Item 8. . FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

ANNUAL REPORT ON FORM 10-K

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

			Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)			33
Consolidated Balance Sheets as of December 31, 2022 and 2021			36
Consolidated Statements of Income for the Years Ended December 31, 2022, 2021 and 2020			37
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022, 2021, and 2020			38
Consolidated Statements of Equity for the Years Ended December 31, 2022, 2021 and 2020			39
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020			40
Notes to Consolidated Financial Statements			41

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, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

			Fair Value of Customer Relationships Acquired in the Kaman Distribution Group Business Combination
Description of the Matter			As disclosed in Note 10 to the consolidated financial statements, the Company completed the acquisition of Kaman Distribution Group (KDG) during 2022 for an aggregate net purchase price of $1.3 billion. This acquisition was accounted for under the acquisition method of accounting for business combinations. The Company allocated the net purchase price to the assets acquired and the liabilities assumed based on their respective fair values as of the date of acquisition, including other intangible assets of $568 million. Of the other intangible assets acquired, the largest was customer relationships of $527 million. Auditing the Company's valuation of customer relationships was complex and required significant auditor judgment due to the significant estimation uncertainty in evaluating certain assumptions required to estimate the fair value. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair value of the customer relationships to assumptions about the future cash flows that the Company expects to generate from the acquired business. The Company used the multi-period excess earnings method under the income approach to measure the customer relationships. The fair value measure was sensitive to underlying assumptions including discount rates and certain assumptions that form the basis of the forecasted results (e.g., future revenue growth rates and EBITDA margins). The significant assumptions are forward-looking and could be affected by future economic and market conditions.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant controls over the Company’s process for estimating the fair value of customer relationships, including controls over management's review of the significant assumptions, including the future revenue growth rates and EBITDA margins, used in the valuation of this this intangible asset and review of the valuation model. To test the estimated fair value of the customer relationships, we performed audit procedures that included, among others, evaluating the Company's valuation methodologies and evaluating the significant assumptions used by the Company. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. Our testing also included comparing the significant assumptions used to the historical results of the acquired business and to other guideline companies within the same industry. We also performed sensitivity analyses of the significant assumptions to evaluate the change in the fair value of the intangible assets resulting from changes in the assumptions.

			Loss Contingencies Related to Product Liabilities
Description of the Matter			As disclosed in Notes 1 and 15 to the consolidated financial statements, the Company is subject to pending product liability lawsuits primarily resulting from its national distribution of automotive parts and supplies. The Company accrues for loss contingencies related to product liabilities if it is probable that the Company will incur a loss and the loss can be reasonably estimated. The amount accrued for product liabilities as of December 31, 2022 was $220 million. Auditing the Company’s loss contingencies related to product liabilities was complex due to the significant measurement uncertainty associated with the estimate, management’s application of significant judgment and the use of valuation techniques. In addition, the loss contingencies related to product liabilities are sensitive to significant management assumptions, including the number, type, and severity of claims incurred and estimated to be incurred in future periods.

How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant controls over the Company’s process for estimating loss contingencies related to product liabilities. For example, we tested controls over management's review of the significant assumptions described above and the reconciliation of claims data to that used by the Company’s actuarial specialist. To test the estimated loss contingencies related to product liabilities, our audit procedures included, among others, assessing the methodology used, testing the significant assumptions, including testing the completeness and accuracy of the underlying data, and comparing significant assumptions to historical claims as well as external data. We evaluated the legal letters obtained from internal and external legal counsel, held discussions with legal counsel, and performed a search for new or contrary evidence affecting the estimate. We involved our actuarial specialists to assist in our evaluation of the methodology and assumptions used by management and to independently develop a range of estimated product liabilities using the Company’s historical data as well as other information available for similar cases. We compared the Company's estimated loss contingencies related to product liabilities to the range developed by our actuarial specialists. We also assessed the adequacy of the Company’s disclosures, included in Notes 1 and 15 to the consolidated financial statements, in relation to these matters.

/s/ Ernst & Young LLP

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

Atlanta, Georgia

February 23, 2023

Genuine Parts Company and Subsidiaries

Consolidated Balance Sheets

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

			As of December 31,
			2022						2021
Assets
Current assets:
Cash and cash equivalents			$	653,463					$	714,701
Trade accounts receivable, net			2,188,868						1,797,955
Merchandise inventories, net			4,441,649						3,889,919
Prepaid expenses and other current assets			1,532,759						1,353,847
Total current assets			8,816,739						7,756,422
Goodwill			2,588,113						1,915,307
Other intangible assets, net			1,812,510						1,406,401
Operating lease assets			1,104,678						1,053,689
Other assets			847,325						985,884
Property, plant and equipment, net			1,326,014						1,234,399
Total assets			$	16,495,379					$	14,352,102
Liabilities and equity
Current liabilities:
Trade accounts payable			$	5,456,550					$	4,804,939
Current portion of debt			252,029						—
Other current liabilities			1,851,340						1,660,768
Dividends payable			126,191						115,876
Total current liabilities			7,686,110						6,581,583
Long-term debt			3,076,794						2,409,363
Operating lease liabilities			836,019						789,175
Pension and other post-retirement benefit liabilities			197,879						265,134
Deferred tax liabilities			391,163						280,778
Other long-term liabilities			502,967						522,779
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 - 2022 - 140,941,649 shares and 2021 - 142,180,683 shares			140,941						142,181
Additional paid-in capital			140,324						119,975
Accumulated other comprehensive loss			(1,032,542)						(857,739)
Retained earnings			4,541,640						4,086,325
Total parent equity			3,790,363						3,490,742
Noncontrolling interests in subsidiaries			14,084						12,548
Total equity			3,804,447						3,503,290
Total liabilities and equity			$	16,495,379					$	14,352,102

See accompanying notes.

Genuine Parts Company and Subsidiaries

Consolidated Statements of Income

(In Thousands, Except per Share Amounts)

			Year Ended December 31,
			2022						2021						2020
Net sales			$	22,095,973					$	18,870,510					$	16,537,433
Cost of goods sold			14,355,869						12,236,374						10,882,592
Gross profit			7,740,104						6,634,136						5,654,841
Operating expenses:
Selling, administrative and other expenses			5,758,295						5,162,506						4,386,739
Depreciation and amortization			347,819						290,971						272,842
Provision for doubtful accounts			19,791						17,739						23,577
Restructuring costs			—						—						50,019
Goodwill impairment charge			—						—						506,721
Total operating expenses			6,125,905						5,471,216						5,239,898
Non-operating expenses (income):
Interest expense, net			73,887						62,150						91,048
Other			(32,290)						(99,576)						(55,473)
Total non-operating expenses (income)			41,597						(37,426)						35,575
Income before income taxes			1,572,602						1,200,346						379,368
Income taxes			389,901						301,556						215,973
Net income from continuing operations			1,182,701						898,790						163,395
Net loss from discontinued operations			—						—						(192,497)
Net income (loss)			$	1,182,701					$	898,790					$	(29,102)
Basic earnings (loss) per share:
Continuing operations			$	8.36					$	6.27					$	1.13
Discontinued operations			—						—						(1.33)
Basic earnings (loss) per share			$	8.36					$	6.27					$	(0.20)
Diluted earnings (loss) per share:
Continuing operations			$	8.31					$	6.23					$	1.13
Discontinued operations			—						—						(1.33)
Diluted earnings (loss) per share			$	8.31					$	6.23					$	(0.20)
Weighted average common shares outstanding			141,468						143,435						144,474
Dilutive effect of stock options and non-vested restricted stock awards			854						786						641
Weighted average common shares outstanding — assuming dilution			142,322						144,221						145,115

See accompanying notes.

Genuine Parts Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(In Thousands, Except per Share Amounts)

			Year Ended December 31,
			2022						2021						2020
Net income (loss)			$	1,182,701					$	898,790					$	(29,102)
Other comprehensive (loss) income, net of income taxes:
Foreign currency translation adjustments			(143,890)						(65,843)						102,595
Cash flow hedge adjustments, net of income taxes in 2022 — $4,612, 2021 — $5,535, and 2020 — $3,453			12,470						14,965						(9,336)
Pension and postretirement benefit adjustments, net of income taxes of 2022 — $15,846, 2021 — $84,650, and 2020 — $4,639			(43,383)						229,641						11,547
Other comprehensive (loss) income, net of tax			(174,803)						178,763						104,806
Comprehensive income			$	1,007,898					$	1,077,553					$	75,704

See accompanying notes.

