Item 16. FORM 10-K SUMMARY.

Not applicable.

SIGNATURES.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

GENUINE PARTS COMPANY

/s/ Paul D. Donahue		2/25/2019				/s/ Carol B. Yancey		2/25/2019
Paul D. Donahue		(Date)				Carol B. Yancey		(Date)
President and Chief Executive Officer						Executive Vice President and Chief Financial and Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ Paul D. Donahue		2/18/2019				/s/ Carol B. Yancey		2/18/2019
Paul D. Donahue		(Date)				Carol B. Yancey		(Date)
Director President and Chief Executive Officer (Principal Executive Officer)						Executive Vice President and Chief Financial and Accounting Officer (Principal Financial and Accounting Officer)
/s/ Thomas C. Gallagher		2/18/2019				/s/ Elizabeth W. Camp		2/18/2019
Thomas C. Gallagher		(Date)				Elizabeth W. Camp		(Date)
Director and Chairman						Director
/s/ Gary P. Fayard		2/18/2019				/s/ P. Russell Hardin		2/18/2019
Gary P. Fayard		(Date)				P. Russell Hardin
Director						Director
/s/ John R. Holder		2/18/2019				/s/ Donna W. Hyland		2/18/2019
John R. Holder		(Date)				Donna W. Hyland		(Date)
Director						Director
/s/ John D. Johns		2/18/2019				/s/ Robert C. Loudermilk, Jr.		2/18/2019
John D. Johns		(Date)				Robert C. Loudermilk, Jr.		(Date)
Director						Director
/s/ Wendy B. Needham		2/18/2019				/s/ E. Jenner Wood, III		2/18/2019
Wendy B. Needham		(Date)				E. Jenner Wood, III		(Date)
Director						Director

ANNUAL REPORT ON FORM 10-K

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2018 and 2017	F-3
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2018, 2017 and 2016	F-4
Consolidated Statements of Equity for the Years Ended December 31, 2018, 2017 and 2016	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016	F-6
Notes to Consolidated Financial Statements	F-7

F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Genuine Parts Company and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Genuine Parts Company and Subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of income and comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2019 expressed an adverse opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1948.

Atlanta, Georgia

February 25, 2019

F-2

Genuine Parts Company and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Share Data and per Share Amounts)

	As of December 31,
	2018				2017
Assets
Current assets:
Cash and cash equivalents	$	333,547			$	314,899
Trade accounts receivable, net	2,493,636				2,421,563
Merchandise inventories, net	3,609,389				3,771,089
Prepaid expenses and other current assets	1,139,118				805,342
Total current assets	7,575,690				7,312,893
Goodwill	2,128,776				2,153,988
Other intangible assets, less accumulated amortization	1,411,642				1,400,392
Deferred tax assets	29,509				40,158
Other assets	510,192				568,248
Property, plant, and equipment, net	1,027,231				936,702
	$	12,683,040			$	12,412,381
Liabilities and equity
Current liabilities:
Trade accounts payable	$	3,995,789			$	3,634,859
Current portion of debt	711,147				694,989
Other current liabilities	1,088,428				1,045,177
Dividends payable	105,369				99,000
Total current liabilities	5,900,733				5,474,025
Long-term debt	2,432,133				2,550,020
Pension and other post-retirement benefit liabilities	235,228				229,868
Deferred tax liabilities	196,843				193,308
Other long-term liabilities	446,112				501,004
Equity:
Preferred stock, par value $1 per share — authorized 10,000,000 shares; none issued	—				—
Common stock, par value $1 per share - authorized 450,000,000 shares; issued and outstanding - 2018 - 145,936,613 shares and 2017 - 146,652,615 shares	145,937				146,653
Additional paid-in capital	78,380				68,126
Accumulated other comprehensive loss	(1,115,078		)		(852,592		)
Retained earnings	4,341,212				4,049,965
Total parent equity	3,450,451				3,412,152
Noncontrolling interests in subsidiaries	21,540				52,004
Total equity	3,471,991				3,464,156
	$	12,683,040			$	12,412,381

See accompanying notes.

F-3

Genuine Parts Company and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

(In Thousands, Except per Share Amounts)

	Year Ended December 31,
	2018				2017				2016
Net sales	$	18,735,073			$	16,308,801			$	15,339,713
Cost of goods sold	12,751,286				11,402,403				10,740,106
Gross margin	5,983,787				4,906,398				4,599,607
Operating expenses:
Selling, administrative, and other expenses	4,615,290				3,726,233				3,391,971
Depreciation and amortization	241,635				167,691				147,487
Provision for doubtful accounts	17,147				13,932				11,515
Total operating expenses	4,874,072				3,907,856				3,550,973
Non-operating expenses (income):
Interest expense	101,925				41,486				21,084
Other	(67,822		)		(52,212		)		(46,790		)
Total non-operating expenses (income)	34,103				(10,726		)		(25,706		)
Income before income taxes	1,075,612				1,009,268				1,074,340
Income taxes	265,138				392,511				387,100
Net income	$	810,474			$	616,757			$	687,240
Basic net income per common share	$	5.53			$	4.19			$	4.61
Diluted net income per common share	$	5.50			$	4.18			$	4.59
Weighted average common shares outstanding	146,657				147,140				149,051
Dilutive effect of stock options and nonvested restricted stock awards	584				561				753
Weighted average common shares outstanding — assuming dilution	147,241				147,701				149,804
Net income	$	810,474			$	616,757			$	687,240
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment	(233,235		)		137,694				(8,957		)
Net gain (loss) on cash flow and net investment hedges, net of income taxes of 2018 — $10,398; 2017 — $9,711	28,114				(17,388		)		—
Pension and postretirement benefit adjustments, net of income taxes of 2018 — $21,297; 2017 — $20,539; 2016 — $50,144	(57,365		)		40,123				(73,446		)
Other comprehensive (loss) income, net of tax	(262,486		)		160,429				(82,403		)
Comprehensive income	$	547,988			$	777,186			$	604,837

See accompanying notes.

F-4

Genuine Parts Company and Subsidiaries

Consolidated Statements of Equity

(In Thousands, Except Share Data and per Share Amounts)

		Common Stock							Additional Paid-In Capital				Accumulated Other Comprehensive Loss				Retained Earnings				Total Parent Equity				Non- controlling Interests in Subsidiaries				Total Equity
	Shares			Amount
	Balance at January 1, 2016	150,081,474			$	150,081			$	41,353			$	(930,618	)		$	3,885,751			$	3,146,567			$	12,675			$	3,159,242
	Net income	—			—				—				—				687,240				687,240				—				687,240
	Other comprehensive loss, net of tax	—			—				—				(82,403		)		—				(82,403		)		—				(82,403		)
	Cash dividends declared, $2.63 per share	—			—				—				—				(391,852		)		(391,852		)		—				(391,852		)
	Share-based awards exercised, including tax benefit of $12,021	340,703			341				(4,467		)		—				—				(4,126		)		—				(4,126		)
	Share-based compensation	—			—				19,719				—				—				19,719				—				19,719
	Purchase of stock	(2,011,755	)		(2,012		)		—				—				(179,405		)		(181,417		)		—				(181,417		)
	Noncontrolling interest activities	—			—				—				—				—				—				953				953
	Balance at December 31, 2016	148,410,422			148,410				56,605				(1,013,021		)		4,001,734				3,193,728				13,628				3,207,356
	Net income	—			—				—				—				616,757				616,757				—				616,757
	Other comprehensive income, net of tax	—			—				—				160,429				—				160,429				—				160,429
	Cash dividends declared, $2.70 per share	—			—				—				—				(396,891		)		(396,891		)		—				(396,891		)
	Share-based awards exercised, including tax benefit of $3,134	131,232			132				(5,371		)		—				—				(5,239		)		—				(5,239		)
	Share-based compensation	—			—				16,892				—				—				16,892				—				16,892
	Purchase of stock	(1,889,039	)		(1,889		)		—				—				(171,635		)		(173,524		)		—				(173,524		)
	Noncontrolling interest activities	—			—				—				—				—				—				38,376				38,376
	Balance at December 31, 2017	146,652,615			146,653				68,126				(852,592		)		4,049,965				3,412,152				52,004				3,464,156
	Net income	—			—				—				—				810,474				810,474				—				810,474
	Other comprehensive loss, net of tax	—			—				—				(262,486		)		—				(262,486		)		—				(262,486		)
	Cash dividends declared, $2.88 per share	—			—				—				—				(422,352		)		(422,352		)		—				(422,352		)
	Share-based awards exercised, including tax benefit of $4,232	235,058			235				(10,462		)		—				—				(10,227		)		—				(10,227		)
	Share-based compensation	—			—				20,716				—				—				20,716				—				20,716
	Purchase of stock	(951,060	)		(951		)		—				—				(91,032		)		(91,983		)		—				(91,983		)
	Cumulative effect from adoption of ASU 2014-09, net of tax	—			—				—				—				(5,843		)		(5,843		)		—				(5,843		)
	Noncontrolling interest activities	—			—				—				—				—				—				(30,464		)		(30,464		)
	Balance at December 31, 2018	145,936,613			$	145,937			$	78,380			$	(1,115,078	)		$	4,341,212			$	3,450,451			$	21,540			$	3,471,991

See accompanying notes.

