UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2018



¨	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)

__________________________________________



GEORGIA		58-0254510
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2999 WILDWOOD PARKWAY, ATLANTA, GA		30339
(Address of principal executive offices)		(Zip Code)

678-934-5000

(Registrant’s telephone number, including area code)

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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.



Large accelerated filer	ý	Accelerated filer	¨

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	¨

Emerging growth company	o

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		Outstanding at ~~September~~June 30, ~~2017~~2018
Common Stock, $1.00 par value per share		~~146,613,496 Shares~~146,752,732

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
	(unaudited)						(unaudited)
	(in thousands, except share and per share data)						(in thousands, except share and per share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	210,082		$	242,879		$	355,141		$	314,899
Trade accounts receivable, less allowance for doubtful accounts (2017 – $19,214; 2016 – $15,557)	2,155,948			1,938,562
Trade accounts receivable, less allowance for doubtful accounts (2018 – $25,329; 2017 – $17,612)							2,669,649			2,421,563
Merchandise inventories, net	3,354,178			3,210,320			3,484,949			3,771,089
Prepaid expenses and other current assets	596,400			556,670			1,013,630			805,342
TOTAL CURRENT ASSETS	6,316,608			5,948,431			7,523,369			7,312,893
Goodwill	1,059,637			956,153			2,142,822			2,153,988
Other intangible assets, less accumulated amortization	653,932			618,510			1,356,149			1,400,392
Deferred tax assets	122,797			132,652			25,480			40,158
Other assets	581,047			475,530			600,124			568,248
Property, plant and equipment, less accumulated depreciation (2017 – $1,018,211; 2016 – $960,999)	760,213			728,124
Property, plant and equipment, less accumulated depreciation (2018 – $1,117,925; 2017 – $1,044,353)							918,578			936,702
TOTAL ASSETS	$	9,494,234		$	8,859,400		$	12,566,522		$	12,412,381
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Trade accounts payable	$	3,275,155		$	3,081,111		$	3,831,274		$	3,634,859
Current portion of debt	595,000			325,000			686,415			694,989
Dividends payable	98,959			97,584			105,661			99,000
Income taxes payable	26,666			6,354			17,782			10,736
Other current liabilities	806,887			734,101			1,015,762			1,034,441
TOTAL CURRENT LIABILITIES	4,802,667			4,244,150			5,656,894			5,474,025
Long-term debt	550,000			550,000			2,490,552			2,550,020
Pension and other post–retirement benefit liabilities	260,243			341,510			200,137			229,868
Deferred tax liabilities	50,106			48,326			174,564			193,308
Other long-term liabilities	441,090			468,058			482,048			501,004
EQUITY:
Preferred stock, par value – $1 per share
Authorized – 10,000,000 shares; none issued	-0-			-0-			-0-			-0-
Common stock, par value – $1 per share
Authorized – 450,000,000 shares; issued and outstanding – 2017 – 146,613,496 shares; 2016 – 148,410,422 shares	146,613			148,410
Authorized – 450,000,000 shares; issued and outstanding – 2018 – 146,752,732 shares; 2017 – 146,652,615 shares							146,753			146,653
Additional paid-in capital	66,152			56,605			72,211			68,126
Retained earnings	4,042,404			4,001,734			4,236,359			4,049,965
Accumulated other comprehensive loss	(876,934		)	(1,013,021		)	(943,351		)	(852,592		)
TOTAL PARENT EQUITY	3,378,235			3,193,728			3,511,972			3,412,152
Noncontrolling interests in subsidiaries	11,893			13,628			50,355			52,004
TOTAL EQUITY	3,390,128			3,207,356			3,562,327			3,464,156
TOTAL LIABILITIES AND EQUITY	$	9,494,234		$	8,859,400		$	12,566,522		$	12,412,381

See notes to condensed consolidated financial statements.

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,						Six Months Ended June 30,
	2017		2016		2017		2016		2018			2017			2018			2017
	(unaudited) (in thousands, except per share data)								(unaudited) (in thousands, except per share data)
Net sales	$	4,095,906	$	3,941,743	$	12,101,725	$	11,559,648	$	4,822,065		$	4,100,178		$	9,408,359		$	8,005,819
Cost of goods sold	2,869,016		2,743,142		8,479,402		8,091,124		3,300,479			2,860,466			6,450,966			5,610,386
Gross profit	1,226,890		1,198,601		3,622,323		3,468,524		1,521,586			1,239,712			2,957,393			2,395,433
Operating expenses:
Selling, administrative and other expenses	940,259		869,562		2,717,416		2,522,223		1,148,217			906,943			2,281,988			1,784,299
Depreciation and amortization	40,276		37,682		117,640		108,247		58,451			39,232			116,814			77,364
	980,535		907,244		2,835,056		2,630,470

Provision for doubtful accounts									3,666			2,546			6,367			5,674
Total operating expenses									1,210,334			948,721			2,405,169			1,867,337
Non-operating expenses (income):
Interest expense									26,476			7,446			50,585			14,225
Other									(15,495		)	(13,592		)	(27,951		)	(27,041		)
Total non-operating expenses (income)									10,981			(6,146		)	22,634			(12,816		)
Income before income taxes	246,355		291,357		787,267		838,054		300,271			297,137			529,590			540,912
Income taxes	87,913		106,031		278,693		303,334		73,299			107,165			126,042			190,780
Net income	$	158,442	$	185,326	$	508,574	$	534,720	$	226,972		$	189,972		$	403,548		$	350,132
Basic net income per common share	$	1.08	$	1.24	$	3.45	$	3.58	$	1.55		$	1.29		$	2.75		$	2.37
Diluted net income per common share	$	1.08	$	1.24	$	3.44	$	3.56	$	1.54		$	1.29		$	2.74		$	2.36
Dividends declared per common share	$	.6750	$	.6575	$	2.025	$	1.973	$	.7200		$	.6750		$	1.440		$	1.350
Weighted average common shares outstanding	146,720		148,899		147,312		149,243		146,748			147,079			146,738			147,613
Dilutive effect of stock options and non-vested restricted stock awards	502		828		561		781		512			571			548			598
Weighted average common shares outstanding – assuming dilution	147,222		149,727		147,873		150,024		147,260			147,650			147,286			148,211

Net income									$	226,972		$	189,972		$	403,548		$	350,132
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustment									(163,993		)	23,157			(121,113		)	80,177
Net investment hedge, net of income taxes in 2018 — ($5,935)									32,755			—			16,045			—
Pension and postretirement benefit adjustments, net of income taxes in 2018 — $2,642 and $5,290; 2017 — $3,568 and $7,139 respectively									7,145			5,723			14,309			11,455
Other comprehensive (loss) income, net of income taxes									(124,093		)	28,880			(90,759		)	91,632
Comprehensive income	$	202,897	$	201,981	$	644,661	$	599,828	$	102,879		$	218,852		$	312,789		$	441,764

See notes to condensed consolidated financial statements.

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
	(unaudited) (in thousands)						(unaudited) (in thousands)
OPERATING ACTIVITIES:
Net income	$	508,574		$	534,720		$	403,548		$	350,132
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	117,640			108,247			116,814			77,364
Share-based compensation	12,912			15,362			9,035			8,086
Excess tax benefits from share-based compensation	(2,504		)	(10,475		)	(2,599		)	(2,245		)
Changes in operating assets and liabilities	(94,265		)	93,498			(71,723		)	(88,053		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	542,357			741,352			455,075			345,284
INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(97,181		)	(86,650		)	(65,146		)	(54,095		)
Acquisitions and other investing activities	(289,353		)	(365,545		)	(82,545		)	(240,216		)
NET CASH USED IN INVESTING ACTIVITIES	(386,534		)	(452,195		)	(147,691		)	(294,311		)
FINANCING ACTIVITIES:
Proceeds from debt	3,420,000			3,020,000			2,320,906			2,250,000
Payments on debt	(3,150,000		)	(2,870,000		)	(2,367,284		)	(1,995,000		)
Share-based awards exercised	(3,289		)	(11,942		)	(4,851		)	(3,014		)
Excess tax benefits from share-based compensation	—			10,475
Dividends paid	(296,517		)	(288,909		)	(204,649		)	(197,408		)
Purchases of stock	(171,884		)	(143,810		)	—			(153,508		)
NET CASH USED IN FINANCING ACTIVITIES	(201,690		)	(284,186		)	(255,878		)	(98,930		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	13,070			8,575			(11,264		)	8,223
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(32,797		)	13,546
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS							40,242			(39,734		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	242,879			211,631			314,899			242,879
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	210,082		$	225,177		$	355,141		$	203,145

See notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Note A – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes required by accounting principles generally accepted in the ~~United States~~U.S. for complete financial statements. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K of Genuine Parts Company (the “Company”) for the year ended December 31, ~~2016.~~2017. Accordingly, the unaudited interim condensed consolidated financial statements and related disclosures herein should be read in conjunction with the Company’s ~~2016~~2017 Annual Report on Form 10-K.