Genuine Parts Company and Subsidiaries

Consolidated Statements of Equity

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

			Common Stock												Additional Paid-In Capital						Accumulated Other Comprehensive Loss						Retained Earnings						Total Parent Equity						Non- controlling Interests in Subsidiaries						Total Equity
Shares						Amount
Balance at January 1, 2020			145,378,158						$	145,378					$	98,777					$	(1,141,308)					$	4,571,860					$	3,674,707					$	20,793					$	3,695,500
Net loss			—						—						—						—						(29,102)						(29,102)						—						(29,102)
Other comprehensive income, net of tax			—						—						—						104,806						—						104,806						—						104,806
Cash dividends declared, $3.16 per share			—						—						—						—						(456,469)						(456,469)						—						(456,469)
Share-based awards exercised, including tax benefit of $677			112,621						113						(4,233)						—						—						(4,120)						—						(4,120)
Share-based compensation			—						—						22,621						—						—						22,621						—						22,621
Purchase of stock			(1,136,444)						(1,137)						—						—						(95,078)						(96,215)						—						(96,215)
Cumulative effect from adoption of ASU No. 2016-13			—						—						—						—						(11,432)						(11,432)						—						(11,432)
Noncontrolling interest activities			—						—						—						—						—						—						(7,586)						(7,586)
Balance at December 31, 2020			144,354,335						144,354						117,165						(1,036,502)						3,979,779						3,204,796						13,207						3,218,003
Net income			—						—						—						—						898,790						898,790						—						898,790
Other comprehensive income, net of tax			—						—						—						178,763						—						178,763						—						178,763
Cash dividends declared, $3.26 per share			—						—						—						—						(467,482)						(467,482)						—						(467,482)
Share-based awards exercised, including tax benefit of $7,076			440,667						441						(22,787)						—						—						(22,346)						—						(22,346)
Share-based compensation			—						—						25,597						—						—						25,597						—						25,597
Purchase of stock			(2,614,319)						(2,614)						—						—						(330,985)						(333,599)						—						(333,599)
Cumulative effect from adoption of ASU 2019-12			—						—						—						—						6,223						6,223						—						6,223
Noncontrolling interest activities			—						—						—						—						—						—						(659)						(659)
Balance at December 31, 2021			142,180,683						142,181						119,975						(857,739)						4,086,325						3,490,742						12,548						3,503,290
Net income			—						—						—						—						1,182,701						1,182,701						—						1,182,701
Other comprehensive loss, net of tax			—						—						—						(174,803)						—						(174,803)						—						(174,803)
Cash dividend declared, $3.58 per share			—						—						—						—						(506,232)						(506,232)						—						(506,232)
Share-based awards exercised, including tax benefit of $5,495			333,185						332						(17,709)						—						—						(17,377)						—						(17,377)
Share-based compensation			—						—						38,058						—						—						38,058						—						38,058
Purchase of stock			(1,572,219)						(1,572)						—						—						(221,154)						(222,726)						—						(222,726)
Noncontrolling interest activities			—						—						—						—						—						—						1,536						1,536
Balance at December 31, 2022			140,941,649						$	140,941					$	140,324					$	(1,032,542)					$	4,541,640					$	3,790,363					$	14,084					$	3,804,447

See accompanying notes.

Genuine Parts Company and Subsidiaries

Consolidated Statements of Cash Flows

(In Thousands)

			Year Ended December 31
			2022						2021						2020
Operating activities:
Net income (loss)			$	1,182,701					$	898,790					$	(29,102)
Net loss from discontinued operations			—						—						(192,497)
Net income from continuing operations			1,182,701						898,790						163,395
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Depreciation and amortization			347,819						290,971						272,842
Deferred income taxes			2,220						31,676						(27,722)
Share-based compensation			38,058						25,597						22,621
Gain on sale of real estate			(102,803)						—						—
Goodwill impairment charge			—						—						506,721
Other operating activities			18,377						22,575						23,248
Changes in operating assets and liabilities:
Trade accounts receivable, net			(244,371)						(258,994)						957,514
Merchandise inventories, net			(380,420)						(329,237)						58,462
Trade accounts payable			676,406						777,318						89,350
Other assets and liabilities			(71,016)						(200,411)						(51,909)
Net cash provided by operating activities from continuing operations			1,466,971						1,258,285						2,014,522
Investing activities:
Purchases of property, plant and equipment			(339,632)						(266,136)						(153,502)
Proceeds from sale of property, plant and equipment			145,007						26,549						18,064
Proceeds from divestitures of businesses			33,604						17,738						387,379
Proceeds from settlement of net investment hedge			158,441						—						—
Acquisitions and other investing activities			(1,681,660)						(284,315)						(69,173)
Net cash (used in) provided by investing activities from continuing operations			(1,684,240)						(506,164)						182,768
Financing activities:
Proceeds from debt			5,108,641						892,694						2,638,014
Payments on debt			(4,147,773)						(1,053,423)						(3,533,017)
Share-based awards exercised			(17,377)						(22,346)						(4,120)
Dividends paid			(495,917)						(465,649)						(453,277)
Purchase of stock			(222,726)						(333,599)						(96,215)
Other financing activities			(19,747)						(7,209)						(65,150)
Net cash provided by (used in) financing activities from continuing operations			205,101						(989,532)						(1,513,765)
Cash flows from discontinued operations:
Net cash flows provided by operating activities from discontinued operations			—						—						5,039
Net cash used in investing activities from discontinued operations			—						—						(11,131)
Net cash provided by financing activities from discontinued operations			—						—						—
Net cash (used in) provided by discontinued operations			—						—						(6,092)
Effect of exchange rate changes on cash and cash equivalents			(49,070)						(38,054)						35,741
Net (decrease) increase in cash and cash equivalents			(61,238)						(275,465)						713,174
Cash and cash equivalents at beginning of year			714,701						990,166						276,992
Cash and cash equivalents at end of year			$	653,463					$	714,701					$	990,166
Supplemental disclosures of cash flow information
Cash paid during the year for:
Income taxes			$	362,859					$	305,326					$	223,019
Interest			$	73,368					$	65,732					$	91,344

See accompanying notes.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022

1.Summary of Significant Accounting Policies

Business

Genuine Parts Company (the "company") is a distributor of automotive replacement parts and industrial parts and materials. We serve a diverse customer base through a network of more than 10,600 locations throughout North America, Australasia, and Europe and, therefore, have limited exposure from credit losses to any particular customer, region, or industry segment. We perform periodic credit evaluations of our customers’ financial condition and generally do not require collateral.

We have reclassified certain prior period amounts to conform to the current period presentation.

We have evaluated subsequent events through the date the financial statements were issued.

On June 30, 2020, we completed the divestiture of our Business Products Group. Refer to the Acquisitions, Divestitures and Discontinued Operations Footnote for more information. Our results of operations for the Business Products Group are reported as discontinued operations and all information related to the discontinued operations has been excluded from the Notes to the Consolidated Financial Statements for all periods presented. Net loss from discontinued operations includes all costs that are directly attributable to these businesses and excludes certain corporate overhead costs that were previously allocated.

Principles of Consolidation

The consolidated financial statements include all of our accounts. The net income attributable to noncontrolling interests is not material to our 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

We primarily recognize 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.

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. We do not adjust the promised amount of consideration for the effects of significant financing components based on the expectation that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Arrangements with customers that include payment terms extending beyond one year are not significant. Liabilities for customer incentives, discounts, or rebates are included in other current liabilities in the consolidated balance sheets.

Product Distribution Revenues

We generate revenue primarily by distributing products through wholesale and retail channels. For wholesale customers, revenue is recognized when title and control of the goods has passed to the wholesale customer. Retail revenue is recognized at the point of sale when the goods are transferred to customers and consideration is received. Shipping and handling activities are performed prior to the customer obtaining control of the products. Costs associated with shipping and handling to our customers are considered costs to fulfill a contract and are included in selling, administrative and other expenses in the period they are incurred.

Other Revenues

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

Variable Consideration

Our products are generally sold with a right of return and may include variable consideration in the form of incentives, discounts, credits or rebates. We estimate variable consideration based on historical experience to determine the expected amount to which we will be entitled in exchange for transferring the promised goods or services to a customer. We recognize estimated variable consideration as an adjustment to the transaction price when control of the related product or service is transferred. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant.

Foreign Currency Translation

The consolidated balance sheets and statements of income of our 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

We consider all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.

Trade Accounts Receivable and the Allowance for Doubtful Accounts

We evaluate the collectability of trade accounts receivable based on a combination of factors. We estimate an allowance for doubtful accounts as a percentage of net sales based on various factors, including historical experience, current economic conditions and future expected credit losses and collectability trends. We will periodically adjust this estimate when we become aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While we have a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which we operate could result in higher than expected defaults and, therefore, the need to revise estimates for bad debts. For the years ended December 31, 2022, 2021, and 2020, we recorded provisions for doubtful accounts of approximately $20 million, $18 million, and $24 million, respectively. At December 31, 2022 and 2021, the allowance for doubtful accounts was approximately $54 million and $44 million, respectively.

Merchandise Inventories, Including Consideration Received From Vendors

Merchandise inventories are valued at the lower of cost or net realizable value. Cost is determined by the last-in, first-out ("LIFO") method for a majority of U.S. automotive and industrial parts, and generally by the weighted average method for non-U.S. and certain other inventories. If the FIFO method had been used in place of LIFO, cost would have been approximately $835 million and $628 million higher than reported at December 31, 2022 and 2021, respectively. Reductions in certain industrial parts inventories resulted in liquidations of LIFO inventory layers, which reduced cost of goods sold by immaterial amounts in 2021 and 2020. There were no liquidations of LIFO inventory layers in 2022.

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

We enter into agreements at the beginning of each year with many of our vendors that provide for inventory purchase incentives. Generally, we earn inventory purchase incentives upon achieving specified volume purchasing levels or other criteria. We accrue for the receipt of these incentives as part of our inventory cost based on cumulative purchases of inventory to date and projected inventory purchases through the end of the year. While

management believes we will continue to receive consideration from vendors in 2023 and beyond, there can be no assurance that vendors will continue to provide comparable amounts of incentives in the future.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist primarily of amounts due from vendors, prepaid expenses, debt securities, and income and other taxes receivable.

Goodwill

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

To review goodwill at a reporting unit for impairment, we generally elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. Qualitative factors include adverse macroeconomic, industry or market conditions, cost factors, or financial performance. If we elect not to perform a qualitative assessment or conclude from our assessment of qualitative factors that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we must perform a quantitative test to evaluate goodwill impairment.