F-5

Genuine Parts Company and Subsidiaries

Consolidated Statements of Cash Flows

(In Thousands)

	Year Ended December 31
	2018				2017				2016
Operating activities
Net income	$	810,474			$	616,757			$	687,240
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	241,635				167,691				147,487
Excess tax benefits from share-based compensation	(4,232		)		(3,134		)		(12,021		)
Loss (gain) on sale of property, plant, and equipment	1,579				(3,989		)		(15,237		)
Deferred income taxes	3,891				65,990				33,226
Share-based compensation	20,716				16,892				19,719
Foreign exchange gain	—				(14,051		)		—
Changes in operating assets and liabilities:
Trade accounts receivable, net	(72,041		)		(19,273		)		(53,544		)
Merchandise inventories, net	(73,173		)		(9,923		)		(64,214		)
Trade accounts payable	364,639				61,474				240,717
Other short-term assets and liabilities	(97,864		)		(1,544		)		37,271
Other long-term assets and liabilities	(50,460		)		(61,847		)		(74,566		)
	334,690				198,286				258,838
Net cash provided by operating activities	1,145,164				815,043				946,078
Investing activities
Purchases of property, plant and equipment	(232,422		)		(156,760		)		(160,643		)
Proceeds from sale of property, plant, and equipment	14,665				21,275				28,811
Acquisition of businesses and other investing activities	(278,367		)		(1,494,795		)		(462,167		)
Net cash used in investing activities	(496,124		)		(1,630,280		)		(593,999		)
Financing activities
Proceeds from debt	5,064,291				6,630,294				4,350,000
Payments on debt	(5,124,265		)		(4,350,222		)		(4,100,000		)
Payments on acquired debt	—				(833,775		)		—
Share-based awards exercised	(10,227		)		(5,239		)		(16,147		)
Excess tax benefits from share-based compensation	—				—				12,021
Dividends paid	(415,983		)		(395,475		)		(386,863		)
Purchase of stock	(91,983		)		(173,524		)		(181,417		)
Other financing activities	(30,663		)		—				—
Net cash (used in) provided by financing activities	(608,830		)		872,059				(322,406		)
Effect of exchange rate changes on cash	(21,562		)		15,198				1,575
Net increase in cash and cash equivalents	18,648				72,020				31,248
Cash and cash equivalents at beginning of year	314,899				242,879				211,631
Cash and cash equivalents at end of year	$	333,547			$	314,899			$	242,879
Supplemental disclosures of cash flow information
Cash paid during the year for:
Income taxes	$	236,536			$	298,827			$	374,865
Interest	$	102,131			$	38,401			$	19,043

See accompanying notes.

F-6

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

(in thousands, except per share data)

1. Summary of Significant Accounting Policies

Business

Genuine Parts Company and all of its majority-owned subsidiaries (the "Company") is a distributor of automotive replacement parts, industrial parts and materials and business products. The Company serves a diverse customer base through approximately 3,100 locations in North America, Australasia and Europe and, therefore, has limited exposure from credit losses to any particular customer, region, or industry segment. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company has evaluated subsequent events through the date the financial statements were issued.

Principles of Consolidation

The consolidated financial statements include all of the accounts of the Company. The net income attributable to noncontrolling interests is not material to the Company’s consolidated net income. Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements, in conformity with U.S. generally accepted accounting principles, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates and the differences could be material.

Revenue Recognition

Refer to the revenue recognition footnote for additional information related to the Company's revenue recognition policy.

Foreign Currency Translation

The consolidated balance sheets and statements of income and comprehensive income of the Company’s foreign subsidiaries have been translated into U.S. dollars at the current and average exchange rates, respectively. The foreign currency translation adjustment is included as a component of accumulated other comprehensive loss.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.

Trade Accounts Receivable and the Allowance for Doubtful Accounts

The Company evaluates the collectability of trade accounts receivable based on a combination of factors. The Company estimates an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience and periodically adjusts this estimate when the Company becomes aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While the Company has a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which the Company operates could result in higher than expected defaults and, therefore, the need to revise estimates for bad debts. For the years ended December 31, 2018, 2017, and 2016, the Company recorded provisions for doubtful accounts of approximately $17,147, $13,932, and $11,515, respectively. At December 31, 2018 and 2017, the allowance for doubtful accounts was approximately $21,888 and $17,612, respectively.

Merchandise Inventories, Including Consideration Received From Vendors

Merchandise inventories are valued at the lower of cost or net realizable value. Cost is determined by the last-in, first-out ("LIFO") method for a majority of U.S. automotive and industrial parts, and by the first-in, first-out ("FIFO") method for business products and certain non-U.S. and other inventories. If the FIFO method had been used for all inventories, cost would have been approximately $479,500 and $440,550 higher than reported at December 31, 2018 and 2017, respectively. During 2017 and 2016, reductions in industrial parts inventories resulted in liquidations of LIFO inventory layers, which reduced cost of goods sold by approximately $2,000 and $6,000, respectively. There were no LIFO liquidations in 2018.

F-7

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

The Company identifies slow moving or obsolete inventories and estimates appropriate provisions related thereto. Historically, these losses have not been significant as the vast majority of the Company’s inventories are not highly susceptible to obsolescence and are eligible for return under various vendor return programs. While the Company has no reason to believe its inventory return privileges will be discontinued in the future, its risk of loss associated with obsolete or slow moving inventories would increase if such were to occur.

The Company enters into agreements at the beginning of each year with many of its vendors that provide for inventory purchase incentives. Generally, the Company earns inventory purchase incentives upon achieving specified volume purchasing levels or other criteria. The Company accrues for the receipt of these incentives as part of its inventory cost based on cumulative purchases of inventory to date and projected inventory purchases through the end of the year. While management believes the Company will continue to receive consideration from vendors in 2019 and beyond, there can be no assurance that vendors will continue to provide comparable amounts of incentives in the future.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist primarily of amounts due from vendors, prepaid expenses, and income and other taxes receivable. Upon adoption of Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), the Company also began classifying its estimate of merchandise returns expected in the next twelve months, which was $233,192 as of December 31, 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.

Goodwill

The Company reviews its goodwill annually in the fourth quarter, or sooner if circumstances indicate that the carrying amount may exceed fair value. The Company tests goodwill for impairment at the reporting unit level, which is an operating segment or a level below an operating segment (a component). A component is a reporting unit if the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. However, two or more components of an operating segment are aggregated and deemed a single reporting unit if the components have similar economic characteristics.

To review goodwill for impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a single reporting unit is less than its carrying amount. If the Company concludes that it is more likely than not that the fair value of the intangible asset is less than its carrying value, then a two-step quantitative goodwill impairment test is performed.

The first step is to compare the fair value of a reporting unit to its carrying value. The Company typically uses discounted cash flow models to determine the fair value of its reporting units. The assumptions used in these models are consistent with those the Company believes hypothetical marketplace participants would use. If the fair value of a reporting unit is less than its carrying amount, then the second step of the impairment test must be performed in order to determine the amount of impairment loss (if any). The second step compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess.

The Company completed both qualitative and quantitative assessments for the year ended December 31, 2018. Based on these analyses, the Company determined that the fair value of its reporting units are in excess of their carrying amounts and that there were no indicators that goodwill was impaired. Therefore, no impairments were recognized for the years ended December 31, 2018, 2017, or 2016.

No events or changes in circumstances have occurred since the date of the Company's most recent annual impairment test that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

Long-Lived Assets Other Than Goodwill

The Company assesses its long-lived assets other than goodwill for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining life of such assets. If these projected cash flows are less than the carrying amount, an impairment would be recognized, resulting in a write-down of assets with a corresponding charge to earnings. Impairment losses, if any, are measured based upon the difference between the carrying amount and the fair value of the assets.

F-8

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

Other Assets

Other assets consist primarily of cash surrender value of life insurance policies, equity method investments, guarantee fees receivable, and deferred compensation benefits.

Property, Plant, and Equipment

Property, plant, and equipment are stated at cost. Depreciation and amortization are primarily determined on a straight-line basis over the following estimated useful lives of each asset: buildings and improvements, 10 to 40 years; machinery and equipment, 5 to 15 years.

Other Current Liabilities

Other current liabilities consist primarily of reserves for sales returns expected within the next year, accrued compensation, accrued customer incentives, accrued income and other taxes, and other reserves for expenses incurred.

Other Long-term Liabilities

Other long-term liabilities consist primarily of reserves for sales returns expected after the next year, guarantee obligations, accrued taxes, deferred rent and other non-current obligations.

Self-Insurance

The Company is self-insured for the majority of group health insurance costs. A reserve for claims incurred but not reported is developed by analyzing historical claims data provided by the Company’s claims administrators. These reserves are included in accrued expenses in the accompanying consolidated balance sheets as the expenses are expected to be paid within one year.

