) | n/a | | 879,877 | | |
| Total | 2,953,372 | | | — | | | 8,481,003 | | |
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| Plan Category | | (a) Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights(1) | | (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |
| Equity Compensation Plans Approved by Shareholders: | | 113,596 | | (2) | $ | 88.33 | | | — | | |
| | 1,297,250 | | (3) | $ | 95.06 | | (5) | 6,926,578 | | (6) |
| Equity Compensation Plans Not Approved by Shareholders: | | 135,443 | | (4) | n/a | | 864,557 | | |
| Total | | 1,546,289 | | | — | | | 7,791,135 | | |
(1)Reflects the maximum number of shares issuable pursuant to the exercise or conversion of stock options, stock appreciation rights, restricted stock units and common stock equivalents. The actual number of shares issued upon exercise of stock appreciation rights is calculated based on the excess of fair market value of our common stock on date of exercise and the grant price of the stock appreciation rights.
(2)Genuine Parts Company 2006 Long-Term Incentive Plan
(3)Genuine Parts Company 2015 Incentive Plan
(4)Genuine Parts Company Directors' Deferred Compensation Plan, as amended
(5)The weighted average exercise price of outstanding options, warrants and rights is calculated based solely on the exercise price of outstanding options and does not take into account outstanding restricted stock units, which have no exercise price.
(6)All of these shares are available for issuance pursuant to grants of full-value stock awards.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Information required by this item is set forth under the headings “Corporate Governance — Independent Directors” and “Transactions with Related Persons” of the Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Information required by this item is set forth under the heading “Proposal 3. Ratification of Selection of Independent Auditors” of the Proxy Statement and is incorporated herein by reference.
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Documents filed as part of this report
(1) Financial Statements
The following consolidated financial statements of Genuine Parts Company and Subsidiaries are incorporated in this Item 15 by reference from Part II-Item 8. Financial Statements and Supplemental Data included in this Annual Report on Form 10-K. See Index to Consolidated Financial Statements.
Report of independent registered public accounting firm on the financial statements
Consolidated balance sheets — December 31, 20202022 and 20192021
Consolidated statements of income — Years ended December 31, 2020, 20192022, 2021 and 20182020
Consolidated statements of comprehensive income — Years ended December 31, 2020, 20192022, 2021 and 20182020
Consolidated statements of equity — Years ended December 31, 2020, 20192022, 2021 and 20182020
Consolidated statements of cash flows — Years ended December 31, 2020, 20192022, 2021 and 20182020
Notes to consolidated financial statements — December 31, 20202022
(2) Financial Statement Schedules
Schedules are omitted because the information is not required or because the information required is included in the financial statements or notes thereto.
(3) Exhibits
The following exhibits are filed as part of or incorporated by reference in this report. Exhibits that are incorporated by reference to documents filed previously by the Companycompany under the Securities Exchange Act of 1934, as amended, are filed with the Securities and Exchange Commission under File No. 1-5690. The Companycompany will furnish a copy of any exhibit upon request to the Company’scompany’s Corporate Secretary.
Instruments with respect to long-term debt where the total amount of securities authorized there under does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis have not been filed. The Registrant agrees to furnish to the Commission a copy of each such instrument upon request.
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| Exhibit Number | | Description |
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| Exhibit 2.1 | | Interest Purchase Agreement, by and among Ruby Holdings II, LLC, as the company, Ruby Topco LLC, as the Seller, Motion Industries, Inc., as the Buyer and Genuine Parts Company, as the Parent, dated as of December 15, 2021 (Incorporated herein by reference from the company's annual report on Form 10-K dated February 17, 2022.) |
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| Exhibit 3.1 | | |
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| Exhibit 4.1 | |
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| Exhibit 4.2 | | Specimen Common Stock Certificate. (Incorporated herein by reference from the Company’scompany’s Registration Statement on Form S-1, Registration No. 33-63874.) |
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| Exhibit 10.31* | | |
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| Exhibit 10.32 | | Syndicated Facility Agreement dated October 30, 2020 among Genuine Parts Company, UAP, Inc., and Certain Designated Subsidiaries as Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent, Domestic Swing Line Lender and L/C Issuer, JPMorgan Chase Bank, N.A., acting through its Toronto Branch, as Canadian Swing Line Lender and the other Lenders and L/C Issuers party thereto. (Incorporated herein by reference from the Company's Current Reportcompany's current report on Form 8-K dated November 2, 2020.) |
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| Exhibit 10.33 | | First Amendment, dated as of September 30, 2021, to Genuine Parts Company Syndicated Facility Agreement dated October 30, 2020 among Genuine Parts Company, UAP, Inc., and Certain Designated Subsidiaries as Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent, Domestic Swing Line Lender and L/C Issuer, JPMorgan Chase Bank, N.A., acting through its Toronto Bank, as Canadian Swing Line Lender and the other Lenders and L/C Issuers party thereto. (Incorporated herein by reference from the company's quarterly report on Form 10-Q dated October 21, 2021.) |
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| Exhibit 10.34* | | |
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| * | Indicates management contracts and compensatory plans and arrangements. |
| | | | | | | | |
| Exhibit 21 | | |
| Exhibit 23 | | |
| Exhibit 31.1 | | |
| Exhibit 31.2 | | |
| Exhibit 32 | | |
| Exhibit 101.INS | | XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
| Exhibit 101.SCH | | XBRL Taxonomy Extension Schema Document |
| Exhibit 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| Exhibit 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| Exhibit 101.LAB | | XBRL Taxonomy Extension Labels Linkbase Document |
| Exhibit 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
| Exhibit 104 | | The cover page from this Annual Report on Form 10-K for the year ended December 31, 20202022 formatted in Inline XBRL |
ITEM 16. FORM 10-K SUMMARY.