To perform a quantitative test, we calculate the fair value of the reporting unit and compare that amount to the reporting unit's carrying value. We typically calculate the fair value by using a combination of a market approach and an income approach that is based on a discounted cash flow model. The assumptions used in the market approach generally include benchmark company market multiples and the assumptions used in the income approach generally include the projected cash flows of the reporting unit, which are based on projected revenue growth rates and EBITDA margins, the estimated weighted average cost of capital, working capital and terminal value. We use inputs and assumptions we believe are consistent with those a hypothetical marketplace participant would use. We recognize goodwill impairment (if any) as the excess of the reporting unit's carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

Refer to the Goodwill and Other Intangible Assets Footnote for further information on the results of our annual goodwill impairment testing.

Long-Lived Assets Other Than Goodwill

We assess our long-lived assets other than goodwill for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. To analyze recoverability, we project undiscounted net future cash flows over the remaining life of such assets. If these projected cash flows are less than the carrying amount, an impairment would be recognized, resulting in a write-down of assets with a corresponding charge to earnings. Impairment losses, if any, are measured based upon the difference between the carrying amount and the fair value of the assets. For the years ended December 31, 2022, 2021, and 2020 we recognized losses related to impairments and disposals of $17 million, $61 million, and $6 million, respectively. (Refer to the Goodwill and Other Intangible Assets Footnote and the Property, Plant and Equipment Footnote for more information on the losses that occurred in 2022 and 2021, respectively).

Other Assets

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

Property, Plant and Equipment

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

Other Current Liabilities

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

Other Long-term Liabilities

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

Self-Insurance

We are self-insured for the majority of our group health insurance costs. A reserve for claims incurred but not reported is developed by analyzing historical claims data provided by our 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 our workers’ compensation program. We carry high deductible policies for a majority of these liabilities. We record our reserves based on an analysis performed by an independent actuary. The analysis involves calculating loss development factors and applying them to reserves supplied by our insurance providers. While we believe the assumptions used in these calculations are appropriate, significant changes in actual experience or our assumptions could materially affect the worker’s compensation costs and reserves recorded.

Business Combinations

When we acquire businesses, we apply the acquisition method of accounting and recognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree at their fair values on the acquisition date, which requires significant estimates and assumptions. Goodwill is measured as the excess of the fair value of the consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method requires us to record provisional amounts for any items for which the accounting is not complete at the end of a reporting period. We must complete the accounting during the measurement period, which cannot exceed one year. Adjustments made during the measurement period could have a material impact on our financial condition and results of operations.

We typically measure customer relationships and other intangible assets using an income approach. Significant estimates and assumptions used in this approach include discount rates and certain assumptions that form the basis of the forecasted cash flows expected to be generated from the asset (e.g., future revenue growth rates and EBITDA Margin). If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired tangible and intangible assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired.

Legal and Product Liabilities

We accrue for potential losses related to legal disputes, litigation, product liabilities, and regulatory matters when it is probable (the future event or events are likely to occur) that we will incur a loss and the amount of the loss can be reasonably estimated.

The product liability amount reflects our reasonable estimate of losses based upon currently known facts. To calculate the liability, we estimate potential losses relating to pending claims and also estimates the likelihood of additional, similar claims being filed against us in the future. To estimate potential losses on claims that could be filed in the future, we consider claims pending against us, claim filing rates, the number of codefendants and the extent to which they share in settlements, and the amount of loss by claim type. The estimated losses for pending and potential future claims are calculated on a discounted basis using risk-free interest rates derived from market data about monetary assets with maturities comparable to those of the projected product liabilities. We use an actuarial specialist to assist with measuring our product liabilities.

Fair Value Measurements

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. Additionally, ASC 820, Fair Value Measurements, defines levels within a hierarchy based upon observable and non-observable inputs.

• Level 1- Observable inputs such as quoted prices in active markets;

• Level 2- Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

• Level 3- Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions

At December 31, 2022 and 2021, the fair value of our senior unsecured notes was approximately $2.9 billion and $2.5 billion, respectively, which are designated as Level 2 in the fair value hierarchy. Our valuation technique is based primarily on prices and other relevant information generated by observable transactions involving identical or comparable assets or liabilities.

Derivative instruments are recognized in the consolidated balance sheets at fair value and are designated as Level 2 in the fair value hierarchy. They are valued using inputs other than quoted prices, such as foreign exchange rates and yield curves.

Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analyses of goodwill, other intangible assets, and long-lived assets. These involve fair value measurements on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, trade accounts receivable, trade accounts payable, and borrowings under the line of credit approximate their respective fair values based on the short-term nature of these instruments.

Fair value measurement using unobservable inputs is inherently uncertain, and the use of different methodologies or assumptions to determine the fair value instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2021.

Derivatives and Hedging

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

We formally document 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. We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the designated derivative and non-derivative instruments that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items. When a designated instrument is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, hedge accounting is discontinued prospectively.

Shipping and Handling Costs

Shipping and handling costs are classified as selling, administrative and other expenses in the accompanying consolidated statements of income and totaled approximately $407 million, $350 million, and $302 million, for the years ended December 31, 2022, 2021, and 2020, respectively.

Advertising Costs

Advertising costs are expensed as incurred and totaled $236 million, $211 million, and $194 million in the years ended December 31, 2022, 2021, and 2020, respectively.

Restructuring Costs

In October 2019, we approved certain restructuring actions (the "2019 Cost Savings Plan") across our subsidiaries primarily targeted at simplifying organizational structures and distribution networks. Among other things, the 2019 Cost Savings Plan resulted in workforce reductions and facility closures and consolidations. We executed a voluntary retirement program for our U.S. and Canadian subsidiaries in the fourth quarter of 2019 in connection with this plan. We incurred $50 million in costs for the plan in the year ended December 31, 2020. No further material costs have been incurred.

Accounting for Legal Costs

We expense legal costs related to loss contingencies as they are incurred.

Share-Based Compensation

We maintain various long-term incentive plans, which provide for the granting of stock options, stock appreciation rights ("SARs"), restricted stock, restricted stock units ("RSUs"), performance awards, dividend equivalents and other share-based awards. SARs represent a right to receive upon exercise an amount, payable in shares of common stock, equal to the excess, if any, of the fair market value of our 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 our common stock at a future date. The majority of awards previously granted vest on a pro-rata basis for periods ranging from one to three years and are expensed accordingly on a straight-line basis. Forfeitures are accounted for as they occur. We issue new shares upon exercise or conversion of awards under these plans.

Income Taxes

We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amount and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes. In addition, valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. In making this determination, we consider all available positive and negative evidence including projected future taxable income, future reversals of existing temporary differences, recent financial operations and tax planning strategies.

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

Net Income from Continuing Operations per Common Share

Basic net income from continuing operations per common share is computed by dividing net income from continuing operations by the weighted average number of common shares outstanding during the year. The computation of diluted net income from continuing operations per common share includes the dilutive effect of stock options, stock appreciation rights and nonvested restricted stock awards options. Options to purchase approximately 4 thousand, 186 thousand, and 1.6 million shares of common stock ranging from $72 - $179 per share were outstanding at December 31, 2022, 2021, and 2020, respectively. These options were excluded from the computation of diluted net income from continuing operations per common share because the options’ exercise prices were greater than the average market prices of common stock in each respective year.

Recent Accounting Pronouncements

Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standard Updates (“ASUs”) to the FASB Accounting Standards Codification (“ASC”). We consider the

applicability and impact of all ASUs and any not listed below were assessed and determined to be not applicable or are expected to have a minimal impact on our consolidated financial statements.

Credit Losses (Topic 326)

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. Among other things, the ASU and its amendments replace the incurred loss impairment model for receivables and loan guarantees with a current expected credit loss model. The new model measures impairment based on expected credit losses over the remaining contractual life of an asset, considering available information about the collectability of cash flows, past events, current conditions, and reasonable and supportable forecasts. Additional quantitative and qualitative disclosures are required. We adopted ASU 2016-13 and its amendments as of January 1, 2020, which included recognizing a cumulative-effect adjustment to reduce opening retained earnings by $11 million, net of taxes.

Income Taxes (Topic 740)

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The updated accounting guidance removes certain exceptions for performing intraperiod tax allocations, recognizing deferred taxes for investments, and calculating income taxes in interim periods. The guidance also simplifies the accounting for franchise taxes, transactions that result in a step-up in the tax basis of goodwill, and the effect of enacted changes in tax laws or rates in interim periods. The company adopted ASU 2019-12 as of January 1, 2021, and recognized a cumulative-effect adjustment to increase opening retained earnings by $6 million.

Liabilities—Supplier Finance Programs (Subtopic 405-50)

In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs. This standard requires disclosure of the key terms of outstanding supply chain finance programs and a rollforward of the related amounts due to vendors participating in these programs. The new standard does not affect the recognition, measurement or financial statement presentation of any amounts due. The ASU becomes effective January 1, 2023, except for the rollforward requirement, which becomes effective January 1, 2024.

2. Segment Data

Our reportable segments consist of the Automotive Parts Group ("Automotive") and Industrial Parts Group ("Industrial"). Within the reportable segments, certain of our operating segments are aggregated since they have similar economic characteristics, products and services, type and class of customers, and distribution methods.

Our Automotive segment distributes replacement parts (other than body parts) for substantially all makes and models of automobiles, trucks, and other vehicles.

Our Industrial segment distributes a wide variety of industrial bearings, mechanical and fluid power transmission equipment, including hydraulic and pneumatic products, material handling components and related parts and supplies.