Long-term insurance liabilities consist primarily of reserves for the workers’ compensation program. In addition, the Company carries various large risk deductible workers’ compensation policies for the majority of workers’ compensation liabilities. The Company records the workers’ compensation reserves based on an analysis performed by an independent actuary. The analysis calculates development factors, which are applied to total reserves as provided by the various insurance companies who underwrite the program. While the Company believes that the assumptions used to calculate these liabilities are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect workers’ compensation costs.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is comprised of the following:

		December 31,
		2018				2017
Foreign currency translation		$	(499,482	)		$	(266,247	)
Unrealized gain (loss) on cash flow and net investment hedges, net of tax		10,726				(17,388		)
Unrecognized net actuarial loss, net of tax		(623,363		)		(566,876		)
Unrecognized prior service cost, net of tax		(2,959		)		(2,081		)
Total accumulated other comprehensive loss		$	(1,115,078	)		$	(852,592	)

F-9

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

The following table presents the changes in accumulated other comprehensive loss by component for the years ended on December 31, 2018 and 2017:

		Changes in Accumulated Other Comprehensive Loss by Component
		Pension Benefits				Other Post-Retirement Benefits				Cash Flow and Net Investment Hedges				Foreign Currency Translation				Total
Beginning balance, January 1, 2017		$	(607,468	)		$	(1,612	)		$	—			$	(403,941	)		$	(1,013,021	)
Other comprehensive income (loss) before reclassifications, net of tax		16,640				307				(17,388		)		137,694				137,253
Amounts reclassified from accumulated other comprehensive loss, net of tax		23,385				(209		)		—				—				23,176
Net current period other comprehensive income (loss)		40,025				98				(17,388		)		137,694				160,429
Ending balance, December 31, 2017		(567,443		)		(1,514		)		(17,388		)		(266,247		)		(852,592		)
Other comprehensive (loss) income before reclassifications, net of tax		(85,677		)		20				26,563				(233,235		)		(292,329		)
Amounts reclassified from accumulated other comprehensive loss, net of tax		28,581				(289		)		1,551				—				29,843
Net current period other comprehensive (loss) income		(57,096		)		(269		)		28,114				(233,235		)		(262,486		)
Ending balance, December 31, 2018		$	(624,539	)		$	(1,783	)		$	10,726			$	(499,482	)		$	(1,115,078	)

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 and related to the cash flow and net investment hedges are included in the derivatives and hedging footnote.

Business Combinations

From time to time, the Company enters into business combinations. The Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree at their fair values as of the date of acquisition. The Company measures goodwill as the excess of consideration transferred, which the Company also measures at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires the Company to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of identifiable intangible assets, deferred tax asset valuation allowances, liabilities including those related to debt, pensions and other postretirement plans, uncertain tax positions, contingent consideration and contingencies. This method also requires the Company to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If the Company is required to adjust provisional amounts that were recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on the Company's consolidated financial statements.

Significant estimates and assumptions in estimating the fair value of acquired customer relationships and other identifiable intangible assets include future cash flows that the Company expects to generate from the acquired assets. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, the Company could record impairment charges. In addition, the Company has estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If the Company estimates the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired.

F-10

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

Fair Value of Financial Instruments

The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, trade accounts receivable, trade accounts payable, and borrowings under the line of credit and term loan approximate their respective fair values based on the short-term nature of these instruments. At December 31, 2018 and 2017, the fair value of fixed rate debt was approximately $1,427,381 and $1,497,179, 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. At December 31, 2018 and 2017, the carrying value of fixed rate debt, net of debt issuance costs, was $1,466,803 and $1,506,400, respectively, and is included in long-term and short-term debt in the consolidated balance sheets.

Derivatives and Hedging

The Company is exposed to various risks arising from business operations and market conditions, including fluctuations in interest rates and certain foreign currencies. When deemed appropriate, the Company uses derivative and non-derivative instruments as risk management tools to mitigate the potential impact of interest rate and foreign exchange rate risks. The objective of using these tools is to reduce fluctuations in the Company’s earnings and cash flows associated with changes in these rates. Derivative financial instruments are not used for trading or other speculative purposes. The Company has not historically incurred, and does not expect to incur in the future, any losses as a result of counterparty default related to derivative instruments.

The Company formally documents relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking cash flow hedges to specific forecasted transactions or variability of cash flow to be paid. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the designated derivative and non-derivative instruments that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items. When a designated instrument is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, hedge accounting is discontinued prospectively.

Shipping and Handling Costs

Shipping and handling costs are classified as selling, administrative and other expenses in the accompanying consolidated statements of income and comprehensive income and totaled approximately $390,000, $290,000, and $230,000, for the years ended December 31, 2018, 2017, and 2016, respectively.

Advertising Costs

Advertising costs are expensed as incurred and totaled $204,700, $166,000, and $153,100 in the years ended December 31, 2018, 2017, and 2016, respectively.

Accounting for Legal Costs

The Company’s legal costs expected to be incurred in connection with loss contingencies are expensed as such costs are incurred.

Share-Based Compensation

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 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. Forfeitures are accounted for as they occur. The Company issues new shares upon exercise or conversion of awards under these plans.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amount and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes. In addition, valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. In making this determination, the Company considers all available positive

F-11

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

and negative evidence including projected future taxable income, future reversals of existing temporary differences, recent financial operations and tax planning strategies.

The Company recognizes a tax benefit from uncertain tax positions when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

Net Income per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the year. The computation of diluted net income per common share includes the dilutive effect of stock options, stock appreciation rights and nonvested restricted stock awards options. Options to purchase approximately 1,490, 1,920, and 1,290 shares of common stock ranging from $85 — $100 per share were outstanding at December 31, 2018, 2017, and 2016, respectively. 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 prices of common stock in each respective year.

Recent Accounting Pronouncements

Revenue from Contracts with Customers (Topic 606)

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, which creates a single, comprehensive revenue recognition model for recognizing revenue from contracts with customers. The Company adopted ASU 2014-09 and its amendments on 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 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. ASU 2014-09 did not result in a significant change in the judgment or timing associated with the recognition of revenue from the sale of the Company’s products or services. See the revenue recognition footnote for additional information.

Leases (Topic 842)

In February 2016, the FASB issued ASU 2016-02, Leases ("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 substantially all leases, including operating leases. Expanded disclosures with additional qualitative and quantitative information will also be required. ASU 2016-02 and its amendments are effective for interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The standard should be applied using a retrospective transition approach. In July 2018, the FASB issued amendments in ASU 2018-11, which provide a transition election to not restate comparative periods for the effects of applying the new standard. This transition election permits entities to change the date of initial application to the beginning of the year of adoption and to recognize the effects of applying the new standard as a cumulative-effect adjustment to the opening balance of retained earnings.

The Company will adopt ASU 2016-02 as of January 1, 2019 and apply the transition election. The Company also will elect the package of practical expedients permitted under the transition guidance within the new standard, which among other things, will allow the Company to carryforward its historical lease classifications. In addition, the Company is not electing the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company will make an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet. The Company will recognize those lease payments in the consolidated statements of income and comprehensive income on a straight-line basis over the lease term.

The Company estimates an increase in lease-related assets and liabilities, ranging between $920,000 and $1,110,000, in the consolidated balance sheets when it adopts ASU 2016-02 and its amendments effective January 1, 2019. The Company estimates that the cumulative effect adjustment to retained earnings upon adoption will not be material. The Company does not believe the standard will materially affect consolidated net income and does not believe it will have a material impact on liquidity. The standard will have no impact on debt-covenant compliance under the Company's current debt agreements.

Income Statement - Reporting Comprehensive Income (Topic 220)

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"). The ASU provides that a company can make a one-time election to reclassify stranded tax effects caused by the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. ASU 2018-02 is effective for periods beginning after December 15, 2018, with an election to adopt early. The Company expects to adopt the standard in 2019,

F-12

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

and estimates on a preliminary basis that it will recognize an adjustment to increase retained earnings by approximately $125,000 on January 1, 2019.

Income Tax Reform

The Tax Cuts and Jobs Act (the "Act") was enacted December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21% for taxable years starting after December 31, 2017, and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were not previously subject to U.S. Federal income tax and creates new taxes on certain foreign sourced earnings. Refer to the income taxes footnote for additional information on the Act.

Compensation-Retirement Benefits (Topic 715)

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (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 statements of income and comprehensive income. The Company adopted ASU 2017-07 retrospectively on January 1, 2018 and it did not have a material impact on the Company's consolidated financial statements or related disclosures. See the employee benefit plans footnote for additional information. The Company elected to use the amounts disclosed in the employee benefit plans footnote for the prior comparative period as the basis for applying the retrospective presentation.

Derivatives and Hedging (Topic 815)

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"), which eliminates the requirement to separately measure and report hedge ineffectiveness and requires companies to recognize all elements of hedge accounting that impact earnings in the same line item in the statement of income where the hedged item resides. The amendments also ease the requirements for effectiveness testing, hedge documentation and applying the critical terms match method, among other things. ASU 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The standard must be applied using a modified retrospective transition approach. The Company early adopted ASU 2017-12 as of July 1, 2018 and it did not have a material impact on the Company’s consolidated financial statements or related disclosures.

2. Revenue Recognition

The Company applied 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 Accounting Standards Codification ("ASC"), 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 $233,192 as of December 31, 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 the customer obtains control of the products or services and at an amount that reflects the consideration expected to be received for those products or services. Contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price and recognizes revenue upon delivery or as services are rendered.