The preparation of interim financial statements requires management to make estimates and assumptions ~~for~~that affect the amounts reported in the condensed consolidated financial statements. Specifically, the Company makes estimates and assumptions in its interim condensed consolidated financial statements for inventory adjustments, the accrual of bad debts, customer sales returns, and volume incentives earned, among others. Inventory adjustments (including adjustments for a majority of inventories that are valued under the last-in, first-out (“LIFO”) method) are accrued on an interim basis and adjusted in the fourth quarter based on the annual book to physical inventory adjustment and LIFO valuation, which isare performed each year-end. Reserves for bad debts and customer sales returns are estimated and accrued on an interim basis based upon historical experience. Volume incentives are estimated based upon cumulative and projected purchasing levels. The estimates and assumptions for interim reporting may change upon final determination at year-end, and such changes may be significant.

In the opinion of management, all adjustments necessary for a fair presentation of the Company’s financial results for the interim periods have been made. These adjustments are of a normal recurring nature. The results of operations for the ~~nine month period~~six months ended ~~September~~June 30, ~~2017~~2018 are not necessarily indicative of results for the entire year. The Company has evaluated subsequent events through the date the financial statements covered by this quarterly report were issued.

Note B – Segment Information

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands) (in thousands)
Net sales:
Automotive $ 2,171,008
$ 2,095,030
$ 6,333,495
$ 6,115,186
Industrial 1,244,234
1,162,224
3,729,183
3,482,246
Office products 509,966
535,175
1,533,372
1,493,434
Electrical/electronic materials 199,236
178,448
588,281
538,803
Other (28,538 ) (29,134 ) (82,606 ) (70,021 )
Total net sales $ 4,095,906
$ 3,941,743
$ 12,101,725
$ 11,559,648
Operating profit:
Automotive $ 178,202
$ 197,874
$ 537,291
$ 555,156
Industrial 94,595
85,608
281,269
255,704
Office products 23,974
30,257
85,184
97,101
Electrical/electronic materials 13,547
14,277
42,715
45,105
Total operating segment profit 310,318
328,016
946,459
953,066
Interest expense, net (8,202 ) (5,244 ) (21,254 ) (14,731 )
Other intangible assets amortization (11,845 ) (10,339 ) (34,085 ) (28,324 )
Other, net (43,916 ) (21,076 ) (103,853 ) (71,957 )
Income before income taxes $ 246,355
$ 291,357
$ 787,267
$ 838,054



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Net sales: (1)
Automotive	$	2,736,201		$	2,142,922		$	5,300,460		$	4,121,368
Industrial (2)	1,602,665			1,474,209			3,150,609			2,903,168
Business products	483,199			483,047			957,290			981,283
Total net sales	$	4,822,065		$	4,100,178		$	9,408,359		$	8,005,819
Operating profit:
Automotive	$	243,611		$	207,332		$	428,317		$	359,089
Industrial (2)	125,191			111,833			237,382			215,842
Business products	21,422			30,091			43,023			61,210
Total operating profit	390,224			349,256			708,722			636,141
Interest expense, net	(25,525		)	(6,878		)	(48,832		)	(13,052		)
Intangible asset amortization	(21,806		)	(11,434		)	(43,209		)	(22,240		)
Corporate expense (3)	(42,622		)	(33,807		)	(87,091		)	(59,937		)
Income before income taxes	$	300,271		$	297,137		$	529,590		$	540,912

~~Net sales by segment exclude the effect of certain discounts, incentives and freight billed to customers.~~(1) The ~~line item “Other” represents the~~ net effect of ~~the~~ discounts, incentives, and freight billed to customers ~~which~~has been allocated to their respective segments for the current and prior periods. Previously, the net effect of such items were captured and presented separately in a line item entitled “Other.”

(2) Effective January 1, 2018, the electrical/electronic materials segment became a division of the industrial segment. These two reporting segments became a single reporting segment, the Industrial Parts Group. The change in segment reporting is ~~reported~~presented retrospectively.

(3) Includes $9,105 and $22,114 for the three and six months ended June 30, 2018, respectively, in certain transaction and other costs related to the acquisition of Alliance Automotive Group ("AAG") and the pending transaction to spin-off the Company's Business Products Group, S.P. Richards, and combine it with Essendant, Inc. ("Essendant"). See the acquisitions and divestitures footnote for additional information.

Net sales is disaggregated by geographical region for each of the Company’s segments, as ~~a component~~the Company deems this presentation best depicts how the nature, amount, timing and uncertainty of net sales ~~in the Company’s condensed consolidated statements of income~~ and ~~comprehensive income.~~cash flows are affected by economic factors. Disaggregated geographical net sales by reportable segment are summarized as follows:



	Primary Geographical Markets:
	Three Months Ended June 30
	North America				Australasia				Europe				Total
	2018		2017		2018		2017		2018		2017		2018		2017
Reportable Segments:
Automotive	$	1,944,980	$	1,859,478	$	302,799	$	283,444	$	488,422	$	—	$	2,736,201	$	2,142,922
Industrial	1,602,665		1,474,209		—		—		—		—		1,602,665		1,474,209
Business products	483,199		483,047		—		—		—		—		483,199		483,047
Total net sales from contracts with customers	$	4,030,844	$	3,816,734	$	302,799	$	283,444	$	488,422	$	—	$	4,822,065	$	4,100,178



	Primary Geographical Markets:
	Six Months Ended June 30
	North America				Australasia				Europe				Total
	2018		2017		2018		2017		2018		2017		2018		2017
Reportable Segments:
Automotive	$	3,727,294	$	3,563,029	$	604,803	$	558,339	$	968,363	$	—	$	5,300,460	$	4,121,368
Industrial	3,150,609		2,903,168		—		—		—		—		3,150,609		2,903,168
Business products	957,290		981,283		—		—		—		—		957,290		981,283
Total net sales from contracts with customers	$	7,835,193	$	7,447,480	$	604,803	$	558,339	$	968,363	$	—	$	9,408,359	$	8,005,819

Note C – Revenue Recognition

The Company applied Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), using the modified retrospective method effective January 1, 2018. The cumulative effect of initially applying ASU 2014-09 and its amendments resulted in a reduction to the opening retained earnings balance of $8,000, prior to the tax adjustment, at January 1, 2018 and a related adjustment to other current liabilities as of that date. Revenue for periods prior to January 1, 2018 have not been adjusted and continue to be reported under Revenue Recognition (Topic 605). Upon adoption of ASU 2014-09, the Company also began classifying its estimate of merchandise returns expected in the next twelve months, which was $222,697 as of June 30, 2018, in prepaid expenses and other current assets. This estimate was historically classified in merchandise inventories, net and the amount was $203,589 as of December 31, 2017.

The Company primarily recognizes revenue at the point in time that transfer of control of products or services to customers occurs 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 does 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 transfers 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 accompanying balance sheets.

Product Distribution Revenues

The Company generates revenue primarily by distributing products through wholesale and retail channels. For wholesale customers, revenue is recognized when the goods are transferred to customers, title has passed and control of the goods has passed to the 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 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 offers software support, product cataloguing, marketing, training and other membership program and support services to certain customers. This revenue is recognized as services are provided. Revenue from these services is recognized over a short duration and the impact is not significant.

Variable Consideration

The Company’s 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 estimates variable consideration based on historical experience to determine the expected amount to which the Company will be entitled in exchange for transferring the promised goods or services to a customer. The Company recognizes estimated variable consideration as an adjustment to the transaction price when control of the related product 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.

Note D – Accumulated Other Comprehensive ~~Income (Loss)~~

~~The difference between comprehensive income and net income was due to foreign currency translation adjustments and pension and other post-retirement benefit adjustments, as summarized below.~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands) (in thousands)
Net income $ 158,442
$ 185,326
$ 508,574
$ 534,720
Other comprehensive income (loss):
Foreign currency translation 38,675
11,896
118,852
50,840
Pension and other post-retirement benefit adjustments:
Recognition of prior service credit, net of tax (212 ) (222 ) (637 ) (666 )
Recognition of actuarial loss, net of tax 5,992
4,981
17,872
14,934
Total other comprehensive income 44,455
16,655
136,087
65,108
Comprehensive income $ 202,897
$ 201,981
$ 644,661
$ 599,828
Loss

The following tables present the changes in accumulated other comprehensive loss by component for the ~~nine~~six months ended ~~September~~June 30:

2017
Changes in Accumulated Other
Comprehensive Loss by Component
Pension and
Other Post-
Retirement
Benefits Foreign
Currency
Translation Total
(in thousands)
Beginning balance, January 1 $ (609,080 ) $ (403,941 ) $ (1,013,021 )
Other comprehensive income before reclassifications, net of tax —
118,852
118,852
Amounts reclassified from accumulated other comprehensive loss, net of tax 17,235
—
17,235
Net current period other comprehensive income 17,235
118,852
136,087
Ending balance, September 30 $ (591,845 ) $ (285,089 ) $ (876,934 )