Inter-segment sales are not significant. Segment profit for each industry segment is calculated as net sales less costs of goods sold, operating expenses, and certain non-operating expenses attributable to the segment (e.g., foreign currency), excluding general corporate expenses, net interest expense, intangible asset amortization, and other unallocated amounts that are primarily driven by corporate initiatives.. Approximately $472 million and $438 million of income before income taxes were generated in jurisdictions outside the U.S. for the years ended December 31, 2022, and 2021, respectively. Approximately $327 million of loss before income taxes was generated in jurisdictions outside the U.S. for the year ended December 31, 2020. Net sales and net property, plant and equipment by country relate directly to our operations in the respective country. Corporate assets are principally cash and cash equivalents and headquarters’ facilities and equipment.

The following table presents a summary of our reportable segment financial information from continuing operations:

						2022						2021						2020
Net sales:
Automotive						$	13,666,634					$	12,544,131					$	10,860,695
Industrial						8,429,339						6,326,379						5,676,738
Total net sales						$	22,095,973					$	18,870,510					$	16,537,433
Segment profit:
Automotive						$	1,191,674					$	1,073,427					$	867,743
Industrial						886,636						595,232						481,854
Total segment profit						$	2,078,310					$	1,668,659					$	1,349,597
Interest expense, net						(73,886)						(62,150)						(91,048)
Corporate expense						(269,364)						(174,842)						(149,754)
Intangible asset amortization						(157,437)						(103,273)						(94,962)
Other unallocated costs						(5,021)						(128,048)						(634,465)
Income before income taxes from continuing operations						$	1,572,602					$	1,200,346					$	379,368

The following table presents a summary of the other unallocated costs:

						2022						2021						2020
Other unallocated costs:
Gain on sales of real estate (1)						$	102,803					$	—					$	—
Gain on insurance proceeds (2)						1,507						3,862						13,448
Product liability adjustment (3)						(28,730)						—						—
Product liability damages award (4)						—						(77,421)						—
Loss on software disposal (5)						—						(61,063)						—
Gain on equity investment (6)						—						10,229						—
Goodwill impairment charge (7)						—						—						(506,721)
Restructuring costs and special termination costs (8)						—						—						(50,019)
Realized currency and other divestiture losses (9)						—						—						(11,356)
Inventory adjustment (10)						—						—						(40,000)
Transaction and other costs (11)						(80,601)						(3,655)						(39,817)
Total other unallocated costs						$	(5,021)					$	(128,048)					$	(634,465)

*(1)*Amount reflects a gain on the sale of real estate that had been leased to S.P. Richards.

*(2)*Amount reflects insurance recoveries in excess of losses incurred on inventory, property, plant and equipment and other fire-related costs.

*(3)*Amount to remeasure product liability for a revised estimate of the number of claims to be incurred in future periods, among other assumptions.

*(4)*Amount reflects damages reinstated by the Washington Supreme Court order on July 8, 2021 in connection with a 2017 automotive product liability claim.

*(5)*Amount reflects a loss on an internally developed software project that was disposed of due to a change in management strategy related to advances in alternative technologies.

*(6)*Amount relates to gains recognized upon remeasurement of certain equity investments to fair value upon acquiring the remaining equity of those entities.

*(7)*Amount reflects a goodwill impairment charge related to our European reporting unit.

*(8)*Amount reflects restructuring and special termination costs related to the 2019 Cost Savings Plan. The costs are primarily associated with severance and other employee costs, including a voluntary retirement program, and facility and closure costs related to the consolidation of operations.

*(9)*Amount reflects realized currency losses related to divestitures.

(10) Amount reflects a $40 million increase to cost of goods sold due to the correction of an immaterial error related to the accounting in prior years for consideration received from vendors.

(11) Amount for 2022 primarily includes costs of $67 million associated with the January 3, 2022 acquisition and integration of KDG which includes a $17 million impairment charge. The impairment charge was driven by a decision to retire certain legacy trade names, classified as other intangible assets, prior to the end of their estimated useful lives as part of executing our KDG integration and rebranding strategy. Separately, this adjustment includes an $11 million loss related to an investment. Amount for 2021 include transaction and other costs related to acquisitions. For 2020, amount includes a $17 million loss on investment, $10 million of incremental costs associated with COVID-19 and costs associated with certain divestitures. COVID-19 related costs include incremental costs incurred relating to fees to cancel marketing events and increased cleaning and sanitization materials, among other things.

The following table presents a summary of our reportable segment total assets:

						2022						2021
Assets:
Automotive						$	8,755,363					$	8,508,487
Industrial						2,474,392						1,909,053
Corporate						865,001						612,854
Goodwill and other intangible assets						4,400,623						3,321,708
Total assets						$	16,495,379					$	14,352,102

The following table presents a summary of select financial information by reportable segment from continuing operations:

						2022						2021						2020
Depreciation and amortization:
Automotive						$	146,819					$	143,052					$	120,932
Industrial						29,670						24,100						16,315
Corporate						13,893						20,546						40,633
Intangible asset amortization						157,437						103,273						94,962
Total depreciation and amortization						$	347,819					$	290,971					$	272,842
Capital expenditures:
Automotive						$	235,182					$	198,268					$	133,523
Industrial						33,165						35,626						19,287
Corporate						71,285						32,242						692
Total capital expenditures						$	339,632					$	266,136					$	153,502
Net sales:
United States						$	14,965,462					$	12,136,689					$	10,863,348
Europe						3,071,964						2,908,156						2,408,913
Canada						1,960,227						1,779,663						1,526,202
Australasia						2,044,432						2,002,188						1,691,190
Mexico						53,888						43,814						47,780
Total net sales						$	22,095,973					$	18,870,510					$	16,537,433
Net property, plant and equipment:
United States						$	790,121					$	750,267					$	728,802
Europe						200,898						179,001						164,268
Canada						113,574						102,484						102,409
Australasia						220,839						201,971						165,596
Mexico						582						676						968
Total net property, plant and equipment						$	1,326,014					$	1,234,399					$	1,162,043

Net sales are disaggregated by geographical region for each of our reportable segments, as we deem this presentation best depicts how the nature, amount, timing and uncertainty of net sales and cash flows are affected by economic factors. The following table presents disaggregated geographical net sales from contracts with customers by reportable segment:

			2022						2021						2020
North America:
Automotive			$	9,015,501					$	8,103,896					$	7,177,543
Industrial			7,964,076						5,856,270						5,259,787
Total North America			$	16,979,577					$	13,960,166					$	12,437,330
Australasia:
Automotive			$	1,579,169					$	1,532,079					$	1,274,239
Industrial			465,263						470,109						416,951
Total Australasia			$	2,044,432					$	2,002,188					$	1,691,190
Europe - Automotive			$	3,071,964					$	2,908,156					$	2,408,913
Total net sales			$	22,095,973					$	18,870,510					$	16,537,433

3. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill during the years ended December 31, 2022 and 2021 by reportable segment, as well as other identifiable intangible assets, are summarized as follows:

			Goodwill
			Automotive						Industrial						Total						Other Intangible Assets, Net
Balance as of January 1, 2021			$	1,505,523					$	411,954					$	1,917,477					$	1,498,257
Additions			85,182						2,701						87,883						72,189
Amortization			—						—						—						(103,273)
Foreign currency translation			(83,243)						(6,810)						(90,053)						(60,772)
Balance as of December 31, 2021			1,507,462						407,845						1,915,307						1,406,401
Additions			149,896						609,892						759,788						663,077
Amortization			—						—						—						(157,437)
Impairments			—						—						—						(17,461)
Foreign currency translation			(77,824)						(9,158)						(86,982)						(82,070)
Balance as of December 31, 2022			$	1,579,534					$	1,008,579					$	2,588,113					$	1,812,510

We completed our annual goodwill impairment testing as of October 1, 2022 using a mixture of quantitative and qualitative assessments for our various reporting units. To complete a qualitative assessment, we evaluate historical revenue and operating profit growth trends, market conditions and other factors to determine whether it is more likely than not that the reporting unit's goodwill is impaired. We complete quantitative assessments for reporting units that fail our qualitative assessments, or otherwise on a periodic basis. To complete a quantitative assessment, we calculate a reporting unit's fair value using a combination of income and market approaches, which involve significant unobservable inputs (Level 3). In the income approach, we primarily use these assumptions: projected revenue growth rates, EBITDA margins, the estimated weighted average cost of capital, and terminal value. In the market approach, we primarily use benchmark company market multiples. We believe the inputs and assumptions we use are consistent with those a hypothetical marketplace participant would use. Once calculated, we verify whether the reporting unit's fair value is higher than its carrying amount. If the fair value is lower, we recognize an impairment, generally for the difference.

Based on these assessments, we did not recognize any goodwill impairments during 2022 or 2021. Due to several factors that coalesced in the second quarter of 2020, we performed an interim impairment test as of May 31, 2020 for our European reporting unit and recorded a goodwill impairment charge of $507 million.

If there are sustained declines in macroeconomic or business conditions in future periods affecting the projected earnings and cash flows at our reporting units, among other things, there can be no assurance that goodwill at one or more reporting units may not be impaired.

In June 2022, we recognized a $17 million non-cash impairment charge related to our decision to retire certain legacy Industrial trade names, classified as other intangible assets, prior to the end of their estimated useful lives as part of the KDG integration and rebranding strategy. We evaluate other intangible assets for potential impairment indicators annually, or more frequently if circumstances change.