Revenue is recognized net of allowances for returns, variable consideration and any taxes collected from customers that will be remitted to governmental authorities. Revenue recognized over time is not significant. Payment terms with customers vary by the type and location of the customer and the products or services offered. The Company 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 consolidated 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 title 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

F-13

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

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 cataloging, marketing, training and other membership program and support services to certain customers. This revenue is recognized as services are performed. Revenue from these services is recognized over a short duration and the impact to our consolidated financial statements is not significant.

Variable Consideration

The Company’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 or service is transferred. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant.

3. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill during the years ended December 31, 2018 and 2017 by reportable segment, as well as other identifiable intangible assets, are summarized as follows:

	Goodwill
	Automotive				Industrial				Business Products				Total				Other Intangible Assets, Net
Balance as of January 1, 2017	$	607,558			$	266,495			$	82,100			$	956,153			$	618,510
Additions	1,089,767				39,419				—				1,129,186				796,544
Amortization	—				—				—				—				(51,993		)
Foreign currency translation	68,183				577				(111		)		68,649				37,331
Balance as of December 31, 2017	1,765,508				306,491				81,989				2,153,988				1,400,392
Additions	55,371				19,213				—				74,584				164,348
Amortization	—				—				—				—				(88,972		)
Foreign currency translation	(99,056		)		(707		)		(33		)		(99,796		)		(64,126		)
Balance as of December 31, 2018	$	1,721,823			$	324,997			$	81,956			$	2,128,776			$	1,411,642

The gross carrying amounts and accumulated amortization relating to other intangible assets at December 31, 2018 and 2017 is as follows:

	2018												2017
	Gross Carrying Amount				Accumulated Amortization				Net				Gross Carrying Amount				Accumulated Amortization				Net
Customer relationships	$	1,356,353			$	(267,818	)		$	1,088,535			$	1,251,783			$	(199,741	)		$	1,052,042
Trademarks	355,117				(32,755		)		322,362				369,512				(23,056		)		346,456
Non-competition agreements	5,009				(4,264		)		745				6,946				(5,052		)		1,894
	$	1,716,479			$	(304,837	)		$	1,411,642			$	1,628,241			$	(227,849	)		$	1,400,392

F-14

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

Amortization expense for other intangible assets totaled $88,972, $51,993, and $40,870 for the years ended December 31, 2018, 2017, and 2016, respectively. Estimated other intangible assets amortization expense for the succeeding five years is as follows:

2019	$	88,299
2020	87,329
2021	87,062
2022	87,106
2023	86,567
	$	436,363

4. Property, Plant & Equipment

Property, Plant & Equipment as of December 31, 2018 and December 31, 2017, consisted of the following:

		2018				2017
Land		$	105,960			$	104,049
Buildings		725,781				689,389
Machinery, equipment and other		1,404,184				1,187,617
Property, plant and equipment, at cost		2,235,925				1,981,055
Less: accumulated depreciation		1,208,694				1,044,353
Property, plant and equipment, net		$	1,027,231			$	936,702

5. Credit Facilities

The principal amounts of the Company’s borrowings subject to variable rates totaled approximately $1,176,477 and $1,690,000 at December 31, 2018 and 2017, respectively. The weighted average interest rate on the Company’s outstanding borrowings was approximately 2.71% and 2.70% at December 31, 2018 and 2017, respectively.

On October 30, 2017, the Company entered into a multi-currency Syndicated Facility Agreement (the "Syndicated Facility") with a consortium of financial institutions. The Syndicated Facility amended the $1,200,000 unsecured Revolving Credit Facility dated September 11, 2012 that was scheduled to mature in September 2022. The Syndicated Facility is for $2,600,000 and expires October 30, 2022. The Syndicated Facility includes a $1,500,000 multi-currency revolving credit facility and a $1,100,000 Term Loan A, which requires quarterly principal payments. The Syndicated Facility interest rate is based on LIBOR plus a margin based on the Company's debt to earnings before interest, tax, depreciation and amortization ("EBITDA") ratio (2.70 at December 31, 2018). The Syndicated Facility contains an uncommitted option to increase the borrowing capacity up to an additional $1,000,000, as well as an option to decrease the borrowing capacity or terminate the Syndicated Facility with appropriate notice. At December 31, 2018, the amounts outstanding under the Syndicated Facility and Term Loan A were $604,383 and $1,045,000, respectively. In addition to the Syndicated Facility, the Company has eight Senior Fixed Rate Notes with a number of investors. The notes vary in maturity with $50,000 maturing on July 29, 2021, $250,000 maturing on December 2, 2023, €225,000 maturing on October 30, 2024, $250,000 maturing on November 30, 2026, €250,000 maturing on October 30, 2027, $120,000 maturing on October 30, 2027, €125,000 maturing on October 30, 2029, and €100,000 maturing on October 30, 2032.

Certain borrowings require the Company to comply with a financial covenant with respect to a maximum debt to EBITDA ratio. At December 31, 2018, the Company was in compliance with all such covenants. Due to the workers’ compensation and insurance reserve requirements in certain states, the Company also had unused letters of credit of approximately $63,504 and $62,019 outstanding at December 31, 2018 and 2017, respectively.

F-15

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

Amounts outstanding under the Company’s credit facilities, net of debt issuance cost, consist of the following:

		December 31,
		2018				2017
Unsecured Revolving Credit Facility, $1,500,000, LIBOR plus 1.375% variable, due October 30, 2022		$	604,383			$	590,000
Unsecured Term Loan A, $1,100,000, LIBOR plus 1.375% variable, due October 30, 2022		1,045,000				1,100,000
Unsecured term notes:
July 29, 2016, Series G Senior Unsecured Notes, $50,000, 2.64% fixed, due July 29, 2021		50,000				50,000
December 2, 2013, Series F Senior Unsecured Notes, $250,000, 3.24% fixed, due December 2, 2023		250,000				250,000
October 30, 2017, Series J Senior Unsecured Notes, €225,000, 1.40% fixed, due October 30, 2024		257,468				269,955
November 30, 2016, Series H Senior Unsecured Notes, $250,000, 3.24% fixed, due November 30, 2026		250,000				250,000
October 30, 2017, Series K Senior Unsecured Notes, €250,000, 1.81% fixed, due October 30, 2027		286,075				299,950
October 30, 2017, Series I Senior Unsecured Notes, $120,000, 3.70% fixed, due October 30, 2027		120,000				120,000
October 30, 2017, Series L Senior Unsecured Notes, €125,000, 2.02% fixed, due October 30, 2029		143,038				149,975
October 30, 2017, Series M Senior Unsecured Notes, €100,000, 2.32% fixed, due October 30, 2032		114,430				119,980
Other unsecured debt		27,093				49,990
Total unsecured debt		3,147,487				3,249,850
Unamortized debt issuance costs		(4,207		)		(4,841		)
Total debt		3,143,280				3,245,009
Less debt due within one year		711,147				694,989
Long-term debt, excluding current portion		$	2,432,133			$	2,550,020

Approximate maturities under the Company’s credit facilities, net of debt issuance costs, are as follows:

2019	$	711,147
2020	111,562
2021	186,866
2022	714,366
2023	249,654
Thereafter	1,169,685
	$	3,143,280

6. Derivatives and Hedging

Cash Flow Hedge

In July 2018, the Company entered into an interest rate swap to mitigate variability in forecasted interest payments on $500,000 of the Company’s U.S. dollar-denominated unsecured variable rate debt. The interest rate swap effectively converts a portion of the floating rate interest payment into a fixed rate interest payment. The Company designated the interest rate swap as a qualifying hedging instrument and is accounting for this derivative as a cash flow hedge. The fair value of the interest rate cash flow hedge

F-16

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

was not material as of December 31, 2018. Gains or losses related to the interest rate cash flow hedge were not material during the year ended December 31, 2018.

Hedges of Net Investments in Foreign Operations

In July 2018, concurrent with the cash flow hedge described above, the Company entered into a cross-currency swap agreement to effectively convert $500,000 of the U.S. dollar-denominated unsecured variable rate debt to fixed-rate Euro-denominated debt. The risk management objective of this transaction is to manage foreign currency risk relating to a European subsidiary and reduce the variability in the functional currency equivalent cash flows of the unsecured variable rate debt. The Company designated the cross-currency swap as a qualifying hedging instrument and is accounting for this derivative 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. The fair value of the cross currency hedge was not material as of December 31, 2018. Gains or losses related to the cross-currency swap agreement were not material during the year ended December 31, 2018.

As of December 31, 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 certain European subsidiaries. As of December 31, 2018, the euro-denominated debt has a total carrying value of $801,010, which is included in long-term debt in the Company’s consolidated balance sheet. For the year ended December 31, 2018, the Company recorded a gain, net of tax, of approximately $28,360 in the net investment hedge section of the accumulated other comprehensive loss in the Company’s consolidated balance sheet.

The Company did not reclassify any gains or losses related to net investment hedges from accumulated other comprehensive loss into earnings during the year ended December 31, 2018. Amounts would only be reclassified into earnings if the European subsidiary were liquidated, or otherwise disposed.