	2018
	Changes in Accumulated Other Comprehensive Loss by Component
	Pension and Other Post- Retirement Benefits			Net Investment Hedge			Foreign Currency Translation			Total
Beginning balance, January 1	$	(568,957	)	$	(17,388	)	$	(266,247	)	$	(852,592	)
Other comprehensive income (loss) before reclassifications, net of tax	—			16,045			(121,113		)	(105,068		)
Amounts reclassified from accumulated other comprehensive loss, net of tax	14,309			—			—			14,309
Net current period other comprehensive income (loss)	14,309			16,045			(121,113		)	(90,759		)
Ending balance, June 30	$	(554,648	)	$	(1,343	)	$	(387,360	)	$	(943,351	)


	2016
	Changes in Accumulated Other Comprehensive Loss by Component									2017
	Pension and Other Post- Retirement Benefits			Foreign Currency Translation			Total			Changes in Accumulated Other Comprehensive Loss by Component
	(in thousands)									Pension and Other Post- Retirement Benefits			Net Investment Hedge		Foreign Currency Translation			Total
Beginning balance, January 1	$	(535,634	)	$	(394,984	)	$	(930,618	)	$	(609,080	)	$	—	$	(403,941	)	$	(1,013,021	)
Other comprehensive income before reclassifications, net of tax	—			50,840			50,840			—			—		80,177			80,177
Amounts reclassified from accumulated other comprehensive loss, net of tax	14,268			—			14,268			11,455			—		—			11,455
Net current period other comprehensive income	14,268			50,840			65,108			11,455			—		80,177			91,632
Ending balance, September 30	$	(521,366	)	$	(344,144	)	$	(865,510	)
Ending balance, June 30										$	(597,625	)	$	—	$	(323,764	)	$	(921,389	)

The accumulated other comprehensive loss 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 net investment hedge is discussed in the non-derivative financial instrument footnote.

Note DE – Recent Accounting Pronouncements

Revenue from Contracts with Customers (Topic 606)

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ~~Accounting Standards Update (“ASU”)~~ASU 2014-09, ~~Revenue from Contracts with Customers~~ (~~Topic 606) ("ASU 2014-09"),~~ which ~~will create~~creates a single, comprehensive revenue recognition model for recognizing revenue from contracts with customers. The ~~standard is effective for interim~~Company adopted ASU 2014-09 and ~~annual reporting periods beginning after December 15, 2017 and may be adopted either retrospectively or~~its amendments on ~~a modified retrospective basis.~~January 1, 2018. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than ~~are~~were required under previously existing guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, among others.

~~The Company has established~~ ASU 2014-09 did not result in a ~~cross-functional implementation team to evaluate and implement~~significant change in the ~~new standard related to~~judgment or timing associated with the recognition of revenue from ~~contracts with customers. The Company primarily sells goods and recognizes revenue at point of~~the sale ~~or delivery and this will not change under the new standard. We are completing an analysis of revenue streams at each~~ of the ~~business units and are evaluating~~Company’s products or services. See the ~~impact the new standard may have on~~ revenue recognition. We expect to finalize our accounting policy in the short-term and implement any necessary changes to processes and controls in the fourth quarter. In addition, the Company is evaluating recently issued guidance on practical expedients as part of the transition decision.recognition footnote for additional information.

The Company plans to use the modified retrospective adoption method and does not believe there will be a material impact to the Company’s consolidated revenues upon adoption. However, the Company will present expanded disclosure in accordance with the requirements of the standard. The Company will continue to evaluate the impacts of the pending adoption of ASU 2014-09 and the preliminary assessments are subject to change.

~~In July 2015, the FASB issued ASU 2015-11,~~ ~~Inventory~~Leases (Topic ~~330): Simplifying the Measurement of Inventory~~ ("ASU 2015-11"), which modifies existing requirements regarding measuring first-in, first-out and average cost inventory at the lower of cost or market. Under existing standards, the market amount requires consideration of replacement cost, net realizable value (“NRV”), and NRV less an approximately normal profit margin. ASU 2015-11 replaces market with NRV, defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This eliminates the need to determine and consider replacement cost or NRV less an approximately normal profit margin when measuring inventory. The Company adopted ASU 2015-11 on January 1, 2017 and it did not have a material impact to the Company's condensed consolidated financial statements for the nine months ended September 30, 2017 and it will not have a material impact on the annual consolidated financial statements.842)

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"), which, among other things, requires an entity to recognize a right-of-use asset and a lease liability on the balance sheet for all leases, including operating leases, with a term greater than twelve months. Expanded disclosures with additional qualitative and quantitative information will also be required. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The new standard must be adopted using a modified retrospective transition. The Company ~~is currently evaluating~~has established a cross-functional team to evaluate and implement the ~~impact of ASU 2016-02 on its condensed consolidated financial statements and related disclosures.~~new standard. As disclosed in the leased properties footnote in the ~~2016~~2017 Annual Report on Form 10-K, the future minimum payments under noncancelable operating leases are approximately ~~$865.0 million and the~~$1,140,000 as of December 31, 2017. The Company believes the adoption of this standard will have a significant impact on the consolidated balance sheets.

~~In March 2016,~~

Income Tax Reform

As more fully discussed in Note 7 of the ~~FASB issued ASU 2016-09,~~ ~~Compensation—Stock Compensation~~ (~~Topic 718~~): ~~Improvements~~Company’s notes to ~~Employee Share-Based Payment Accounting~~ ~~("ASU 2016-09") that changes~~the consolidated financial statements in its 2017 Annual Report on Form 10-K, the Tax Cuts and Jobs Act (the Act) was enacted December 22, 2017. As of June 30, 2018, the Company has not completed the accounting for ~~certain aspects~~the tax effects of ~~share-based compensation~~the enactment of the Act due to ~~employees including forfeitures, employer~~its complexities and limited guidance available; however, the Company has made a reasonable estimate of the effect of the Act on the existing deferred tax ~~withholding,~~balances and of the ~~financial statement presentation~~one-time transition tax. There was no impact on the tax rate as a result of ~~excess tax benefits or expense. ASU 2016-09 also clarifies~~a change in estimate for the statement of cash flows presentation for certain components of share-based compensation, which prospectively reclassifies cash flows from excess tax benefits of share-based compensation currently disclosed in financing activitiessix months ended June 30, 2018. In all cases, the Company continues to ~~operating activities in~~refine the ~~period of adoption. The guidance will increase income tax expense volatility,~~calculations as ~~well as~~additional analysis and modeling are completed. Further, the Company's ~~cash flows from operations.~~ estimates may also be affected as regulations and additional guidance become available.

In addition, the Act subjects a U.S. shareholder to tax on Global Intangible Low-Taxed Income (GILTI) earned by certain foreign subsidiaries. Given the complexity of the GILTI provisions, the Company ~~did~~is still evaluating its effects and has not ~~elect to change shares withheld for employment income tax purposes, or the current methodology of estimating forfeitures upon adoption.~~yet made an accounting policy election. The Company adopted ASU 2016-09 on January 1, 2017 on a prospective basis. The adoption of ASU 2016-09 did not have a material impact to the Company's condensed consolidated financial statements for the nine months ended September 30, 2017 and itprovision is not expected to have a material impact on the ~~annual~~Company’s consolidated financial statements or related disclosures.

Compensation-Retirement Benefits (Topic 715)

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715) ("ASU 2017-07"), which requires an entity to report the service cost component of net periodic benefit cost in the same line item as other compensation costs (selling, administrative and other expenses), and the remaining components in non-operating expense in the consolidated statement of income and comprehensive income. ~~This standard is effective for interim and annual reporting periods beginning after December~~

~~15, 2017 and early adoption is permitted.~~ The Company ~~will adopt~~adopted ASU 2017-07 retrospectively on January 1, 2018 and it isdid not ~~expected to~~ have a material impact on the ~~Company’s~~Company's condensed consolidated financial statements or related disclosures.

~~Note E – Credit Facilities~~

~~In June 2017,~~ See the employee benefit plans footnote for additional information. The Company ~~exercised its remaining optional one year extension on~~elected to use the ~~$1.2 billion multi-currency Syndicated Facility (the "Syndicated Facility") amended June 19, 2015, to extend the maturity date from June 2021 to June 2022.~~

~~At September 30, 2017, approximately $595.0 million was outstanding under the Syndicated Facility and is included in "Current portion of debt"~~amounts disclosed in the ~~accompanying condensed consolidated balance sheet.~~employee benefit plans note for the prior comparative period as the basis for applying the retrospective presentation.

On September 22, 2017, the Company executed a $2.0 billion 364-day bridge facility bearing interest at LIBOR plus a variable margin. At September 30, 2017, the Company did not have any amounts outstanding under the facility.