Other Intangible Assets

The gross carrying amounts and accumulated amortization relating to other intangible assets at December 31, 2022 and 2021 are as follows:

			2022																		2021
			Gross Carrying Amount						Accumulated Amortization						Net						Gross Carrying Amount						Accumulated Amortization						Net
Customer relationships			$	2,121,171					$	(566,111)					$	1,555,060					$	1,590,733					$	(464,198)					$	1,126,535
Trademarks			342,136						(85,188)						256,948						337,802						(58,073)						279,729
Non-competition agreements			5,575						(5,073)						502						5,430						(5,293)						137
			$	2,468,882					$	(656,372)					$	1,812,510					$	1,933,965					$	(527,564)					$	1,406,401

Amortization expense for other intangible assets totaled $157 million, $103 million, and $95 million for the years ended December 31, 2022, 2021, and 2020, respectively. Estimated other intangible assets amortization expense for the succeeding five years is as follows:

2023			$	145,357
2024			131,443
2025			130,103
2026			128,508
2027			127,706
			$	663,117

4. Property, Plant and Equipment

Property, plant and equipment as of December 31, 2022 and December 31, 2021, consisted of the following:

						2022						2021
Land						$	115,845					$	126,513
Buildings and leasehold improvements						834,786						873,912
Machinery, equipment and other						1,811,060						1,573,680
Property, plant and equipment, at cost						2,761,691						2,574,105
Less: accumulated depreciation						1,435,677						1,339,706
Property, plant and equipment, net						$	1,326,014					$	1,234,399

During the third quarter of 2021, we reconsidered our approach to an internally developed software project due to a change in management strategy related to advances in alternative technologies. We decided to dispose of the software project as of September 30, 2021. As a result, we recognized $61 million of selling, administrative and other expense related to the disposal of this software.

During the second quarter of 2022, we recognized a $103 million gain on the sale of real estate that had been leased to S.P. Richards Company ("SPR"). Refer to the discontinued operations section of the Acquisitions, Divestitures and Discontinued Operations Footnote for additional information regarding the divestiture of our business products group.

5. Accounts Receivable Sales Agreement

We have an A/R sales agreement to sell short-term receivables from certain customer trade accounts to an unaffiliated financial institution on a revolving basis. The A/R Sales Agreement has a 3 year term, which we intend to renew.

As part of the A/R Sales Agreement, we routinely sell designated pools of receivables as they are originated by it and certain U.S. subsidiaries to a separate bankruptcy-remote special purpose entity (“SPE”). The assets of the SPE would be first available to satisfy the creditor claims of the unaffiliated financial institution. We control and therefore consolidate the SPE in our consolidated financial statements.

The SPE transferred ownership and control of certain receivables that met certain qualifying conditions to the unaffiliated financial institution in exchange for cash. We account for transactions with the unaffiliated financial institution as sales of financial assets, with the associated receivables derecognized from our consolidated balance sheet. The remaining receivables held by the SPE were pledged to secure the collectability of the sold receivables. The amount of receivables pledged as collateral as of December 31, 2022 and December 31, 2021 is approximately $1.1 billion and $973 million, respectively.

We continue to be involved with the receivables transferred by the SPE to the unaffiliated financial institution by providing collection services. As cash is collected on sold receivables, the SPE continuously transfers ownership and control of new qualifying receivables to the unaffiliated financial institution so that the total principal amount outstanding of receivables sold is approximately $1.0 billion at any point in time (which is the maximum amount allowed under the agreement). The future amount of receivables outstanding as sold could decrease, based on the level of activity and other factors. Total principal amount outstanding of receivables sold is approximately $1.0 billion and $800 million as of December 31, 2022 and December 31, 2021, respectively.

The following table summarizes the activity and amounts outstanding under the A/R Sales Agreement as of period end:

						December 31, 2022						December 31, 2021
Receivables sold to the financial institution and derecognized						$	8,946,730					$	7,520,474
Cash collected on sold receivables						$	8,746,740					$	7,520,465

Continuous cash activity related to the A/R Sales Agreement is reflected in cash from operating activities in the consolidated statement of cash flows. We received a benefit to cash from operations of approximately $200 million from increasing the amount of receivables sold under the A/R Sales Agreement in the year ended December 31, 2022.

The SPE incurs fees due to the unaffiliated financial institution related to the accounts receivable sales transactions. Those fees, which totaled $27 million, $11 million, and $6 million in 2022, 2021, and 2020, respectively, are recorded within other non-operating expense (income) in the consolidated statements of income. The SPE has a recourse obligation to repurchase from the unaffiliated financial institution any previously sold receivables that are not collected due to the occurrence of certain events, including credit quality deterioration and customer sales returns. The reserve recognized for this recourse obligation as of December 31, 2022 and December 31, 2021 is not material. The servicing liability related to our collection services also is not material, given the high quality of the customers underlying the receivables and the anticipated short collection period.

6. Debt

The weighted average interest rate on our outstanding borrowings was approximately 2.33% and 2.35% at December 31, 2022 and 2021, respectively.

Certain borrowings require us to comply with a financial covenant with respect to a maximum debt to EBITDA ratio. At December 31, 2022, we were in compliance with all such covenants. Due to the workers’ compensation and insurance reserve requirements in certain states, we also had unused letters of credit of approximately $71 million and $73 million outstanding at December 31, 2022 and 2021, respectively.

On January 6, 2022, we issued $500 million of unsecured 1.75% Senior Notes due 2025. Simultaneously, we issued $500 million of unsecured 2.75% Senior Notes due 2032. For both offerings, interest is payable semi-annually on February 1 and August 1 of each year, beginning August 1, 2022. We utilized the proceeds from these offerings to repay borrowings under our Revolving Credit Facility, which were incurred to finance a significant portion of the Kaman Distribution Group ("KDG") acquisition.

Amounts outstanding under our credit facilities, net of debt issuance costs consist of the following:

						December 31, 2022						December 31, 2021
Unsecured Revolving Credit Facility, $1,500,000, LIBOR plus 1.13% variable, due September 30, 2026						$	—					$	—
January 6, 2022, Senior Unsecured Notes, $500,000, 1.75% fixed, due February 1, 2025						500,000						—
January 6, 2022, Senior Unsecured Notes, $500,000, 2.75% fixed, due February 1, 2032						500,000						—
October 27, 2020, Senior Unsecured Notes, $500,000, 1.88% fixed, due November 1, 2030						500,000						500,000
December 2, 2013, Series F Senior Unsecured Notes, $250,000, 3.24% fixed, due December 2, 2023						250,000						250,000
June 30, 2019, Series A Senior Unsecured Notes, A$155,000, 3.10% fixed, due June 30, 2024						105,664						112,375
October 30, 2017, Series J Senior Unsecured Notes, €225,000, 1.40% fixed, due October 30, 2024						240,840						254,835
June 30, 2019, Series B Senior Unsecured Notes, A$155,000, 3.43% fixed, due June 30, 2026						105,664						112,375
November 30, 2016, Series H Senior Unsecured Notes, $250,000, 3.24% fixed, due November 30, 2026						250,000						250,000
October 30, 2017, Series K Senior Unsecured Notes, €250,000, 1.81% fixed, due October 30, 2027						267,600						283,150
October 30, 2017, Series I Senior Unsecured Notes, $120,000, 3.70% fixed, due October 30, 2027						120,000						120,000
May 31, 2019, Series A Senior Unsecured Notes, €50,000, 1.55% fixed, due May 31, 2029						53,520						56,630
October 30, 2017, Series L Senior Unsecured Notes, €125,000, 2.02% fixed, due October 30, 2029						133,800						141,575
May 31, 2019, Series B Senior Unsecured Notes, €100,000, 1.74% fixed, due May 31, 2031						107,040						113,260
October 30, 2017, Series M Senior Unsecured Notes, €100,000, 2.32% fixed, due October 30, 2032						107,040						113,260
May 31, 2019, Series C Senior Unsecured Notes, €100,000, 1.95% fixed, due May 31, 2034						107,040						113,260
Other unsecured debt						2,977						840
Total unsecured debt						3,351,185						2,421,560
Unamortized debt issuance costs						(12,236)						(8,041)
Unamortized discounts						(10,126)						(4,156)
Total debt						3,328,823						2,409,363
Less debt due within one year						252,029						—
Long-term debt, excluding current portion						$	3,076,794					$	2,409,363

Approximate maturities under our credit facilities are as follows:

2023			$	252,029
2024			347,452
2025			500,000
2026			355,664
2027			387,600
Thereafter			1,508,440
			$	3,351,185

7. Derivatives and Hedging

Net Investment Hedges

We have designated certain derivative instruments and a portion of our foreign currency denominated debt, a non-derivative financial instrument, as hedges of the foreign currency exchange rate exposure of our Euro-denominated net investment in a European subsidiary. We apply the spot method to assess the hedge effectiveness of the derivative instruments and this assessment for each instrument excludes the initial value related to the difference at contract inception between the foreign exchange spot rate and the forward rate (i.e., the forward points). The initial value of this excluded component is recognized as a reduction to interest expense in a systematic and rational manner over the term of the derivative instrument. All other changes in value for the net investment hedges are included in AOCL within foreign currency translation and would only be reclassified to earnings if the European subsidiary were liquidated, or otherwise disposed. Upon settlement, the cash paid or received generally is reflected in investing activities in the statement of cash flows.