7. Leased Properties

The Company primarily leases certain retail stores, branches, distribution centers, office space, land, vehicles, information technology and equipment.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of lease renewal options is at the Company's discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of the lease agreements include rental payments adjusted periodically for inflation. Lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Future minimum payments, by year and in the aggregate, under the noncancelable operating leases with initial or remaining terms of one year or more were approximately the following at December 31, 2018:

2019	$	305,257
2020	239,629
2021	173,119
2022	121,918
2023	82,940
Thereafter	192,862
Total minimum lease payments	$	1,115,725

Rental expense for operating leases was approximately $366,000, $306,000, and $278,000 for 2018, 2017, and 2016, respectively.

F-17

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

8. Share-Based Compensation

At December 31, 2018, total compensation cost related to nonvested awards not yet recognized was approximately $36,500. The weighted-average period over which this compensation cost is expected to be recognized is approximately two years. The aggregate intrinsic value for SARs and RSUs outstanding at December 31, 2018 and 2017 was approximately $97,800 and $95,400, respectively. The aggregate intrinsic value for SARs and RSUs vested totaled approximately $41,300 and $52,900 at December 31, 2018 and 2017, respectively. At December 31, 2018, the weighted-average contractual life for outstanding and exercisable SARs and RSUs was five years. Share-based compensation costs of $20,716, $16,892, and $19,719, were recorded for the years ended December 31, 2018, 2017, and 2016, respectively. The total income tax benefits recognized in the consolidated statements of income and comprehensive income for share-based compensation arrangements were approximately $5,600, $4,600, and $7,900 for 2018, 2017, and 2016, respectively. There have been no modifications to valuation methodologies or methods during the years ended December 31, 2018, 2017, or 2016.

The fair value of RSUs is based on the price of the Company’s stock on the date of grant. The total fair value of RSUs vested during the years ended December 31, 2018, 2017, and 2016 were $20,800, $15,500, and $18,200, respectively. The Company did not grant SARs for the year ended December 31, 2018. For the years ended December 31, 2017 and 2016, the fair values for SARs granted were estimated using a Black-Scholes option pricing model with the following weighted-average assumptions, respectively: risk-free interest rate of 2.3%, and 1.6%; dividend yield of 2.8%, and 2.7%; annual historical volatility factor of the expected market price of the Company’s common stock of 19% for each of the two years and an average expected life of approximately six years.

A summary of the Company’s share-based compensation activity and related information is as follows:

		2018
		Shares (1)			Weighted Average Exercise Price (2)
Outstanding at beginning of year		4,200			$	82
Granted		360			$	—
Exercised		(772	)		$	70
Forfeited		(138	)		$	94
Outstanding at end of year (3)		3,650			$	85
Exercisable at end of year		2,477			$	82
Shares available for future grants		8,135

(1)	Shares include Restricted Stock Units ("RSUs").

(2)	The weighted average exercise price excludes RSUs.

(3)	The exercise prices for SARs outstanding as of December 31, 2018 ranged from approximately $43 to $100. The weighted average remaining contractual life of all SARs outstanding is approximately five years.

The weighted average grant date fair value of SARs granted during the years 2017 and 2016 was $13.89 and $13.52, respectively. The aggregate intrinsic value of SARs and RSUs exercised during the years ended December 31, 2018, 2017, and 2016 was $32,600, $16,800, and $48,200, respectively.

In 2018, the Company granted approximately 360 RSUs. In 2017, the Company granted approximately 746 SARs and 171 RSUs. In 2016, the Company granted approximately 724 SARs and 170 RSUs.

A summary of the Company’s nonvested share awards activity is as follows:

Nonvested Share Awards (RSUs)	Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2018	406			$	91
Granted	360			$	89
Vested	(140	)		$	88
Forfeited	(63	)		$	89
Nonvested at December 31, 2018	563			$	91

F-18

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

9. Income Taxes

The Tax Cuts and Jobs Act was enacted December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21% for taxable years beginning after December 31, 2017, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were not previously subject to U.S. Federal income tax and creates new taxes on certain foreign sourced earnings. In 2017 and for the nine months ended September 30, 2018, the Company recorded provisional amounts for these enactment-date effects of the Act by applying the guidance in U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118 ("SAB 118") because the Company had not yet completed its accounting for these effects. As of December 22, 2018, the Company has completed its accounting for all of the enactment-date income tax effects of the Act. As further discussed below, the Company recognized adjustments totaling $5,299 at December 31, 2018 to the provisional amounts recorded at December 31, 2017 and each interim reporting period of 2018. These adjustments are included as a component of income tax expense. The changes to 2017 enactment-date provisional amounts did not have a material effect on the effective tax rate in 2018.

Deferred tax assets and liabilities

As of December 31, 2017, the Company remeasured U.S. deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future, which is generally 21% for federal income tax purposes. The provisional amount recorded related to the remeasurement of the deferred tax balance was $13,854 at December 31, 2017. Upon further analysis of certain aspects of the Act and refinement of our calculations during the 12 month period ended December 31, 2018, the Company adjusted its provisional amount by approximately $424, which is included as a component of income tax expense.

International tax effects

The one-time transition tax is based on the Company's total post-1986 earnings and profits ("E&P") which the Company has previously deferred from U.S. income taxes pursuant to the provisions of the Internal Revenue Code prior to the Act. The Company recorded a provisional U.S. tax liability for the transition tax in the amount of $37,132 at December 31, 2017. Upon further analysis of the Act and notices and regulations issued by the U.S. Department of the Treasury and the Internal Revenue Service, the Company finalized its calculations of the transition tax liability during the 12 month period ended December 31, 2018. The provisional amount increased by $4,875 at December 31, 2018, which is included as a component of income tax expense. The Company has elected to pay the tax over the eight year period provided by the Act. No additional income taxes, where applicable (i.e., U.S. Federal, U.S. State, foreign withholding, or similar taxes under foreign law), have been provided on any remaining outside basis difference inherent in the Company's foreign subsidiaries. The cumulative undistributed earnings from the Company's foreign subsidiaries continue to be indefinitely reinvested in foreign operations. The gross tax cost to the Company associated with its outside basis difference is not material. Determining the amount of net unrecognized deferred tax liability related to any additional outside basis difference in these entities (i.e., basis difference other than those subject to the one-time transition tax) is not practicable. This is due to the complexities associated with the hypothetical calculation to determine residual taxes on the undistributed earnings, including the availability of foreign tax credits, applicability of any additional local withholding tax and other indirect tax consequence that may arise due to the distribution of these earnings.

Global Intangible Low-Taxed Income ("GILTI")

The Act subjects a U.S. shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for GILTI, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. The Company has elected to account for GILTI in the year the tax is incurred as a period cost.

F-19

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

Significant components of the Company’s deferred tax assets and liabilities are as follows:

		2018				2017
Deferred tax assets related to:
Expenses not yet deducted for tax purposes		$	266,628			$	256,728
Pension liability not yet deducted for tax purposes		277,929				257,766
Net operating loss		29,785				31,046
		574,342				545,540
Deferred tax liabilities related to:
Employee and retiree benefits		218,124				210,429
Inventory		95,280				93,067
Other intangible assets		296,736				287,018
Property, plant, and equipment		72,463				66,727
Other		32,978				35,859
		715,581				693,100
Net deferred tax liability before valuation allowance		(141,239		)		(147,560		)
Valuation allowance		(26,095		)		(5,590		)
Total net deferred tax liability		$	(167,334	)		$	(153,150	)

The Company currently holds approximately $125,013 in net operating losses, of which approximately $89,710 will carry forward indefinitely. The remaining net operating losses of approximately $35,303 will begin to expire in 2024.

The components of income before income taxes are as follows:

		2018				2017				2016
United States		$	790,592			$	813,078			$	934,476
Foreign		285,020				196,190				139,864
Income before income taxes		$	1,075,612			$	1,009,268			$	1,074,340

The components of income tax expense are as follows:

		2018				2017				2016
Current:
Federal		$	144,615			$	252,337			$	284,199
State		39,326				29,288				41,083
Foreign		77,306				44,896				28,593
Deferred:
Federal		15,167				71,238				26,684
State		5,770				13,663				3,857
Foreign		(17,046		)		(18,911		)		2,684
		$	265,138			$	392,511			$	387,100

F-20

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

The reasons for the difference between total tax expense and the amount computed by applying the statutory Federal income tax rate to income before income taxes are as follows:

		2018				2017				2016
Statutory rate applied to income (1)		$	225,879			$	353,259			$	376,019
Plus state income taxes, net of Federal tax benefit		35,626				27,918				29,211
Taxation of foreign operations, net (2)		(7,639		)		(33,984		)		(18,057		)
U.S. tax reform - transition tax		4,875				37,132				—
U.S. tax reform - deferred tax remeasurement		424				13,854				—
Foreign rate change - deferred tax remeasurement		(1,461		)		(9,338		)		—
Book tax basis difference in investment		(11,944		)		—				—
Valuation allowance		20,505				1,273				371
Other		(1,127		)		2,397				(444		)
		$	265,138			$	392,511			$	387,100

(1)	U.S. statutory rates applied to income are as follows: 2018 at 21%, 2017 and 2016 at 35%.

(2)	The Company's effective tax rate reflects the net benefit of having operations outside of the U.S. which are taxed at statutory rates different from the U.S. statutory rate, with some income being fully or partially exempt from income taxes due to various operating and financing activities.