Note F – Share-Based Compensation

As more fully discussed in Note 56 of the Company’s notes to the consolidated financial statements in its ~~2016~~2017 Annual Report on Form 10-K, the Company maintains 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’s 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~~An RSU represents a contingent right to receive one share of the Company’s common stock at a future date. The majority of awards previously granted vest on a pro-rata basis for periods ranging from one to five years and are expensed accordingly on a straight-line basis. The Company issues new shares upon exercise or conversion of awards under these plans. Most awards may be exercised or converted to shares not earlier than twelve months nor later than ten years from the date of grant. At ~~September~~June 30, ~~2017,~~2018, total compensation cost related to nonvested awards not yet recognized was approximately ~~$38.0 million,~~$48,924, as compared to ~~$34.6 million~~$32,812 at December 31, ~~2016.~~2017. The weighted-average period over which this compensation cost is expected to be recognized is approximately ~~three~~two years. The aggregate intrinsic value for SARs and RSUs outstanding at ~~September~~June 30, ~~2017~~2018 was approximately ~~$105.7 million.~~$99,878. At ~~September~~June 30, ~~2017,~~2018, the aggregate intrinsic value for SARs and RSUs vested totaled approximately ~~$55.5 million,~~$35,996, and the weighted-average contractual lives for outstanding and exercisable SARs and RSUs were approximately ~~six and~~ five ~~years, respectively.~~years. For the ~~nine~~six months ended ~~September~~June 30, ~~2017, $12.9 million~~2018, $9,035 of share-based compensation cost was recorded, as compared to ~~$15.4 million~~$8,086 for the same ~~nine~~six month period in the prior year.

Options to purchase approximately ~~2.5 million~~2,098,000 and ~~1.9 million~~1,445,000 shares of common stock were outstanding but excluded from the computation of diluted earnings per share for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017, respectively,~~2018, as compared to approximately ~~0.7 million~~1,968,000 and ~~1.2 million~~1,697,000 shares for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2016, respectively.~~2017. These options were excluded from the computation of diluted net income per common share because the options’ exercise prices were greater than the average market price of the common stock. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company granted approximately ~~746,000 SARs and 171,000~~360,000 RSUs.

Note G – Employee Benefit Plans

Net periodic benefit income for the Company's pension plans included the following components for the three months ended ~~September~~June 30:


	Pension Benefits
	2017			2016			Pension Benefits
	(in thousands)						2018			2017
Service cost	$	2,240		$	2,106		$	2,612		$	2,133
Interest cost	24,243			26,195			22,071			24,099
Expected return on plan assets	(38,061		)	(39,296		)	(38,516		)	(39,681		)
Amortization of prior service credit	(88		)	(108		)	(37		)	(87		)
Amortization of actuarial loss	9,549			7,860			9,935			9,466
Net periodic benefit income	$	(2,117	)	$	(3,243	)	$	(3,935	)	$	(4,070	)

Net periodic benefit income for the Company's pension plans included the following components for the ~~nine~~six months ended ~~September~~June 30:


	Pension Benefits
	2017			2016			Pension Benefits
	(in thousands)						2018			2017
Service cost	$	6,530		$	6,257		$	5,266		$	4,290
Interest cost	72,474			78,505			44,184			48,231
Expected return on plan assets	(117,475		)	(117,767		)	(77,104		)	(79,414		)
Amortization of prior service credit	(263		)	(324		)	(74		)	(175		)
Amortization of actuarial loss	28,500			23,530			19,894			18,951
Net periodic benefit income	$	(10,234	)	$	(9,799	)	$	(7,834	)	$	(8,117	)

Service cost is recorded in selling, administrative and other expenses in the condensed consolidated statements of income and comprehensive income while all other components are recorded within other non-operating expenses (income). Pension benefits also include amounts related to a supplemental retirement plan. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company made a ~~$38.7 million~~$38,700 contribution to the pension plan.

Note H – Guarantees

The Company guarantees the borrowings of certain independently controlled automotive parts stores (“independents”) and certain other affiliates in which the Company has 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 has no voting interest or equity conversion rights in any of the independents. The Company does not control the independents or the affiliates, but receives a fee for the guarantees. The Company has concluded that the independents are variable interest entities, but that the Company is 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 Company concluded the affiliates are not variable interest entities. The Company’s 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’s guarantees. While such borrowings of the independents and affiliates are outstanding, the Company is required to maintain compliance with certain covenants, including a maximum debt to capitalization ratio and certain limitations on additional borrowings. At ~~September~~June 30, ~~2017,~~2018, the Company was in compliance with all such covenants.

At ~~September~~June 30, ~~2017,~~2018, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately ~~$554.2 million.~~$685,141. These loans generally mature over periods from one to six years. In the event that the Company is required to make payments in connection with guaranteed obligations of the independents or the affiliates, the Company would obtain and liquidate certain collateral (e.g., accounts receivable and inventory) to recover all or a portion of the amounts paid under the guarantees. When it is deemed probable that the Company will incur a loss in connection with a guarantee, a liability is recorded equal to this estimated loss. To date, the Company has had no significant losses in connection with guarantees of independents’ and affiliates’ borrowings.

As of ~~September~~June 30, ~~2017,~~2018, the Company has recognized certain assets and liabilities amounting to ~~$59.0 million~~$70,000 each for the guarantees related to the independents’ and affiliates’ borrowings. These assets and liabilities are included in other assets and other long-term liabilities in the condensed consolidated balance sheets.

Note I – Fair Value of Financial Instruments

The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, trade accounts receivable, trade accounts payable, and borrowings under the line of credit and term loan approximate their respective fair values based on the short-term nature of these instruments. ~~At September~~As of June 30, ~~2017,~~2018, the carrying ~~value~~amount, net of debt issuance costs, and the fair value of fixed rate debt were approximately ~~$550.0 million~~$1,483,356 and ~~$563.6 million,~~$1,433,875, respectively. The fair value of fixed rate debt is designated as Level 2 in the fair value hierarchy (i.e., significant observable inputs) and is based primarily on the discounted value of future cash flows using current market interest rates offered for debt of similar credit risk and maturity. The carrying ~~value~~amount, net of debt issuance costs, of fixed rate debt of ~~$550.0 million~~$1,483,356 is included in long-term debt in the accompanying condensed consolidated balance ~~sheets.~~sheet.

Note J – Non-Derivative Financial Instrument

As of June 30, 2018, the Company had designated €700,000 of the face value of Euro-denominated debt, a non-derivative financial instrument, as a hedge of the foreign currency exchange rate exposure of an equal amount to the Company's euro-denominated net investment in a European subsidiary. As of June 30, 2018, the euro-denominated debt has a total carrying amount of $817,880, which is included in long-term debt in the Company’s condensed consolidated balance sheet. For the three and six months ended June 30, 2018, the Company recorded a gain, net of tax, of approximately $32,755 and $16,045 respectively, in the net investment hedge section of the accumulated other comprehensive loss in the Company’s condensed consolidated balance sheet and statement of income and comprehensive income. No hedge ineffectiveness was recognized in income.

Note K – Legal Matters

~~On April 17,~~As more fully discussed in Note 10 of the Company's notes to the consolidated financial statements in its 2017 Annual Report on Form 10-K, a jury awarded damages against the Company ~~of $81.5 million~~ in a litigated automotive product liability dispute. Through post-trial motions and offsets from previous settlements, the initial verdict has been reduced to $77.1 million. The Company believes the verdict is not supported by the facts or the law and is contrary to the Company’s role in the automotive parts industry.

~~The Company intends to challenge the verdict through further post-trial motions and on appeal to a higher court.~~ At the time of the filing of these financial statements, based upon the Company’s legal defenses, insurance coverage, and reserves, the Company does not believe this matter will have a material impact to the condensed consolidated financial statements.

Note KL – Acquisitions and ~~Equity Investments~~Divestitures

~~During~~

Acquisitions

As more fully discussed in Note 11 of the ~~nine months ended September 30,~~Company's notes to the consolidated financial statements in its 2017 Annual Report on Form 10-K, the ~~Company acquired certain companies and equity investments for approximately $266.4 million. The Company recognized and measured~~estimated fair values of the assets acquired and liabilities assumed ~~based on their fair values~~ as part of ~~their respective~~the AAG acquisition ~~dates. The results~~in November 2017 are preliminary and subject to revision, pending completion of ~~operations~~the final valuations for the acquired companies were included in the Company’s condensed consolidated statements of income beginning on their respective acquisition dates. The Company recorded approximately $105.4 million of goodwill andthese assets. Among other ~~intangible assets associated with~~things, the ~~acquisitions. The~~ Company is ~~in the process~~finalizing its review of ~~analyzing the estimated values of assets and liabilities acquired and is obtaining third-party valuations~~valuation reports of certain tangible and intangible ~~assets. The allocations of the respective purchase prices are therefore preliminary and subject to revision. Additional disclosure of the Inenco investment is provided below.~~

Effective April 3, 2017, the Company acquired a 35% investment in the Inenco Group for approximately $72.1 million from Conbear Holdings Pty Limited ("Conbear"). The equity investment was funded with the Company’s cash on hand. The Inenco Group, which is headquartered in Sydney, Australia, is an industrial distributor of bearings, power transmissions, and seals in Australasia, with annual revenues of approximately $325 million and 161 locations across Australia and New Zealand,assets, as well as ~~an emerging presence in Asia.~~completing its review of certain related tax accounts. For the six months ended June 30, 2018, no significant changes were made to the provisional amounts disclosed for the year ended December 31, 2017.