Not applicable.
SIGNATURES.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
GENUINE PARTS COMPANY
| | | | | | | | |
| | Genuine Parts Company
(Registrant) | | | | | | | | | | | | | | | |
| | |
| Date: February 23, 2023 | | /s/ Paul D. Donahue | | 2/19/2021 |
| | | /s/ Carol B. Yancey | | 2/19/2021 | |
| Paul D. Donahue | | (Date) |
| | | Carol B. Yancey | | (Date) | |
| Chairman and Chief Executive Officer |
| | |
| Date: February 23, 2023 | | /s/ Bert Nappier |
| | Bert Nappier |
| | Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial and
Accounting OfficerOfficer) | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| /s/ Paul D. Donahue | | 2/15/202121/2023 | | | | /s/ Carol B. YanceyBert Nappier | | 2/15/202121/2023 | |
| Paul D. Donahue | | (Date) | | | | Carol B. YanceyBert Nappier | | (Date) | |
Director
Chairman and Chief Executive Officer (Principal Executive Officer) | | | | | Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Accounting Officer (PrincipalPrincipal Financial and
Accounting Officer) | | |
| | | | |
| /s/ Elizabeth W. Camp | | 2/15/202121/2023 | | | | /s/ Richard Cox, Jr. | | 2/15/202121/2023 | |
| Elizabeth W. Camp | | (Date) | | | | Richard Cox, Jr. | | (Date) | |
| Director | | | | | | Director | | | |
| | | | | | | | | |
| /s/ Gary P. Fayard | | 2/15/202121/2023 | | | | /s/ P. Russell Hardin | | 2/15/202121/2023 | |
| Gary P. Fayard | | (Date) | | | | P. Russell Hardin | | (Date) |
| Director | | | | | | Director | |
| | | | | | | |
| /s/ John R. Holder | | 2/21/2023 | | | | /s/ Donna W. Hyland | | 2/21/2023 |
| John R. Holder | | | | | | Donna W. Hyland | | (Date) |
| Director | | | | | | Director | | |
| | | | | | | | |
/s/ John R. Holder | | 2/15/2021 | | | | /s/ Donna W. Hyland | | 2/15/2021 | |
John R. Holder | | | | | | Donna W. Hyland | | (Date) | |
Director | | | | | | Director | | | |
| | | | | | | | | |
/s/ John D. Johns | | 2/15/202121/2023 | | | | /s/ Jean-Jacques Lafont | | 2/15/202121/2023 | |
| John D. Johns | | (Date) | | | | Jean-Jacques Lafont | | (Date) | |
| Director | | | | | | Director | | | |
| | | | | | | | | |
| /s/ Robert C. Loudermilk, Jr. | | 2/15/202121/2023 | | | | /s/ Wendy B. Needham | 2/15/202121/2023 | |
| Robert C. Loudermilk, Jr. | | (Date) | | | | Wendy B. Needham | | (Date) | |
| Director | | | | | | Director | | | |
| | | | | | | | | |
| /s/ Juliette W. Pryor | | 2/15/202121/2023 | | | | /s/ E. Jenner Wood, III | | 2/15/202121/2023 | |
| Juliette W. Pryor | | (Date) | | | | E. Jenner Wood, III | | (Date) | |
| Director | | | | | | Director | | | |