The Company, or one of its subsidiaries, files income tax returns in the U.S., various states, and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state and local tax examinations by tax authorities for years before 2014 or subject to non-United States income tax examinations for years ended prior to 2012. The Company is currently under audit in the U.S. and some of its foreign jurisdictions. Some audits may conclude in the next 12 months and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts. It is not possible to estimate the effect, if any, of the amount of such change during the next 12 months to previously recorded uncertain tax positions in connection with the audits. The Company does not anticipate that total unrecognized tax benefits will significantly change in the next 12 months.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

		2018				2017				2016
Balance at beginning of year		$	14,697			$	15,190			$	15,815
Additions based on tax positions related to the current year		2,034				2,644				2,184
Additions for tax positions of prior years		4,787				1,511				1,317
Reductions for tax positions for prior years		(725		)		(430		)		(1,369		)
Reduction for lapse in statute of limitations		(2,338		)		(3,917		)		(2,516		)
Settlements		(27		)		(301		)		(241		)
Balance at end of year		$	18,428			$	14,697			$	15,190

The amount of gross unrecognized tax benefits, including interest and penalties, as of December 31, 2018 and 2017 was approximately $20,669 and $16,919, respectively, of which approximately $14,760 and $10,847, respectively, if recognized, would affect the effective tax rate.

During the years ended December 31, 2018, 2017, and 2016, the Company paid or received refunds of interest and penalties of approximately $18, $(3,384), and $5, respectively. The Company had approximately $2,242 and $2,151 of accrued interest and penalties at December 31, 2018 and 2017, respectively. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.

F-21

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

10. Employee Benefit Plans

The Company’s defined benefit pension plans cover employees in the U.S., Canada, and Europe who meet eligibility requirements. The plan covering U.S. employees is noncontributory and the Company implemented a hard freeze for the U.S. qualified defined benefit plan as of December 31, 2013. No further benefits were provided after this date for additional credited service or earnings and all participants became fully vested as of December 31, 2013. The Canadian plan is contributory and benefits are based on career average compensation. The Company’s funding policy is to contribute an amount equal to the minimum required contribution under applicable pension legislation. For the plans in the U.S. and Canada, the Company may increase its contribution above the minimum, if appropriate to its tax and cash position and the plans’ funded position. For the plans in Europe, these plans will be funded in accordance with local regulations.

The Company also sponsors supplemental retirement plans covering employees in the U.S. and Canada. The Company uses a measurement date of December 31 for its pension and supplemental retirement plans.

Several assumptions are used to determine the benefit obligations, plan assets, and net periodic income. The discount rate for the pension plans is calculated using a bond matching approach to select specific bonds that would satisfy the projected benefit payments. The bond matching approach reflects the process that would be used to settle the pension obligations. The expected return on plan assets is based on a calculated market-related value of plan assets, where gains and losses on plan assets are amortized over a five year period and accumulate in other comprehensive income. Other non-investment unrecognized gains and losses are amortized in future net income based on a “corridor” approach, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year. The unrecognized gains and losses in excess of the corridor criteria are amortized over the average future lifetime or service of plan participants, depending on the plan. These assumptions are updated at each annual measurement date.

Changes in benefit obligations for the years ended December 31, 2018 and 2017 were:

		2018				2017
Changes in benefit obligation
Benefit obligation at beginning of year		$	2,435,765			$	2,306,859
Service cost		10,410				8,459
Interest cost		88,247				96,651
Plan participants’ contributions		2,466				2,454
Actuarial (gain) loss		(122,556		)		94,546
Foreign currency exchange rate changes		(18,416		)		15,073
Gross benefits paid		(118,643		)		(106,885		)
Plan amendments		—				4,768
Acquired plans		770				13,840
Benefit obligation at end of year		$	2,278,043			$	2,435,765

The benefit obligations for the Company’s U.S. pension plans included in the above were $2,055,701 and $2,187,700 at December 31, 2018 and 2017, respectively. The total accumulated benefit obligation for the Company’s defined benefit pension plans in the U.S., Canada and Europe was approximately $2,247,013 and $2,409,091 at December 31, 2018 and 2017, respectively.

The assumptions used to measure the pension benefit obligations for the plans at December 31, 2018 and 2017, were:

	2018			2017
Weighted average discount rate	4.36	%		3.70	%
Rate of increase in future compensation levels	3.14	%		3.11	%

F-22

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

Changes in plan assets for the years ended December 31, 2018 and 2017 were:

		2018				2017
Changes in plan assets
Fair value of plan assets at beginning of year		$	2,206,479			$	1,965,502
Actual return on plan assets		(86,418		)		277,650
Foreign currency exchange rate changes		(18,054		)		14,449
Employer contributions		57,549				53,309
Plan participants’ contributions		2,466				2,454
Benefits paid		(118,643		)		(106,885		)
Fair value of plan assets at end of year		$	2,043,379			$	2,206,479

The fair values of plan assets for the Company’s U.S. pension plans included in the above were $1,831,513 and $1,969,196 at December 31, 2018 and 2017, respectively.

For the years ended December 31, 2018 and 2017, the aggregate benefit obligation and aggregate fair value of plan assets for plans with benefit obligations in excess of plan assets were as follows:

		2018				2017
Aggregate benefit obligation		$	2,106,348			$	2,241,690
Aggregate fair value of plan assets		1,863,245				2,003,831

For the years ended December 31, 2018 and 2017, the aggregate accumulated benefit obligation and aggregate fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets were as follows:

		2018				2017
Aggregate accumulated benefit obligation		$	2,070,183			$	2,210,590
Aggregate fair value of plan assets		1,855,714				1,996,017

The asset allocations for the Company’s funded pension plans at December 31, 2018 and 2017, and the target allocation for 2019, by asset category were:

	Target Allocation			Percentage of Plan Assets at December 31
	2019		2018			2017
Asset Category
Equity securities	72	%		67	%		71	%
Debt securities	28	%		33	%		29	%
	100	%		100	%		100	%

The Company’s benefit plan committees in the U.S. and Canada establish investment policies and strategies and regularly monitor the performance of the funds. The plans in Europe are unfunded and, therefore, there are no plan assets. The pension plan strategy implemented by the Company’s management is to achieve long-term objectives and invest the pension assets in accordance with the applicable pension legislation in the U.S. and Canada as well as fiduciary standards. The long-term primary investment objectives for the pension plans are to provide for a reasonable amount of long-term growth of capital, without undue exposure to risk, protect the assets from erosion of purchasing power, and provide investment results that meet or exceed the pension plans’ actuarially assumed long-term rates of return. The Company’s investment strategy with respect to pension plan assets is to generate a return in excess of the passive portfolio benchmark (47% S&P 500 Index, 5% Russell Midcap Index, 7% Russell 2000 Index, 5% MSCI EAFE Index, 5% DJ Global Moderate Index, 3% MSCI Emerging Market Net, and 28% Barclays U.S. Govt/Credit).

The fair values of the plan assets as of December 31, 2018 and 2017, by asset category, are shown in the tables below. Various inputs are considered when determining the value of the Company’s pension plan assets. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. Level 1 represents observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 represents

F-23

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.). Level 3 represents significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments). Certain investments are measured at fair value using the net asset value ("NAV") per share as a practical expedient and have not been classified in the fair value hierarchy.

The valuation methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Equity securities are valued at the closing price reported on the active market on which the individual securities are traded on the last day of the calendar plan year. Debt securities including corporate bonds, U.S. Government securities, and asset-backed securities are valued using price evaluations reflecting the bid and/or ask sides of the market for an investment as of the last day of the calendar plan year.

		2018
		Total				Assets Measured at NAV				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Equity Securities
Common stocks — mutual funds — equity		$	457,567			$	166,045			$	291,522			$	—			$	—
Genuine Parts Company common stock		193,810				—				193,810				—				—
Other stocks		713,924				—				713,882				—				42
Debt Securities
Short-term investments		30,855				—				30,855				—				—
Cash and equivalents		14,583				—				14,583				—				—
Government bonds		223,750				—				159,483				64,267				—
Corporate bonds		227,616				—				—				227,616				—
Asset-backed and mortgage-backed securities		8,866				—				—				8,866				—
Other-international		29,471				—				29,126				345				—
Municipal bonds		8,747				—				—				8,747				—
Mutual funds—fixed income		131,755				86,443				—				45,312				—
Other
Cash surrender value of life insurance policies		2,435				—								—				2,435
Total		$	2,043,379			$	252,488			$	1,433,261			$	355,153			$	2,477

F-24

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

		2017
		Total				Assets Measured at NAV				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Equity Securities
Common stocks — mutual funds — equity		$	536,609			$	193,628			$	342,981			$	—			$	—
Genuine Parts Company common stock		191,771				—				191,771				—				—
Other stocks		838,694				—				838,659				—				35
Debt Securities
Short-term investments		47,745				—				47,745				—				—
Cash and equivalents		13,530				—				13,530				—				—
Government bonds		180,838				—				121,834				59,004				—
Corporate bonds		207,978				—				—				207,978				—
Asset-backed and mortgage-backed securities		9,725				—				—				9,725				—
Convertible securities		211				—				—				211				—
Other-international		29,431				—				29,221				210				—
Municipal bonds		7,346				—				—				7,346				—
Mutual funds—fixed income		139,801				92,248				—				47,553				—
Other
Options and futures		38				—				38				—				—
Cash surrender value of life insurance policies		2,762				—				—				—				2,762
Total		$	2,206,479			$	285,876			$	1,585,779			$	332,027			$	2,797

Equity securities include Genuine Parts Company common stock in the amounts of $193,810 (9% of total plan assets) and $191,771 (9% of total plan assets) at December 31, 2018 and 2017, respectively. Dividend payments received by the plan on Company stock totaled approximately $5,813 and $5,450 in 2018 and 2017, respectively. Fees paid during the year for services rendered by parties in interest were based on customary and reasonable rates for such services.