The Company and Conbear both have an option to acquire or sell, respectively, the remaining 65% of Inenco at a later date contingent upon certain conditions being satisfied. However, there can be no guarantee that such conditions will be met or, if they are met, whether either company would exercise its option.

Divestitures

On ~~September 22, 2017,~~April 12, 2018, the Company entered into a definitive agreement with Essendant to combine with the Company's Business Products Group in a business combination transaction. The transaction is structured as a Reverse Morris Trust, in which the Company will separate the Business Products Group into a standalone company and spin off that standalone company to the Company's shareholders, immediately followed by the merger of a subsidiary of Essendant and the spun-off company. Subsequently,Essendant received letters from Staples, Inc. ("Staples") expressing its interest in the purchase of 100% of Essendant's equity for $11.50 per share in cash. Additionally, the Federal Trade Commission has issued second requests in connection with filings under the Hart-Scott-Rodino Antitrust Improvement Act for both the Company's definitive agreement with Essendant and the Staples proposal to acquire ~~Alliance Automotive Group (“AAG”). AAG is headquartered in London and is a leading European distributor~~Essendant.

The proceeds of ~~vehicle parts, tools and workshop equipment with annual revenues~~the transaction will take the form of Essendant shares to be issued at closing to the Company's shareholders plus one-time cash payments to the Company of approximately ~~$1.7 billion. AAG has over 1,800 company-owned stores~~$347,000, subject to adjustments at closing. Upon closing, the Company's shareholders will own approximately 51% and ~~affiliated outlets across France,~~Essendant shareholders will own approximately 49% of the ~~U.K.~~combined company on a diluted basis, with approximately 80,000,000 diluted shares expected to be outstanding. The spinoff will have no effect on the number of the Company's common shares owned by the Company's shareholders or the number of shares of the Company's

common stock outstanding. The transaction is intended to be tax-free to the Company's shareholders for U.S. federal income tax purposes.

Subject to regulatory and ~~Germany. The acquisition is valued at a total purchase price of approximately $2.0 billion. The~~Essendant shareholder approvals and other customary closing conditions, the Company ~~intends~~continues to ~~finance the transaction through a combination of new loan agreements and note issuances. The Company also has available, but does not~~ expect ~~to utilize, a $2.0 billion 364-day unsecured bridge facility. The bridge facility is discussed further in the credit facilities footnote. The Company expects~~ to close on the ~~acquisition~~proposed transaction with Essendant before the end of 2018. The assets and liabilities of the Business Products Group will continue to be presented as "held and used" on the Company's condensed consolidated balance sheet until the closing of the transaction. The spinoff announcement was evaluated and determined not to be an event or a change in ~~November 2017.~~

~~On September 25, 2017,~~circumstance that required a recoverability test or a goodwill impairment assessment. However, an impairment loss could be recognized by the Company ~~entered into a $1.0 billion foreign currency hedge denominated in Euros to hedge~~at the ~~purchase price for AAG acquisition.~~spinoff date if the aggregate carrying amount of the Business Products Group's assets and liabilities exceeds its aggregate fair value at that date. The ~~hedge does not qualify for hedge accounting.~~Company cannot currently predict whether an impairment loss will be recorded at the spinoff date.

Note M – Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentations. Within the condensed consolidated statements of income and comprehensive income, the Company adopted ASU 2017-07 and adjusted the prior period to include the components of net periodic benefit income other than the service cost component within other non-operating expenses (income). See the employee benefit plans footnote for additional information.

As more fully discussed in the segment information footnote, the Company adjusted prior period net sales to allocate discounts, incentives, and freight billed to customers to their respective segments and also combined the industrial and electrical/electronic materials segments.

Refer to the revenue recognition footnote for more information about the Company's change in classification for its estimate of certain merchandise returns in connection with adopting ASU 2014-09.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes contained herein and with the audited consolidated financial statements, accompanying notes, related information and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Forward-Looking Statements

Some statements in this report, as well as in other materials we file with the Securities and Exchange Commission ~~(SEC)~~("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 the ~~financing, timing~~proposed business combination transaction between the Company and ~~completion of~~Essendant in which the Company will spin-off its Business Products Group and combine this business with Essendant or the acquisition of ~~Alliance Automotive Group ("AAG")~~AAG and the anticipated strategic benefits, synergies and ~~benefits~~other attributes of ~~the transaction,~~these transactions, as well as future operations, prospects, strategies, financial condition, economic performance (including growth and earnings), industry conditions and demand for our products and services.

The Company cautions that its 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 as a result of various important factors. Such factors may include, among other things, the ~~inability to complete the acquisition due to failure to satisfy the customary closing conditions and/or the delay of or inability to obtain all regulatory approvals related to the acquisition, the~~ Company’s ability to successfully integrate AAG into the Company and to realize the anticipated synergies and ~~benefits,~~benefits; changes in the European ~~aftermarket,~~aftermarket; the Company's ability to complete the transaction to spin-off its Business Products Group and combine it with Essendant, particularly in light of Staples, Inc.'s announced offer to acquire Essendant; the Company’s ability to successfully implement its business initiatives in each of its ~~four~~three business segments; slowing demand for the Company’s products; changes in national and international legislation or government regulations or ~~policies;~~policies, including potential import tariffs and data security policies and requirements; changes in general economic conditions, including unemployment, inflation (including the impact of potential tariffs) or deflation; changes in tax policies; volatile exchange rates; ~~high energy costs;~~significant cost increases, such as rising fuel and freight expenses; labor shortages; uncertain credit markets and other ~~macro-economic~~macroeconomic conditions; competitive product, service and pricing pressures; the

ability to maintain favorable vendor arrangements and relationships; disruptions in our vendors’ ~~operations;~~operations, including the impact of potential tariffs and trade considerations on their operations and output, as required to meet product demand; the Company’s ability to successfully integrate its other acquired businesses; the uncertainties and costs of litigation; disruptions caused by a failure or breach of the

Company’s information systems, as well as other risks and uncertainties discussed in the Company’s Annual Report on Form 10-K for ~~2016~~2017 and from time to time in the Company’s subsequent filings with the SEC.

Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its 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 ~~reports on~~ Forms 10-K, 10-Q, 8-K and other reports to the SEC.

Overview

Genuine Parts Company is a service organization engaged in the distribution of automotive replacement parts, industrial ~~replacement~~ parts, ~~office products~~ and ~~electrical/electronic materials. The Company has~~business products. We have a long tradition of growth dating back to 1928, the year we were founded in Atlanta, Georgia. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, business was conducted throughout the ~~United States,~~U.S., Canada, Australia, New Zealand, Mexico, the U.K., France, Germany, Poland, and Puerto Rico from approximately ~~2,670~~3,100 locations.

For the periods presented, the Company is reporting its operations under three business segments: Automotive, Industrial and Business Products. Effective in 2018, EIS, Inc., formerly our Electrical and Electronic business segment, was combined with Motion Industries and is now identified as the Electrical Specialties Group of Motion Industries. As a result, the Industrial business segment is comprised of Motion Industries and EIS, Inc. The combination of these two segments will provide strong economies of scale and greater operating efficiencies, which we intend to leverage. The opportunity to build synergies by sharing talent, physical resources, greater size and scale, and value-added expertise in each respective market channel is highly compelling. We anticipate this combination will create value for both our customers and all our stakeholders.

Sales for the three months ended ~~September~~June 30, ~~2017~~2018 were ~~$4.10~~$4.82 billion, a 4%17.6% increase as compared to ~~$3.94~~$4.10 billion in the same period of the prior year. For the three months ended ~~September~~June 30, ~~2017,~~2018, the Company recorded consolidated net income of ~~$158.4~~$227.0 million, ~~a decrease~~an increase of ~~15%~~19% as compared to consolidated net income of ~~$185.3~~$190.0 million in the same three month period of the prior year. On a per share diluted basis, net income was $1.54, an increase of 19.4% as compared to $1.29 for the same three month period of 2017. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, sales were ~~$12.10~~$9.41 billion, ~~a 4.7%~~an 18% increase as compared to ~~$11.56~~$8.01 billion in the same period of the prior year. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company recorded consolidated net income of ~~$508.6~~$403.5 million compared to consolidated net income of ~~$534.7~~$350.1 million in the same ~~nine~~six month period of the prior ~~year.~~year, an increase of 15%. On a per share diluted basis, net income was $2.74, an increase of 16.1% as compared to $2.36 in the same six month period of 2017.

On April 12, 2018, the Company entered into a definitive agreement with Essendant to combine with the Company's Business Products Group in a business combination transaction. The transaction is structured as a Reverse Morris Trust, in which the Company will separate the Business Products Group into a standalone company and spin off that standalone company to the Company's shareholders, immediately followed by the merger of Essendant and the spun-off company. Subsequently, Essendant received letters from Staples expressing its interest in the purchase of 100% of Essendant's equity for $11.50 per share in cash. Additionally, the Federal Trade Commission has issued second requests in connection with filings under the Hart-Scott-Rodino Antitrust Improvement Act for both the Company's definitive agreement with Essendant and the Staples proposal to acquire Essendant. Subject to regulatory and Essendant shareholder approvals and other customary closing conditions, the Company expects to close on the proposed transaction with Essendant before the end of 2018.