The following table summarizes the location and carrying amounts of the derivative instruments and the foreign currency denominated debt, a non-derivative financial instrument, that are designated and qualify as part of hedging relationships:

												December 31, 2022												December 31, 2021
Instrument						Balance sheet location						Notional						Balance						Notional						Balance
Net investment hedges:
Forward contracts						Prepaid expenses and other current assets						$	606,950					$	46,670					$	925,810					$	73,819
Forward contracts						Other current liabilities						$	106,800					$	3,064					$	235,180					$	2,935
Foreign currency debt						Long-term debt						€	700,000					$	749,280					€	700,000					$	792,820

The table below presents pre-tax gains and losses related to cash flow hedges and net investment hedges:

						Gain (Loss) Recognized in AOCL Before Reclassifications																		Gain Recognized in Interest Expense For Excluded Components
						2022						2021						2020						2022						2021						2020
Year Ended December 31,
Cash Flow Hedges:
Interest rate contract						$	—					$	—					$	(29,464)					$	—					$	—					$	—
Net Investment Hedges:
Forward contracts						103,240						56,362						(85,390)						27,923						26,295						27,146
Foreign currency debt						43,540						68,250						(77,070)						—						—						—
Total						$	146,780					$	124,612					$	(191,924)					$	27,923					$	26,295					$	27,146

8. Leased Properties

We primarily lease real estate for retail stores, branches, distribution centers, office space and land. We also lease equipment (primarily vehicles).

Most real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term from one to 20 years or more. The exercise of lease renewal options is at our discretion. We evaluate renewal options at lease inception and on an ongoing basis, and include renewal options that we are reasonably certain to exercise in the expected lease terms when classifying leases and measuring lease liabilities. We elected a policy of not recording leases on the consolidated balance sheets when the leases have a term of 12 months or less and we are not reasonably certain to elect an option to purchase the leased asset. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.

The table below presents the locations of the operating lease assets and liabilities on the consolidated balance sheets:

						Balance Sheet Line Item						December 31, 2022						December 31, 2021
Operating lease assets						Operating lease assets						$	1,104,678					$	1,053,689
Operating lease liabilities:
Current operating lease liabilities						Other current liabilities						$	286,713					$	280,575
Noncurrent operating lease liabilities						Operating lease liabilities						$	836,019					$	789,175
Total operating lease liabilities												$	1,122,732					$	1,069,750

The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term.

Our leases generally do not provide an implicit rate, and therefore we use our incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. We used incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date.

Our weighted average remaining lease term and weighted average discount rate for operating leases are:

						December 31, 2022						December 31, 2021
Weighted average remaining lease term (in years)						5.32						5.19
Weighted average discount rate						2.51		%				2.03		%

The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liabilities recognized on the consolidated balance sheets as of December 31, 2022:

2023			$	325,370
2024			269,385
2025			198,100
2026			138,333
2027			95,975
Thereafter			216,085
Total undiscounted future minimum lease payments			1,243,248
Less: Difference between undiscounted lease payments and discounted operating lease liabilities			120,516
Total operating lease liabilities			$	1,122,732

Future minimum lease payments include $53 million related to options to extend lease terms that are reasonably certain of being exercised. Future minimum lease payments exclude $165 million related to operating leases that have not yet commenced. These leases are expected to commence in 2023 and 2024 with lease terms of 3 to 25 years.

The table below presents operating lease costs and supplemental cash flow information related to leases:

						2022						2021						2020
Operating lease costs						$	350,025					$	336,228					$	313,315
Cash paid for amounts included in the measurement of operating lease liabilities						$	358,767					$	340,243					$	323,336
Operating lease assets obtained in exchange for new operating lease liabilities						$	411,052					$	358,393					$	302,114

Operating lease costs are included within selling, administrative and other expenses on the consolidated statements of income. Short-term lease costs, variable lease costs and sublease income were not material for the periods presented. Cash paid for amounts included in the measurement of operating lease liabilities is included in operating activities in the consolidated statements of cash flows.

9. Employee Benefit Plans

Our 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 we 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. Our 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, we may increase our contribution above the minimum, if appropriate to our tax and cash position and the plans’ funded position. The European plans are funded in accordance with local regulations.

We also sponsor supplemental retirement plans covering employees in the U.S. and Canada. We use a measurement date of December 31 for our pension and supplemental retirement plans.

Several assumptions are used to determine the benefit obligations, plan assets, and net periodic income. The discount rate for the U.S. pension plan is calculated using a bond matching approach to select specific bonds that would satisfy the projected benefit payments. The bond matching approach reflects the process that would be used to settle the pension obligations. The discount rate for non U.S. plans are set by using Willis Towers Watson's RATE:Link model. For each plan, this approach reflects yields available on high quality corporate bonds that would generate the cash flow necessary to pay the plan's benefits when due. The expected return on plan assets is based on a calculated market-related value of plan assets, where gains and losses on plan assets are amortized over a five year period and accumulate in other comprehensive income. Other non-investment unrecognized gains and losses are amortized in future net income based on a “corridor” approach, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year. The unrecognized gains and losses in excess of the corridor criteria are amortized over the average future lifetime or service of plan participants, depending on the plan. These assumptions are updated at each annual measurement date.

Changes in benefit obligations for the years ended December 31, 2022 and 2021 were:

						2022						2021
Changes in benefit obligation
Benefit obligation at beginning of year						$	2,532,973					$	2,678,966
Service cost						10,204						12,218
Interest cost						75,248						71,693
Plan participants’ contributions						1,892						1,908
Actuarial gain						(546,266)						(87,966)
Foreign currency exchange rate changes						(15,744)						(1,184)
Gross benefits paid						(135,907)						(142,327)
Curtailments						—						(80)
Settlements						(276)						(255)
Acquired plans						1,039						—
Benefit obligation at end of year						$	1,923,163					$	2,532,973

The benefit obligations for our U.S. pension plans included in the above were $1.7 billion and $2.2 billion at December 31, 2022 and 2021, respectively. The total accumulated benefit obligation for our defined benefit pension plans in the U.S., Canada, and Europe was approximately $1.9 billion and $2.5 billion at December 31, 2022 and 2021, respectively.

For the U.S. pension plan, there was a net actuarial liability gain of $442 million and an asset loss of $581 million. The liability gain was comprised primarily of a $466 million gain due to discount rate changes. For the U.S. supplemental retirement plan, there was a net actuarial liability gain of $61 million comprised primarily of a $63 million gain due to discount rate changes.

The assumptions used to measure the pension benefit obligations for the plans at December 31, 2022 and 2021, were:

			2022						2021
Weighted average discount rate			5.61		%				3.04		%
Rate of increase in future compensation levels			3.16		%				3.13		%

Changes in plan assets for the years ended December 31, 2022 and 2021 were:

						2022						2021
Changes in plan assets
Fair value of plan assets at beginning of year						$	2,756,803					$	2,545,359
Actual return on plan assets						(493,359)						330,402
Foreign currency exchange rate changes						(15,599)						80
Employer contributions						15,504						21,635
Plan participants’ contributions						1,892						1,908
Benefits paid						(135,907)						(142,327)
Settlements						(276)						(254)
Fair value of plan assets at end of year						$	2,129,058					$	2,756,803

The fair values of plan assets for our U.S. pension plans included in the above were $1.9 billion and $2.5 billion at December 31, 2022 and 2021, respectively.

For the years ended December 31, 2022 and 2021, the aggregate projected benefit obligation and aggregate fair value of plan assets for plans with projected benefit obligations in excess of plan assets were as follows:

						2022						2021
Aggregate projected benefit obligation						$	208,939					$	323,593
Aggregate fair value of plan assets						$	—					$	47,445

For the years ended December 31, 2022 and 2021, the aggregate accumulated benefit obligation and aggregate fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets were as follows:

						2022						2021
Aggregate accumulated benefit obligation						$	192,421					$	247,277
Aggregate fair value of plan assets						$	—					$	—

The asset allocations for our funded pension plans at December 31, 2022 and 2021, and the target allocation for 2023, by asset category were:

			Target Allocation						Percentage of Plan Assets at December 31
			2023			2022						2021
Asset Category
Equity securities			58		%				59		%				57		%
Debt securities			41		%				41		%				43		%
Other			1		%				—		%				—		%
			100		%				100		%				100		%

Our 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 our 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. Our investment strategy with respect to pension plan assets is to generate a return in excess of the passive portfolio benchmark (38% US Large-cap stocks, 9% US Mid-cap stocks, 10% International stocks, 3% Emerging Market stocks and 40% Barclays U.S. Gov/Credit Index).

The fair values of the plan assets as of December 31, 2022 and 2021, by asset category, are shown in the tables below. Various inputs are considered when determining the value of our pension plan assets. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. Level 1 represents observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 represents other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.). Level 3 represents significant unobservable inputs (including our 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 we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Equity securities are valued at the closing price reported on the active market on which the individual securities are traded on the last day of the calendar plan year. Debt securities including corporate bonds, U.S. Government securities, and asset-backed securities are valued using price evaluations reflecting the bid and/or ask sides of the market for an investment as of the last day of the calendar plan year.