The changes in the fair value measurement of plan assets using significant unobservable inputs (Level 3) during 2018 and 2017 were not material.

Based on the investment policy for the pension plans, as well as an asset study that was performed based on the Company’s asset allocations and future expectations, the Company’s expected rate of return on plan assets for measuring 2019 pension income is 7.12% for the plans. The asset study forecasted expected rates of return for the approximate duration of the Company’s benefit obligations, using capital market data and historical relationships.

The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheets at December 31:

		2018				2017
Other long-term asset		$	8,440			$	8,573
Other current liability		(9,213		)		(9,280		)
Pension and other post-retirement liabilities		(233,891		)		(228,579		)
		$	(234,664	)		$	(229,286	)

F-25

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

Amounts recognized in accumulated other comprehensive loss consist of:

		2018				2017
Net actuarial loss		$	1,014,794			$	941,063
Prior service cost		5,939				5,773
		$	1,020,733			$	946,836

The following table reflects the total benefits expected to be paid from the pension plans’ or the Company’s assets. Of the pension benefits expected to be paid in 2019, approximately $9,215 is expected to be paid from employer assets. Expected employer contributions below reflect amounts expected to be contributed to funded plans. Information about the expected cash flows for the pension plans follows:

Employer contribution
2019 (expected)	$	6,034
Expected benefit payments:
2019	$	118,340
2020	122,253
2021	127,460
2022	132,988
2023	137,669
2024 through 2028	734,372

Net periodic benefit income included the following components:

		2018				2017				2016
Service cost		$	10,410			$	8,459			$	7,746
Interest cost		88,247				96,651				104,485
Expected return on plan assets		(154,006		)		(155,432		)		(156,832		)
Amortization of prior service credit		(147		)		(350		)		(432		)
Amortization of actuarial loss		39,721				38,034				31,641
Net periodic benefit income		$	(15,775	)		$	(12,638	)		$	(13,392	)

Service cost is recorded in selling, administrative and other expenses in the consolidated statements of income and comprehensive income while all other components are recorded within other non-operating expenses (income).

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) are as follows:

		2018				2017				2016
Current year actuarial loss (gain)		$	117,867			$	(27,672	)		$	152,415
Recognition of actuarial loss		(39,721		)		(38,034		)		(31,641		)
Current year prior service cost		—				4,768				2,063
Recognition of prior service credit		147				350				432
Total recognized in other comprehensive income (loss)		$	78,293			$	(60,588	)		$	123,269
Total recognized in net periodic benefit income and other comprehensive income (loss)		$	62,518			$	(73,226	)		$	109,877

The estimated amounts that will be amortized from accumulated other comprehensive loss into net periodic benefit income in 2019 are as follows:

Actuarial loss	$	30,944
Prior service credit	(66		)
Total	$	30,878

F-26

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

The assumptions used in measuring the net periodic benefit income for the plans follow:

	2018			2017			2016
Weighted average discount rate	3.70	%		4.26	%		4.82	%
Rate of increase in future compensation levels	3.11	%		3.15	%		3.12	%
Expected long-term rate of return on plan assets	7.14	%		7.80	%		7.83	%

The Company has one defined contribution plan in the U.S. that covers substantially all of its domestic employees. Employees receive a matching contribution of 100% of the first 5% of the employees’ salary. Total plan expense was approximately $62,335 in 2018, $58,186 in 2017, and $56,975 in 2016.

The Company has a defined contribution plan that covers full-time Canadian employees after six months of employment and part-time employees upon meeting provincial minimum standards. Employees receive a matching contribution of 100% of the first 5% of the employees’ salary. Total plan expense was approximately $4,108 in 2018 and $2,600 in 2017.

11. 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 a controlling financial interest through ownership of a majority voting interest in the independent. The Company has no voting interest or other equity conversion rights in any of the independents. The Company does not control the independents or the affiliates, but receives a fee for the guarantee. 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 entity’s 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 guarantee. 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 EBITDA ratio and certain limitations on additional borrowings. At December 31, 2018, the Company was in compliance with all such covenants.

At December 31, 2018, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately $759,726. 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 guarantee. 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.

The Company has recognized certain assets and liabilities amounting to $78,000 and $65,000 for the guarantees related to the independents’ and affiliates’ borrowings at December 31, 2018 and 2017, respectively. These assets and liabilities are included in other assets and other long-term liabilities in the consolidated balance sheets.

12. Legal Matter

On April 17, 2017, a jury awarded damages against the Company of $81,500 in a litigated automotive product liability dispute. Through post-trial motions and offsets from previous settlements, the initial verdict has been reduced to $77,100. 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 is challenging the verdict through an 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 consolidated financial statements.

13. Acquisitions and Divestitures

Acquisitions

The Company acquired several businesses and equity investments for approximately $283,000, $1,457,000, and $420,000, net of cash acquired, during the years ended December 31, 2018, 2017, and 2016, respectively.

F-27

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

2018

In 2018, a significant portion of the businesses acquired included 20 businesses in the Automotive Parts Group and three businesses in the Industrial Parts Group.

The 20 Automotive Parts Group acquisitions generate annual unaudited revenues of approximately $180,000. The acquisitions included TMS Motor Spares ("TMS") in August 2018 and Platinum International Group ("Platinum") in October 2018. TMS is a leading automotive parts distributor and operates 17 locations in Scotland and seven locations in England. Platinum is a leading value-added battery distributor in the automotive, industrial, and leisure markets and operates nine locations in the U.K. and one location in the Netherlands.

The three Industrial Parts Group acquisitions generate annual unaudited revenues of approximately $100,000. The largest acquisition was Hydraulic Supply Company ("HSC") in October 2018, which operates 30 locations in the U.S. HSC is a full-service fluid power distributor, with a product offering of hydraulic, pneumatic and industrial components and systems.

For each acquisition, the Company allocated the purchase price to the assets acquired and the liabilities assumed based on their fair values as of their respective acquisition dates. The results of operations for the acquired companies were included in the Company’s consolidated statements of income and comprehensive income beginning on their respective acquisition dates. The Company recorded approximately $167,000 of goodwill and other intangible assets associated with the 2018 acquisitions. Other intangible assets acquired consisted of customer relationships of $76,000 with weighted average amortization lives of 15 years.

2017 and 2016

In 2017, a significant portion of the businesses acquired included 12 businesses in the Automotive Parts Group and three businesses in the Industrial Parts Group. The aggregate purchase price for these 15 acquisitions was approximately $1,334,000, net of cash acquired. The acquisitions of Alliance Automotive Group (“AAG”) and the Inenco equity method investment are described further below. In 2016, a significant portion of the businesses acquired included 11 businesses in the Automotive Parts Group, six businesses in the Industrial Group and two businesses in the Business Products Group. The purchase price for these 19 acquisitions was approximately $370,000, net of cash acquired.

For each 2017 and 2016 acquisition, the Company allocated the purchase price to the assets acquired and the liabilities assumed based on their fair values as of their respective acquisition dates. The results of operations for the acquired companies were included in the Company’s consolidated statements of income and comprehensive income beginning on their respective acquisition dates. The Company recorded approximately $1,926,000 and $260,000 of goodwill and other intangible assets associated with the 2017 and 2016 acquisitions, respectively. Other intangible assets acquired in 2017, excluding AAG, consisted of customer relationships of $69,000 with weighted average amortization lives of 15 years. Other intangible assets acquired in 2016 consisted of customer relationships of $112,000 and trademarks of $28,000, with weighted average amortization lives of 17 and 35 years, respectively.

Alliance Automotive Group

The Company acquired all of the equity interests in AAG for approximately $1,067,000 in cash on November 2, 2017. The net cash consideration transferred of approximately $1,067,000 is net of the cash acquired of approximately $123,000. AAG, which is headquartered in London, is the second largest parts distribution platform in Europe, based on revenues, with a focus on light and commercial vehicle replacement parts distributed to the independent aftermarket in France, Germany, the U.K., and Poland.

Coincident with the transaction, GPC repaid a majority of AAG’s debt including publicly held notes and a revolving credit facility with a banking group, including accrued interest, for approximately $825,000. The acquisition and subsequent redemption of substantially all acquired debt, was financed using a combination of new borrowings under a term loan, five private placement notes, and borrowings under increased credit facilities.

The following table summarizes the preliminary, estimated fair values of the assets acquired and liabilities assumed at the acquisition date as well as the adjustments made when finalizing the acquisition accounting during the year ended December 31, 2018 (referred to as the "measurement period adjustments”). The measurement period adjustments primarily resulted from revisions to the valuation of certain tangible and intangible assets. The adjustments to current period earnings that would have been recognized in previous periods if the acquisition accounting had been completed on the acquisition date were not material.