In the three and six month periods ended June 30, 2018, the Company incurred certain transaction and other costs ~~primarily~~ related to the ~~pending~~ $2.0 billion European acquisition of ~~Alliance Automotive~~AAG and the pending transaction to spin-off the Company's Business Products Group ~~in the third quarter of 2017.~~and combine it with Essendant. Before the impact of these costs, the Company's adjusted net income was ~~$170.0~~$233.6 million, or $1.59 on an adjusted per share diluted basis, for the three month period ended June 30, 2018, and ~~$520.2 million~~both amounts increased 23% over the same period in the ~~three and nine~~prior year. Adjusted net income was $420.0 million, an increase of 20%, or $2.85 on an adjusted per share diluted basis, an increase of 21%, for the six month ~~periods~~period ended ~~September~~June 30, ~~2017.~~2018.

The Company ~~continues~~remains committed to ~~focus~~its key growth initiatives, which include: driving greater share of spend with existing customers; employing an aggressive but disciplined acquisition strategy focused on ~~a variety~~both geographical in-fill and product line adjacencies; expanding the Company's digital capabilities; and the further expansion of our U.S. and international store footprint. We continue to execute on these sales initiatives, as well our plans and initiatives to ~~facilitate continued growth including strategic acquisitions,~~enhance our gross margins, reduce costs and build a highly productive and cost-effective structure. We expect our focus in these key areas to improve the ~~introduction of new and expanded product lines, geographic expansion, sales to new markets, enhanced customer marketing programs and a variety of gross margin and cost savings initiatives.~~Company's operating performance over the long-term.

Sales

~~As noted above, sales~~Sales for the three months ended ~~September~~June 30, ~~2017~~2018 were ~~$4.10~~$4.82 billion, a 4%17.6% increase as compared to ~~$3.94~~$4.10 billion in the same period of the prior year. ~~The~~Approximately 3% of the revenue increase for the three months ended ~~September~~June 30, ~~2017, consisted of an approximate 2% contribution~~2018 came from organic sales, 14% from acquisitions, and 0.5% from a positive ~~1% increase in organic sales and a 1% favorable~~ currency impact. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 sales were ~~$12.10~~$9.41 billion, a ~~4.7%~~17.5% increase as compared to ~~$11.56~~$8.01 billion in the same period of the prior ~~year, which~~year. This reflects ~~a 1.2%~~an approximate 2% increase in organic sales, a ~~3.1%~~14% contribution from acquisitions and ~~an approximate 0.4%~~a 1% favorable currency impact, as compared to the same ~~nine~~six month period in ~~2016.~~2017.

Sales for the Automotive Parts Group increased ~~3.6%~~27.7% in the ~~third~~second quarter of ~~2017,~~2018, as compared to the same period in the prior year. This group’s revenue increase for the three months ended ~~September~~June 30, ~~2017~~2018 consisted of an approximate ~~1.4%~~2% increase in organic sales, a 25% benefit from acquisitions ~~a positive 1% net impact of organic sales~~ and a ~~1.2%~~1% favorable currency impact. This ~~group’s 3.6%~~group's 28.6% sales increase for the ~~nine~~six month period ended ~~September~~June 30, ~~2017~~2018 reflects a 1% increase from organic sales growth, an approximate 2%26% contribution from acquisitions, and a ~~0.6% favorable~~1% impact from currency ~~impact~~ from our businesses throughout ~~Australia,~~Europe, Australasia, Canada, and Mexico. We anticipate the Company’s initiatives to drive both organic and acquisitive growth will positively benefit the Automotive Parts Group ~~through increased sales~~ in the quarters ahead.

~~The~~Sales for the Industrial ~~Products Group’s sales~~Parts Group increased ~~by approximately 7.1%~~8.7% for the three month period ended ~~September~~June 30, ~~2017,~~2018, as compared to the same period in ~~2016.~~2017. The increase in this group’s revenues reflects ~~a 4.1%~~an approximate 6.5% increase in organic sales, ~~an approximate 2.6%~~a 2% accretive impact of acquisitions and a ~~0.4%~~slightly favorable foreign currency impact. This ~~group’s 7.1%~~group's 8.5% sales increase for the ~~nine~~six month period ended ~~September~~June 30, ~~2017~~2018 reflects a ~~4.1%~~5.5% increase in organic sales and a 3% ~~contribution~~increase from acquisitions. The Industrial ~~Product~~Parts Group has ~~multiple~~ initiatives in place to drive continued market share expansion through both organic and acquisitive sales growth in the quarters ahead. These ongoing initiatives combined with favorable economic and industry specific factors bode well for Industrial's long-term growth prospects.

Sales for the ~~Office~~Business Products Group ~~decreased 4.7%~~were unchanged for the three months ended ~~September~~June 30, ~~2017, due to its decrease in organic sales~~2018, compared to the same three month period in ~~2016.~~2017. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, this ~~group’s~~group's revenues ~~increased 2.7%~~decreased 2.4% due primarily to ~~a 6.3% accretive impact from acquisitions less an approximate 3.6%~~its decrease in organic sales. ~~We expect~~

On April 12, 2018, the Company entered into a definitive agreement with Essendant to combine with our ~~internal sales~~Business Products Group in a business combination transaction. Subject to regulatory and Essendant shareholder approvals and other customary closing conditions, the transaction is expected to close before the end of 2018. Until this transaction closes, we will remain focused on our core growth initiatives for this business, including ~~our plans to~~the further ~~enhance~~enhancement of our Facilities, Breakroom and Safety Products ~~offering, to support revenue growth for this group in the quarters ahead.~~

Sales for the Electrical/Electronic Materials Group increased 11.6% for the three months ended September 30, 2017, as compared to the same period in 2016, and reflect an approximate 0.6% decrease in organic sales, a 1.5% favorable impact of copper pricing, and an approximate 10.7% accretive impact of the Company’s acquisitions. For the nine months ended September 30, 2017, this group’s revenues increased 9.2%, and reflect an approximate 8% accretive impact from acquisitions, a marginal increase in organic sales and a 1% favorable impact of copper pricing. We expect our growth initiatives, including acquisitions, to enable this group to report ongoing revenue growth in the quarters ahead.offering.

For the ~~nine~~six month period ended ~~September~~June 30, ~~2017,~~2018, industry pricing ~~increased 0.3%~~was flat in the Automotive segment and increased ~~0.6%~~2.0% in the ~~Office Products~~Industrial segment ~~increased 1.3%~~and 1.1% in the ~~Electrical/Electronic Materials segment and increased 1.8% in the Industrial~~Business Products segment.

Cost of Goods Sold/Expenses

Cost of goods sold for the three months ended ~~September~~June 30, ~~2017~~2018 was ~~$2.87~~$3.30 billion, a 5%15.4% increase from ~~$2.74~~$2.86 billion for the same period in ~~2016.~~2017. As a percentage of net sales, cost of goods sold was ~~70.0%~~68.4% for the three month period ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~69.6%~~69.8% in the same three month period of ~~2016.~~2017. Cost of goods sold for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was ~~$8.48~~$6.45 billion, a 5%15.0% increase from ~~$8.09~~$5.61 billion for the same period in the prior year. As a percent of net sales, cost of goods sold was ~~70.1%~~68.6% as compared to ~~70.0%~~70.1% in the same ~~nine~~six month period of ~~2016.~~2017. The increase in cost of goods sold for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2018 primarily relates to the sales ~~increase~~increases for ~~this period~~these periods as compared to the same three and ~~nine~~six month periods of the prior year. The increases for these periods were partially offset by the favorable impact of the lower cost of goods sold model at AAG as well as at certain other acquisitions. In addition, cost of goods sold has been favorably impacted by the improvement in the industrial business. The Company’s cost of goods sold includes the total cost of merchandise sold, including freight expenses associated with moving merchandise from our vendors to our distribution centers, retail stores and branches, as well as vendor volume incentives and inventory adjustments. Gross profit as a percentage of net sales may fluctuate based on (i) changes in merchandise costs and related vendor volume incentives or pricing, (ii) variations in product and customer mix, (iii) price changes in response to competitive pressures, (iv) physical inventory and LIFO adjustments, and (v) changes in foreign currency exchange rates.