						2022
						Total						Assets Measured at NAV						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Equity Securities
Common stocks — mutual funds — equity						$	285,103					$	48,521					$	236,582					$	—					$	—
Genuine Parts Company common stock						261,869						—						261,869						—						—
Other stocks						711,830						—						711,830						—						—
Debt Securities
Short-term investments						41,076						—						41,076						—						—
Cash and equivalents						8,632						—						8,632						—						—
Government bonds						344,787						—						411						344,376						—
Corporate bonds						412,896						—						—						412,896						—
Asset-backed and mortgage-backed securities						9,925						—						—						9,925						—
Convertible Securities						1,159						—						—						1,159						—
Other-international						37,304						—						37,304						—						—
Municipal bonds						14,442						—						—						14,442						—
Other
Options and Futures						35						—						35						—						—
Total						$	2,129,058					$	48,521					$	1,297,739					$	782,798					$	—

						2021
						Total						Assets Measured at NAV						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Equity Securities
Common stocks — mutual funds — equity						$	388,591					$	64,669					$	323,922					$	—					$	—
Genuine Parts Company common stock						210,510						—						210,510						—						—
Other stocks						971,020						—						971,020						—						—
Debt Securities
Short-term investments						46,815						—						46,815						—						—
Cash and equivalents						22,084						—						22,084						—						—
Government bonds						425,877						—						4,513						421,364						—
Corporate bonds						598,216						—						—						598,216						—
Asset-backed and mortgage-backed securities						12,894						—						—						12,894						—
Other-international						61,008						—						46,133						14,875						—
Municipal bonds						19,621						—						—						19,621						—
Other
Cash surrender value of life insurance policies						167						—						167						—						—
Total						$	2,756,803					$	64,669					$	1,625,164					$	1,066,970					$	—

Equity securities include Genuine Parts Company common stock in the amounts of $262 million (12% of total plan assets) and $211 million (8% of total plan assets) at December 31, 2022 and 2021, respectively. Dividend payments received by the plan on company stock totaled approximately $5 million and $5 million in 2022 and 2021, respectively. Fees paid during the year for services rendered by parties in interest were based on customary and reasonable rates for such services.

Based on the investment policy for the pension plans, as well as an asset study that was performed based on our asset allocations and future expectations, our expected rate of return on plan assets for measuring 2023 pension income is 7.09% for the plans. The asset study forecasted expected rates of return for the approximate duration of our 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:

						2022						2021
Other long-term asset						$	414,834					$	499,978
Other current liability						(12,537)						(12,546)
Pension and other post-retirement liabilities						(196,402)						(263,602)
						$	205,895					$	223,830

Amounts recognized in accumulated other comprehensive (loss) income consist of:

						2022						2021
Net actuarial loss						$	682,884					$	625,339
Prior service cost						7,273						7,958
						$	690,157					$	633,297

The following table reflects the total benefits expected to be paid from the pension plans’ or our assets. Of the pension benefits expected to be paid in 2023, approximately $13 million is expected to be paid from employer assets. Expected employer contributions below reflect amounts expected to be contributed to funded plans. Information about the expected cash flows for the pension plans follows:

Employer contribution
2023 (expected)			$	4,449
Expected benefit payments:
2023			$	138,411
2024			$	140,826
2025			$	143,591
2026			$	145,953
2027			$	147,677
2027 through 2030			$	736,560

Net periodic benefit income included the following components:

						2022						2021						2020
Service cost						$	10,204					$	12,218					$	12,105
Interest cost						75,248						71,693						83,732
Expected return on plan assets						(150,318)						(153,822)						(154,111)
Amortization of prior service cost						691						690						692
Amortization of actuarial loss						37,065						49,897						39,613
Net periodic benefit income						$	(27,110)					$	(19,324)					$	(17,969)

Service cost is recorded in selling, administrative and other expenses in the consolidated statements of income while all other components are recorded within other non-operating expenses (income). Pension benefits also include amounts related to supplemental retirement plans.

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

						2022						2021						2020
Current year actuarial loss (gain)						$	97,412					$	(264,547)					$	24,613
Recognition of actuarial loss						(37,065)						(49,897)						(39,613)
Recognition of prior service cost						(691)						(690)						(692)
Recognition of curtailment (loss) gain						—						(5)						435
Other						68						(29)						—
Total recognized in other comprehensive (loss) income						$	59,724					$	(315,168)					$	(15,257)
Total recognized in net periodic benefit income and other comprehensive (loss) income						$	32,614					$	(334,492)					$	(33,226)

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

			2022						2021						2020
Weighted average discount rate			3.04		%				2.72		%				3.43		%
Rate of increase in future compensation levels			3.13		%				3.11		%				3.13		%
Expected long-term rate of return on plan assets			6.34		%				6.88		%				7.11		%

We have one defined contribution plan in the U.S. that covers substantially all of our domestic employees. Employees receive a matching contribution of 100% of the first 5% of the employees’ salary. Total plan expense was approximately $69 million in 2022, $60 million in 2021, and $55 million in 2020.

10. Acquisitions, Divestitures and Discontinued Operations

Acquisitions

For each acquisition, we allocate the purchase price to the assets acquired and the liabilities assumed based on their fair values as of their respective acquisition dates. The results of operations for acquired businesses are included in our consolidated statements of income beginning on their respective acquisition dates.

2022

We acquired several businesses for approximately $1.6 billion, net of cash acquired, during the year ended December 31, 2022. Approximately $1.3 billion was related to our Industrial segment, primarily the acquisition of KDG discussed further below, and $300 million was related to Automotive.

We recognized approximately $562 million of revenue, net of store closures, and $239 million of goodwill and other intangible assets related to our Automotive acquisitions during the year ended December 31, 2022. The other intangible assets acquired consisted of customer relationships of $76 million, trademarks of $9 million, and other intangibles of $4 million with weighted average amortization lives of 18, 15, and 3 years, respectively.

On January 3, 2022, the company, through its wholly-owned subsidiary, Motion Industries, Inc., acquired all of the equity interests in KDG for a purchase price of approximately $1.3 billion in cash, net of cash acquired of approximately $30 million. KDG contributed approximately 5% of net sales included in our consolidated statement of income from January 3, 2022 to December 31, 2022. The KDG acquisition was financed using a combination of borrowing under the existing unsecured revolving credit facility, proceeds of $200 million from the selling of additional receivables under our amended A/R Sales Agreement, and $109 million of cash.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date for the KDG acquisition as well as adjustments made when finalizing the acquisition accounting during the year ended December 31, 2022 (referred to as the "measurement period adjustments"). The measurement period adjustments primarily resulted from revisions to the valuation of inventory and intangible assets, deferred taxes, and long-term liabilities.

						As of January 3, 2022
						Initial Balance			Measurement Period Adjustments			As Adjusted
Trade accounts receivable						$	156,000		$	—		$	156,000
Merchandise inventories						166,000			(14,000)			152,000
Prepaid expenses and other current assets						39,000			(1,000)			38,000
Property, plant and equipment						26,000			(2,000)			24,000
Operating lease assets						49,000			(5,000)			44,000
Other assets						1,000			—			1,000
Other intangible assets						574,000			(6,000)			568,000
Goodwill						592,000			9,000			601,000
Total assets acquired						1,603,000			(19,000)			1,584,000
Trade accounts payable						85,000			—			85,000
Other current liabilities						32,000			—			32,000
Operating lease liabilities						17,000			(1,000)			16,000
Deferred tax liabilities						121,000			(13,000)			108,000
Other long-term liabilities						39,000			(8,000)			31,000
Total liabilities assumed						294,000			(22,000)			272,000
Net assets acquired						$	1,309,000		$	3,000		$	1,312,000

The other intangible assets acquired included $527 million of customer relationship intangibles and a $41 million favorable trade name licensing agreement, with amortization lives of 17 and 1.5 years, respectively. The other intangible assets have a total weighted amortization life of 16 years. We used the multi-period excess earnings method under the income approach to measure KDG's customer relationships, which is sensitive to certain assumptions including discount rates and certain assumptions that form the basis for the forecasted results (e.g., future revenue growth rates and EBITDA margins). These assumptions are forward-looking in nature and are dependent on the future performance of the acquired business and could be affected by future economic and market conditions.

The goodwill was assigned to the Industrial segment and is attributable primarily to expected synergies and the assembled workforce. Approximately $261 million of the goodwill recognized as part of the acquisition was tax deductible.

For the twelve months ended December 31, 2022, approximately $5 million of inventory amortization step-up cost related to this acquisition was included in cost of goods sold. Further, $62 million of transaction and other one-time costs, inclusive of an impairment charge, were included in selling, administrative, and other expenses in the consolidated statements of income. Refer to the Goodwill and Other Intangible Assets Footnote for more information on the impairment charge.

If the KDG acquisition had occurred on January 1, 2021 and if its results of operations had been included in our consolidated results since that date, our unaudited pro forma consolidated statements of income would have reflected net sales of approximately $22.1 billion and $19.9 billion and net income on a per share diluted basis of $8.47 and $6.02 for the years ended December 31, 2022 and 2021, respectively. The pro forma information is not necessarily indicative of the results of operations that we would have reported had the transaction actually occurred at the beginning of this period, nor is it necessarily indicative of future results.

The adjustments to the pro forma amounts include, but are not limited to, applying our accounting policies, amortization related to fair value adjustments to intangible assets, one-time acquisition accounting adjustments, interest expense on acquisition related debt and debt not assumed, and any associated tax effects. The pro forma results do not include any cost savings or other synergies that may result from the acquisition.

Earnings related to KDG included in our consolidated statement of income from January 3, 2022 to December 31, 2022 are impracticable to provide due to KDG’s ongoing integration into Motion, which commenced shortly after the acquisition date.

2021

We acquired several businesses for approximately $282 million, net of cash acquired, during the year ended December 31, 2021.

During the year ended December 31, 2021, we recognized approximately $220 million and $25 million of revenue, net of store closures, related to our 2021 Automotive and Industrial acquisitions, respectively. We recorded approximately $160 million of goodwill and other intangible assets associated with the 2021 acquisitions. Other intangible assets acquired consisted of customer relationships with a weighted average amortization life of 20 years.

We did not recognize any significant measurement period adjustments related to finalizing acquisition accounting during the year ended December 31, 2021.

2020

We acquired several businesses for approximately $86 million, net of cash acquired, during the year ended December 31, 2020.

Divestitures

We received proceeds from divestitures of businesses totaling $34 million, $18 million and $387 million during the years ended December 31, 2022, 2021 and 2020, respectively.