F-28

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

		November 2, 2017				Measurement Period Adjustments				As Adjusted
Trade accounts receivable		$	380,000			$	6,000			$	386,000
Merchandise inventories		374,000				4,000				378,000
Prepaid expenses and other current assets		213,000				10,000				223,000
Intangible assets		727,000				86,000				813,000
Deferred tax assets		4,000				(2,000		)		2,000
Property and equipment		93,000				(1,000		)		92,000
Other assets		25,000				(11,000		)		14,000
Total identifiable assets acquired		1,816,000				92,000				1,908,000
Current liabilities		(768,000		)		(50,000		)		(818,000		)
Long-term debt		(769,000		)		—				(769,000		)
Pension and other post-retirement benefit liabilities		(14,000		)		—				(14,000		)
Deferred tax liabilities		(151,000		)		(21,000		)		(172,000		)
Other long-term liabilities		(32,000		)		(2,000		)		(34,000		)
Total liabilities assumed		(1,734,000		)		(73,000		)		(1,807,000		)
Net identifiable assets acquired		82,000				19,000				101,000
Noncontrolling interests in subsidiaries		(38,000		)		1,000				(37,000		)
Goodwill		1,036,000				(33,000		)		1,003,000
Net assets acquired		$	1,080,000			$	(13,000	)		$	1,067,000

The acquired intangible assets of approximately $813,000 were assigned to customer relationships of $630,133, trademarks of $181,702, and other intangibles of $1,165, with weighted average amortization lives of 20, 28 and 2 years, respectively, for a total weighted average amortizable life of 22 years.

The goodwill recognized as part of the acquisition is not tax deductible and has been assigned to the Automotive segment. The goodwill was attributable primarily to expected synergies and the assembled work-force. The fair values of the non-controlling interests in subsidiaries were valued using income approaches.

The amounts of net sales and earnings of AAG included in the Company’s consolidated statements of income and comprehensive income from November 2, 2017 to December 31, 2017 were approximately $256,400 in net sales and net income of $0.07 on a per share diluted basis, respectively.

The unaudited pro forma consolidated statements of income and comprehensive income of the Company as if AAG had been included in the consolidated results of the Company for the years ended December 31, 2017 and 2016 would be estimated at $17,627,000 and $16,575,000 in net sales, respectively, and net income of $4.56 and $4.55 on a per share diluted basis, respectively. The pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the transaction actually occurred at the beginning of these periods, nor is it necessarily indicative of future results.

The adjustments to the pro forma amounts include, but are not limited to, applying the Company’s accounting policies, amortization related to fair value adjustments to intangible assets, one-time purchase accounting adjustments, interest expense on acquisition related debt, and any associated tax effects.

Inenco

Effective April 3, 2017, the Company acquired a 35% investment in the Inenco Group for approximately $72,100 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 $400,000 and 174 locations across Australia and New Zealand, as well as an emerging presence in Asia.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.

F-29

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

Divestitures

Business Products Group

On April 12, 2018, the Company entered into a definitive agreement with Essendant, Inc. ("Essendant") for Essendant to combine with the Company's Business Products Group in a business combination transaction. The transaction was to be structured as a Reverse Morris Trust, in which the Company would 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.

On September 14, 2018, the definitive agreement with Essendant was terminated by Essendant, so that Essendant could enter into a merger agreement with another party. Concurrently with the termination, the Company received a termination fee of $12,000. The termination fee is classified as an offset to the transaction and other costs incurred related to the merger agreement within selling, administrative and other expenses in the consolidated statements of income and comprehensive income.

Grupo Auto Todo

On December 13, 2018, the Company entered into a definitive agreement to sell all of the equity of a Mexican subsidiary in the Automotive Parts Group, Grupo Auto Todo, to a group of investors for approximately $12,000. Grupo Auto Todo contributed approximately $93,000 of revenues for the year ended December 31, 2018. The transaction is expected to close in 2019. The Company estimates that it will recognize a charge of approximately $30,000 when the transaction closes, primarily from accumulated foreign currency losses.

14. Segment Data

The Company’s reportable segments consist of automotive and industrial parts and business products. Within the reportable segments, certain of the Company’s operating segments are aggregated since they have similar economic characteristics, products and services, type and class of customers, and distribution methods.

The Company’s automotive segment distributes replacement parts (other than body parts) for substantially all makes and models of automobiles, trucks, and other vehicles.

The Company’s industrial segment distributes a wide variety of industrial bearings, mechanical and fluid power transmission equipment, including hydraulic and pneumatic products, material handling components, electrical specialties materials, including insulating and conductive materials for use in electrical apparatus, and related parts and supplies.

The Company’s business products segment distributes a wide variety of office products, computer supplies, office furniture, and business electronics.

Inter-segment sales are not significant. Operating profit for each industry segment is calculated as net sales less operating expenses excluding general corporate expenses, interest expense, and equity in income from investees, amortization, and noncontrolling interests. Approximately $285,020, $196,190 and $139,864 of income before income taxes was generated in jurisdictions outside the U.S. for the years ended December 31, 2018, 2017, and 2016, respectively. Net sales and net property, plant and equipment by country relate directly to the Company’s operations in the respective country. Corporate assets are principally cash and cash equivalents and headquarters’ facilities and equipment.

F-30

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

		2018				2017				2016
Net sales: (1)
Automotive		$	10,526,520			$	8,583,317			$	8,040,407
Industrial (2)		6,298,584				5,805,012				5,399,416
Business products		1,909,969				1,920,472				1,899,890
Total net sales		$	18,735,073			$	16,308,801			$	15,339,713
Operating profit:
Automotive		$	854,389			$	720,465			$	715,154
Industrial (2)		487,360				440,454				397,147
Business products		88,756				98,882				117,035
Total operating profit		1,430,505				1,259,801				1,229,336
Interest expense, net		(92,093		)		(38,677		)		(19,525		)
Corporate expense (3)		(173,828		)		(159,863		)		(94,601		)
Intangible asset amortization		(88,972		)		(51,993		)		(40,870		)
Income before income taxes		$	1,075,612			$	1,009,268			$	1,074,340
Assets:
Automotive		$	6,246,911			$	6,140,829			$	4,601,150
Industrial (2)		1,790,410				1,645,271				1,495,397
Business products		860,279				859,335				907,119
Corporate		245,022				212,566				281,071
Goodwill and other intangible assets		3,540,418				3,554,380				1,574,663
Total assets		$	12,683,040			$	12,412,381			$	8,859,400

F-31

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

		2018				2017				2016
Depreciation and amortization:
Automotive		$	105,238			$	71,405			$	65,372
Industrial (2)		14,518				13,446				13,338
Business products		10,472				11,262				11,398
Corporate		22,435				19,585				16,509
Intangible asset amortization		88,972				51,993				40,870
Total depreciation and amortization		$	241,635			$	167,691			$	147,487
Capital expenditures:
Automotive		$	198,910			$	118,181			$	73,339
Industrial (2)		21,783				28,566				33,093
Business products		7,320				6,726				12,072
Corporate		4,409				3,287				42,139
Total capital expenditures		$	232,422			$	156,760			$	160,643
Net sales:
United States		$	13,927,091			$	13,246,619			$	12,779,971
Europe		1,860,912				256,364				—
Canada		1,624,890				1,525,421				1,368,743
Australasia		1,193,148				1,162,122				1,083,779
Mexico		129,032				118,275				107,220
Total net sales		$	18,735,073			$	16,308,801			$	15,339,713
Net property, plant, and equipment:
United States		$	726,068			$	647,386			$	561,164
Europe		110,184				96,857				—
Canada		91,387				90,857				81,260
Australasia		95,578				95,299				79,413
Mexico		4,014				6,303				6,287
Total net property, plant, and equipment		$	1,027,231			$	936,702			$	728,124

(1)	The net effect of discounts, incentives, and freight billed to customers 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 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 presented retrospectively.

(3)	Includes $36,105 of expense for the year ended December 31, 2018, respectively, from transaction and other costs related to the AAG acquisition and the attempted Business Products Group spin-off, net of a $12,000 termination fee received in the third quarter of 2018. See the acquisitions and divestitures footnote for additional information.

The year ended December 31, 2017 includes $49,141 in transaction and other costs primarily related to the AAG acquisition.

F-32

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

The following table presents disaggregated geographical net sales from contracts with customers by reportable segment. Automotive is the only reportable segment with operations in Australasia and Europe. The Company believes this presentation best depicts how the nature, amount, timing and uncertainty of net sales and cash flows are affected by economic factors:

	2018				2017				2016
North America:
Automotive	$	7,472,460			$	7,164,831			$	6,956,628
Industrial	6,298,584				5,805,012				5,399,416
Business products	1,909,969				1,920,472				1,899,890
Total North America	$	15,681,013			$	14,890,315			$	14,255,934
Australasia - Automotive	$	1,193,148			$	1,162,122			$	1,083,779
Europe - Automotive	$	1,860,912			$	256,364			$	—
Total net sales	$	18,735,073			$	16,308,801			$	15,339,713

F-33