Total operating expenses increased to ~~$980.5 million~~$1.21 billion for the three month period ended ~~September~~June 30, ~~2017~~2018 as compared to ~~$907.2~~$948.7 million for the same three month period in ~~2016.~~2017. As a percentage of net sales, operating expenses increased to ~~23.9%~~25.1% as compared to ~~23.0%~~23.1% in the same three month period of the previous year. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, these expenses totaled ~~$2.84~~$2.41 billion, or ~~23.4%~~25.6% as a percentage of net sales, compared to ~~$2.63~~$1.87 billion, or ~~22.8%~~23.3% as a percentage of net sales for the same ~~nine~~six month period in the prior year. The increase in operating expenses as a percentage of net sales for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2018 reflects the Company’s deleveraging of expenses on lower comparable sales in the U.S. Automotive and

Business Products segments, as well as higher costs in areas such as payroll, IT, digital, legal, professional and insurance, fuel and freight ~~and delivery,~~related costs, and acquisition related costs. ~~In addition,~~Likewise, the increase includes the impact of the higher operating expense model at AAG as well as at certain other acquisitions. Finally, the three and six month increases include approximately ~~$18.5~~$9 million ofand $16 million, respectively, in transaction and other costs ~~primarily~~ related to the ~~Company's pending $2.0 billion European~~ acquisition of ~~Alliance Automotive Group recorded in~~AAG and the ~~three and nine month periods ended September 30, 2017.~~pending transaction to spin-off the Company's Business Products Group. The Company continues to focus on effectively managing the costs in our businesses with ongoing investments in technology, productivity and supply chain initiatives primarily associated with freight, digital, pricing, data analytics and logistics related functions.

The Company’s operating expenses are substantially comprised of compensation and benefit related costs for personnel. Other major expense categories include facility occupancy costs for headquarters, distribution centers and retail store/branch operations, insurance costs, accounting, legal and professional services, technology and digital costs, transportation and delivery costs, travel and advertising. Management’s ongoing cost control measures in these areas have served to improve the Company’s overall cost structure. The Company's recent acquisitions have lower costs of goods sold and higher levels of operating costs as compared to the Company's other businesses, however, the operating profit margins remain consistent.

Operating Profit

Operating profit ~~decreased~~increased to ~~$310.3~~$390.2 million for the three months ended ~~September~~June 30, ~~2017,~~2018, compared to ~~$328.0~~$349.3 million for the same three month period of the prior ~~year.~~year, an increase of 11.7%. As a percentage of net sales, operating profit was ~~7.6%,~~8.1% as compared to ~~8.3%~~8.5% in the same three month period of ~~2016.~~2017. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, operating profit ~~decreased~~increased to ~~$946.5~~$708.7 million compared to ~~$953.1~~$636.1 million for the same ~~nine~~six month period of the prior year, and as a percentage of net sales, operating profit was ~~7.8%,~~7.5% as compared to ~~8.2%~~7.9% in the same ~~nine~~six month period of ~~2016.~~2017. The decrease in operating profit as a percentage of net sales for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2018 is primarily due to the deleveraging of fixed costs associated with lower comparable sales growth in the U.S. automotive and business products segments, higher expenses in areas such as IT, digital, legal, professional and insurance, freight and delivery and acquisition related costs and lower volume incentives ~~and a product mix shift to lower margin products, which was~~in the Business Products Group. These increases were partially offset by ~~the positive impact of~~our ongoing cost control initiatives.

The Automotive Parts Group’s operating profit ~~decreased 10%~~increased 17.5% in the three month period ended ~~September~~June 30, ~~2017,~~2018 as compared to the same period of ~~2016,~~2017, and its operating profit margin was ~~8.2%,~~8.9% as compared to ~~9.4%~~9.7% in the same ~~three month period of the prior year.~~period. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Automotive Parts ~~Group’s~~Group's operating profit ~~decreased~~increased approximately 3%19.3% and the operating profit margin was ~~8.5%~~8.1% as compared to ~~9.1%~~8.7% in the same ~~nine~~six month period of ~~2016.~~2017. The decrease in operating profit margin for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2018 is primarily due to the slow organic sales environment in our U.S. Automotive businesses and its impact on expense leverage as well as higher ~~expenses~~costs in areas such as payroll, IT, digital, legal, professional and insurance, freight and delivery ~~costs lower volume incentives~~ and ~~a product mix shift to lower margin products.~~acquisition related costs.

The Industrial ~~Products~~Parts Group’s operating profit increased ~~10.5%~~11.9% in the three month period ended ~~September~~June 30, ~~2017,~~2018 as compared to the same three month period of ~~2016,~~2017, and the operating profit margin for this group was ~~7.6%~~7.8% compared to ~~7.4%~~7.6% for the same period of the previous year. Operating profit for the Industrial ~~Products~~Parts Group increased by ~~10%~~10.0% for the ~~nine~~six month period ended ~~September~~June 30, ~~2017,~~2018, compared to the same period in ~~2016,~~2017, and the operating profit margin was 7.5% compared to ~~7.3%~~7.4% for the same ~~nine~~six month period in ~~2016.~~2017. The increase in operating profit margin for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2018 is primarily due to the Industrial Group's 6.5% and 5.5%, respectively, increase in organic sales volume and its positive impact on expense leverage, as well as improved core gross margin.

The ~~Office~~Business Products Group’s operating profit decreased ~~21%~~28.8% for the three months ended ~~September~~June 30, ~~2017,~~2018, compared to the same three month period in ~~2016,~~2017, and the operating profit margin for this group was ~~4.7%~~4.4% compared to ~~5.7%~~6.2% for the same three month period of ~~2016.~~2017. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the ~~Office~~Business Products ~~Group’s~~Group's operating profit decreased ~~12%~~29.7% compared to the same period ~~of the prior year,~~in 2017, and the operating profit margin was ~~5.6%~~4.5% compared to ~~6.5%~~6.2% for the same period in ~~2016.~~2017. The decrease in operating profit margin for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2018 is primarily due to ~~the following factors:~~ the impact of lower organic sales volume and its negative impact on expense ~~leverage; lower~~leverage and volume incentives; and, rising costs associated with serving a growing number of sales channels. The Company has implemented several initiatives to drive significant cost savings for this group in the quarters ahead.

The Electrical/Electronic Materials Group operating profit decreased 5% for the three months ended September 30, 2017, as compared to the same three month period in 2016, and its operating profit margin was 6.8% compared to 8.0% in the same three month period of the prior year. Operating profit for the Electrical/Electronic Materials Group decreased by approximately 5% for the nine month period ended September 30, 2017, compared to the same period in 2016, and the operating profit margin was 7.3% compared to 8.4% for the same nine month period in 2016. The decrease in operating profit margin for the three and nine month periods ended September 30, 2017 is primarily due to customer and product mix shifts, which were partially offset by the positive impact of cost savings initiatives.incentives.

Income Taxes

The effective income tax rate was ~~35.7%~~24.4% for the three ~~month period~~months ended ~~September~~June 30, ~~2017,~~2018, compared to ~~36.4%~~36.1% for the same three month period in ~~2016.~~2017. The effective income tax rate was ~~35.4%~~23.8% for the ~~nine~~six month period ended ~~September~~June 30, ~~2017,~~2018, compared to ~~36.2%~~35.3% for the same period in ~~2016.~~2017. The rate decrease in the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2018 reflects ~~the higher mix of foreign earnings, taxed at a lower rate relative to our U.S. operations and~~ the positive impact of the ~~recognition~~Tax Cuts and Jobs Act enacted in December 2017 as well as a favorable mix of ~~excess tax benefits due to the adoption of ASU 2016-09 pertaining to Stock Compensation~~U.S. and foreign earnings, including AAG acquired in November 2017, as compared to the same three and six month periods in ~~2016.~~2017.

Net Income

For the three months ended ~~September~~June 30, ~~2017,~~2018, the Company recorded consolidated net income of ~~$158.4~~$227.0 million, ~~a decrease~~an increase of ~~15%~~19.5% as compared to consolidated net income of ~~$185.3~~$190.0 million in the same three month period of the prior year. On a per share diluted basis, net income was ~~$1.08, a decrease~~$1.54, an increase of ~~13%~~19.4% as compared to ~~$1.24~~$1.29 for the same three month period of ~~2016.~~2017. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company recorded consolidated net income of ~~$508.6~~$403.5 million, an increase of 15.3% as compared to consolidated net income of ~~$534.7~~$350.1 million in the same ~~nine~~six month period of the prior year. On a per share diluted basis, net income was ~~$3.44, a decrease~~$2.74, an increase of 3%16.1% as compared to ~~$3.56~~$2.36 in the same ~~nine~~six month period ~~ended September 30, 2016.~~of 2017.

The Company incurred certain transaction and other costs ~~primarily~~in the second quarter ended June 30, 2018 related to the ~~pending $2.0 billion European~~ acquisition of ~~Alliance Automotive~~AAG and the pending transaction to spin-off the Company's Business Products Group ~~in the third quarter of 2017.~~and combine it with Essendant. Before the impact of these costs, the Company's adjusted net income was ~~$170.0~~$233.6 million, an increase of 22.9%, or ~~$1.16~~$1.59 on aan adjusted per share diluted basis, an increase of 23.3%, in the three month period ended June 30, 2018. Before the transaction and ~~$520.2~~other costs discussed above recorded in the six month period ended June 30, 2018, adjusted net income was $420.0 million, an increase of 20.0%, or ~~$3.52~~$2.85 on aan adjusted per share diluted basis, an increase of 20.8%.

The following table sets forth a reconciliation of net income and net income per common share to adjusted net income and adjusted diluted net income per common share to account for the impact of these adjustments. The Company believes that the presentation of adjusted net income and adjusted net income per common share, which are not calculated in accordance with generally accepted accounting principles in the ~~three~~U.S. (“GAAP”), provide meaningful supplemental information to both management and ~~nine month periods ended September 30, 2017.~~investors that is indicative of the Company's core operations. The Company does not, nor does it suggest investors should consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information.



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(Unaudited)
	(in thousands, except per share data)

GAAP net income	$	226,972	$	189,972	$	403,548	$	350,132
Diluted net income per common share	$	1.54	$	1.29	$	2.74	$	2.36

Add after-tax adjustments:
Transaction and other costs	6,581		—		16,464		—

Adjusted net income	$	233,553	$	189,972	$	420,012	$	350,132
Adjusted diluted net income per common share	$	1.59	$	1.29	$	2.85	$	2.36

Financial Condition

The Company’s cash balance of ~~$210.1~~$355.1 million at ~~September~~June 30, ~~2017 decreased $32.8~~2018 increased $40.2 million or ~~14%~~12.8% from December 31, ~~2016.~~2017. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company used ~~$289.4~~$82.5 million for acquisitions and other investing activities,

~~$296.5~~ $204.6 million for dividends paid to the Company’s shareholders, ~~$97.2~~and $65.1 million for investments in the Company via capital ~~expenditures and $171.9 million for share repurchases.~~expenditures. These items were partially offset by the Company’s earnings and net cash provided by operating ~~activities, as well as the Company's debt structure as outlined in liquidity below.~~activities.

Accounts receivable increased ~~$217.4~~$248.1 million or ~~11%~~10% from December 31, ~~2016,~~2017, which is due to the Company’s acquisitions and higher sales volume in the ~~nine~~three month period ended ~~September~~June 30, ~~2017~~2018 as compared to the fourth quarter ~~or 2016.~~of 2017. Inventory ~~increased $143.9~~decreased $286.1 million or ~~approximately 4% compared to the inventory balance at~~8% from December 31, ~~2016,~~2017 due primarily ~~due~~ to ~~acquisitions and the impact~~a change in classification of ~~foreign exchange.~~certain estimated merchandise returns in connection with adopting ASU 2014-09. Accounts payable increased ~~$194.0~~$196.4 million or 6%5% from December 31, ~~2016,~~2017, primarily due to more favorable payment terms negotiated with the Company's vendors less the impact of lower purchasing volume in the ~~nine month~~ period ~~ended September~~on the June 30, 2018 balance relative to December 31, 2017. The Company’s debt is discussed below.

Liquidity and Capital Resources

Total debt of $3.2 billion at ~~September~~June 30, ~~2017 increased $270~~2018 decreased $68 million, or ~~31%~~2.1%, from December 31, 2016, primarily related to funding the Company’s working capital needs. The Company maintains a $1.20 billion unsecured revolving line of credit with a consortium of financial institutions with an option to increase the borrowing capacity by an additional $350.0 million. The line of credit bears interest at LIBOR plus various margins, which are based on the Company’s leverage ratio. In2017. At June ~~2017, the Company exercised its remaining option to extend the maturity date from June 2021 to June 2022. At September~~ 30, ~~2017, $595.0 million was outstanding under the line of credit.~~

As of September 30, 2017, the remaining $550.0 million debt outstanding is at fixed rates of interest and remained unchanged as compared to December 31, 2016. The fixed rate debt is comprised of two notes of $250.0 million each and one note of $50.0 million. One $250.0 million note is due in December 2023 and the other is due in November 2026, and each carry an interest rate of 2.99%. The remaining $50.0 million note, which was executed in July 2016, carries a 2.39% interest rate and is due in July 2021.

On September 22, 2017, the Company entered into a definitive agreement to acquire Alliance Automotive Group (“AAG”) for approximately $2.0 billion including the repayment of AAG’s outstanding debt at closing. The Company intends to finance the transaction through a combination of new loan agreements and note issuances. The Company also has available, but does not expect to utilize, a $2.0 billion 364-day unsecured bridge facility bearing interest at LIBOR plus a variable margin. The Company expects to close on the acquisition in November 2017.

~~At September 30, 2017,~~2018, the Company's total average cost of debt was ~~2.55%~~2.98% and the Company remained in compliance with all covenants connected with the above borrowings.

The ratio of current assets to current liabilities was 1.3 to 1 at ~~September~~June 30, ~~2017, as compared to 1.4 to 1~~2018, unchanged from the level at December 31, ~~2016.The~~2017. The Company currently believes existing lines of credit and cash generated from operations will be sufficient to fund anticipated operations, including discretionary share repurchases, if any, for the foreseeable future.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Although the Company does not face material risks related to interest rates and commodity prices, the Company is exposed to changes in foreign currency rates with respect to foreign currency denominated operating revenues and expenses. The Company has translation gains or losses that result from translation of the results of operations of an operating unit’s foreign functional currency into U.S. dollars for consolidated financial statement purposes. The Company’s principal foreign currency exchange exposures are the Euro, British pound, Australian dollar, Canadian dollar and Mexican peso, which are the functional currencies of our operations in Europe, the U.K., Australia, Canada and Mexico, ~~operations,~~ respectively. As previously noted under “Sales,” foreign currency exchange exposure, particularly in regard to the Australian dollar and Canadian dollar, positively impacted our results for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017.~~2018. There have been no other material changes in market risk from the information provided in the Company’s ~~2016~~2017 Annual Report on ~~Form10-K.~~Form 10-K.

Item 4. 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’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or furnishes under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods

specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 of the SEC that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our ~~2016~~2017 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our ~~2016~~2017 Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information about the Company’s purchases of shares of the Company’s common stock during the ~~quarter~~three months ended ~~September~~June 30, ~~2017:~~2018:

ISSUER PURCHASES OF EQUITY SECURITIES

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
July 1, 2017 through
July 31, 2017 — — — 2,613,516
August 1, 2017 through
August 31, 2017 228,082 $81.68 225,000 17,388,516
September 1, 2017 through
September 30, 2017 19,785 $92.60 — 17,388,516
Totals 247,867 $82.55 225,000 17,388,516



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
April 1, 2018 through April 30, 2018	3,843	$90.21	—	17,371,203
May 1, 2018 through May 31, 2018	7,917	$91.10	—	17,371,203
June 1, 2018 through June 30, 2018	21,748	$94.62	—	17,371,203
Totals	33,508	$93.28	—	17,371,203


(1)	Includes shares surrendered by employees to the Company to satisfy tax withholding obligations in connection with the vesting of shares of restricted stock, the exercise of stock options and/or tax withholding obligations.

(2)

On November 17, 2008, and August 21, 2017, the Board of Directors announced that it had authorized the repurchase of 15 million shares and 15 million shares, respectively. The authorization for these repurchase plans continues until all such shares have been repurchased or the repurchase plan is terminated by action of the Board of Directors. Approximately 2.4 million shares authorized in the 2008 plan and 15.0 million shares authorized in 2017 remain available to be repurchased by the Company. There were no other plans announced as of ~~September~~June 30, ~~2017.~~2018.

Item 6. Exhibits

(a) The following exhibits are filed or furnished as part of this report:



~~Exhibit 2.1~~		Genuine Parts Company Sale and Purchase Agreement relating to the Alliance Automotive Group by and between BCP Funds, AIG Managers, GPC Europe Acquisition Co. Limited and Genuine Parts Company dated September 22, 2017 – filed herewith

Exhibit 3.1		Amended and Restated Articles of Incorporation of the Company, dated April 23, 2007 (incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K dated April 23, 2007)

Exhibit 3.2		By-Laws of the Company, as amended and restated November 18, 2013 (incorporated herein by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K dated November 18, 2013)

~~Exhibit 10.1~~		Genuine Parts Company 364-Day Bridge Credit Agreement dated September 22, 2017 by and among Genuine Parts Company, J.P. Morgan Chase Bank, N.A., as administrative agent, and the other Lender Parties – filed herewith

Exhibit 31.1		Certification pursuant to SEC Rule 13a-14(a) signed by the Chief Executive Officer – filed herewith

Exhibit 31.2		Certification pursuant to SEC Rule 13a-14(a) signed by the Chief Financial Officer – filed herewith

Exhibit 32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by the Chief Executive Officer – furnished herewith

Exhibit 32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by the Chief Financial Officer – furnished herewith

Exhibit 101		Interactive data files pursuant to Rule 405 of Regulation S-T:
		(i) the Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016;~~2017; (ii) the Condensed Consolidated Statements of Income and Comprehensive Income for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016;~~2017; (iii) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016;~~2017; and (iv) the Notes to the Condensed Consolidated Financial Statements

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		Genuine Parts Company (Registrant)

Date: ~~October 26, 2017~~July 25, 2018		/s/ Carol B. Yancey
		Carol B. Yancey
		Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

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