Discontinued Operations

Business Products Group

Effective June 30, 2020, we completed the divestiture of our Business Products Group by selling Supply Source Enterprises, Inc. ("SSE") and SPR in separate transactions. These divestitures were part of our long-term strategic initiative to streamline our operations and optimize our portfolio so that we can drive shareholder value by focusing on our global Automotive and Industrial businesses. The Business Products Group was previously a reportable segment of the company. These divestitures, together with prior period divestitures of Garland C. Norris (effective December 13, 2019), SPR Canada (effective January 1, 2020) and Safety Zone Canada (effective March 2, 2020), represented a single plan to exit the Business Products Group segment and was considered a strategic shift that had a major effect on our operations and financial results. Therefore, the results of operations, financial position and cash flows for the Business Products Group were reported as discontinued operations for all periods presented.

Our results of operations for discontinued operations were:

						Year Ended December 31,
						2022						2021						2020
Net sales						$	—					$	—					$	846,944
Cost of goods sold						—						—						632,007
Gross profit						—						—						214,937
Operating and non-operating expenses						—						—						179,461
Loss on disposal						—						—						223,928
Loss before income taxes						—						—						(188,452)
Income taxes						—						—						4,045
Net loss from discontinued operations						$	—					$	—					$	(192,497)

In December 2022, we came to an agreement to sell our remaining investment in SPR in connection with a pending acquisition of SPR by a third party. The acquisition closed and we sold our investment in SPR on January 31, 2023. Any remaining transition services will cease by June 30, 2023. As of December 31, 2022, we reduced the net carrying value of our SPR investment by $3 million to $55 million, which was reclassed from other assets to current

assets on the consolidated balance sheet, and recognized a charge within non-operating expenses (income) on the consolidated statement of income for the three months ended December 31, 2022.

11. Share-Based Compensation

Share-based compensation costs of $38 million, $26 million, and $23 million, were recorded for the years ended December 31, 2022, 2021, and 2020, respectively. The total income tax benefits recognized in the consolidated statements of income for share-based compensation arrangements were approximately $10 million, $7 million, and $6 million for 2022, 2021, and 2020, respectively. At December 31, 2022, total compensation cost related to nonvested awards not yet recognized was approximately $64 million. There have been no modifications to valuation methodologies or methods during the years ended December 31, 2022, 2021, or 2020.

As of December 31, 2022, there were 6.9 million shares of common stock available for issuance pursuant to future equity-based compensation awards.

A summary of our restricted stock units activity and related information is as follows:

Nonvested Share Awards (RSUs)						Shares						Weighted Average Grant Date Fair Value						Weighted Average Remaining Contractual Life (Years)						Aggregate Intrinsic Value
Nonvested at beginning of year						829						$	98.25
Granted						506						$	129.87
Vested						(276)						$	104.22
Forfeited						(65)						$	105.01
Nonvested at end of year						994						$	110.45					1.4						$	172,409

A summary of our stock appreciation rights activity and related information is as follows:

Stock Appreciation Rights (SARs)						Shares						Weighted Average Exercise Price						Weighted Average Remaining Contractual Life (Years)						Aggregate Intrinsic Value
Outstanding at beginning of year						634						$	90.93
Granted						—						$	—
Exercised						(310)						$	89.22
Forfeited						(7)						$	89.27
Outstanding at end of year						317						$	92.65					2.4						$	25,607
Exercisable at end of year						317						$	92.65					2.4						$	25,607

The aggregate intrinsic value of SARs exercised and RSUs vested during the years ended December 31, 2022, 2021, and 2020 was $62 million, $73 million, and $14 million, respectively. The fair value of RSUs is based on the price of our stock on the date of grant for the years ended December 31, 2022 and 2021. The fair value of RSUs is based on the 60-day average price of our stock on the date of grant for the year ended December 31, 2020. The fair value of SARs is estimated using a Black-Scholes option pricing model. We ceased issuing SARs in 2017. The total fair value of SARs and RSUs vested during the years ended December 31, 2022, 2021, and 2020 were $29 million, $25 million, and $10 million, respectively.

12. Accumulated Other Comprehensive Loss

The following tables present the changes in AOCL by component:

			Changes in Accumulated Other Comprehensive Loss by Component
			Pension and Other Post-Retirement Benefits						Cash Flow Hedges						Foreign Currency Translation						Total
Beginning balance, January 1, 2022			$	(463,227)					$	(15,042)					$	(379,470)					$	(857,739)
Other comprehensive (loss) before reclassifications			(71,258)						—						(143,890)						(215,148)
Amounts reclassified from accumulated other comprehensive loss			27,875						12,470						—						40,345
Net current period other comprehensive (loss)			(43,383)						12,470						(143,890)						(174,803)
Ending balance, December 31, 2022			$	(506,610)					$	(2,572)					$	(523,360)					$	(1,032,542)

			Changes in Accumulated Other Comprehensive Loss by Component
			Pension and Other Post-Retirement Benefits						Cash Flow Hedges						Foreign Currency Translation						Total
Beginning balance, January 1, 2021			$	(692,868)					$	(30,007)					$	(313,627)					$	(1,036,502)
Other comprehensive income before reclassifications			192,382						—						(65,843)						126,539
Amounts reclassified from accumulated other comprehensive loss			37,259						14,965						—						52,224
Net current period other comprehensive income			229,641						14,965						(65,843)						178,763
Ending balance, December 31, 2021			$	(463,227)					$	(15,042)					$	(379,470)					$	(857,739)

The AOCL components related to the pension benefits are included in the computation of net periodic benefit income in the Employee Benefit Plans Footnote. The nature of the cash flow hedges are discussed in the Derivatives and Hedging Footnote. Generally, tax effects in AOCL are established at the currently enacted tax rate and reclassified to net income in the same period that the related pre-tax AOCL reclassifications are recognized.

13. Income Taxes

Significant components of our deferred tax assets and liabilities are as follows:

						2022						2021
Deferred tax assets related to:
Expenses not yet deducted for tax purposes						$	312,445					$	301,302
Operating lease liabilities						314,804						300,705
Pension liability not yet deducted for tax purposes						168,925						171,256
Capital loss						—						7,333
Net operating loss						49,787						48,865
						845,961						829,461
Deferred tax liabilities related to:
Employee and retiree benefits						225,947						235,847
Inventory						77,866						87,062
Operating lease assets						305,885						295,801
Other intangible assets						468,733						365,557
Property, plant and equipment						91,706						72,740
Other						38,597						18,176
						1,208,734						1,075,183
Net deferred tax liability before valuation allowance						(362,773)						(245,722)
Valuation allowance						(27,362)						(34,227)
Total net deferred tax liability						$	(390,135)					$	(279,949)

We currently hold approximately $183 million in gross net operating losses, of which approximately $108 million will carry forward indefinitely. The remaining net operating losses of approximately $75 million will begin to expire in 2024.

The components of income before income taxes are as follows:

						2022						2021						2020
United States						$	1,100,584					$	762,472					$	706,594
Foreign						472,018						437,874						(327,226)
Income before income taxes						$	1,572,602					$	1,200,346					$	379,368

The components of income tax expense are as follows:

						2022						2021						2020
Current:
Federal						$	196,634					$	116,425					$	130,680
State						70,453						34,311						35,474
Foreign						120,594						119,144						77,541
Deferred:
Federal						12,727						24,233						2,048
State						4,981						9,485						801
Foreign						(15,488)						(2,042)						(30,571)
						$	389,901					$	301,556					$	215,973

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

						2022						2021						2020
Statutory rate applied to income (1)						$	330,246					$	252,073					$	79,667
Plus state income taxes, net of Federal tax benefit						59,593						34,599						28,658
Taxation of foreign operations, net (2)						3,347						2,299						(9,072)
Non-deductible goodwill impairment tax effect						—						—						106,411
Foreign rate change - deferred tax remeasurement						—						17,032						9,045
Valuation allowance						(7,153)						(2,486)						1,995
Other						3,868						(1,961)						(731)
						$	389,901					$	301,556					$	215,973

(1)U.S. statutory rates applied to income are as follows: 2022, 2021 and 2020 at 21%.

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

We account for Global Intangible Low Taxed income in the year the tax is incurred as a period cost.

We, or one of our subsidiaries, file income tax returns in the U.S., various states, and foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local tax examinations by tax authorities for years before 2019 or subject to foreign income tax examinations for years ended prior to 2013. We are currently under audit in some of our state and foreign jurisdictions. Some audits may conclude in the next 12 months and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts. It is not possible to estimate the effect, if any, of the amount of such change during the next 12 months to previously recorded uncertain tax positions in connection with the audits; however, we do not anticipate that total unrecognized tax benefits will significantly change in the next 12 months.

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

						2022						2021						2020
Balance at beginning of year						$	19,501					$	23,237					$	21,461
Additions based on tax positions related to the current year						1,475						2,196						3,771
Additions for tax positions of prior years						89						156						3,480
Reductions for tax positions for prior years						(523)						(733)						(1,382)
Reduction for lapse in statute of limitations						(921)						(2,843)						(3,765)
Settlements						—						(2,512)						(328)
Balance at end of year						$	19,621					$	19,501					$	23,237

The amount of gross unrecognized tax benefits, including interest and penalties, as of December 31, 2022 and 2021 was approximately $21 million and $20 million, respectively, of which approximately $19 million and $19 million, respectively, if recognized, would affect the effective tax rate.

During the tax years ended December 31, 2022, 2021 and 2020, we paid, received refunds, or accrued insignificant interest and penalties. We recognize potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.

As of December 31, 2022, we estimate that we have an outside basis difference in certain foreign subsidiaries of approximately $928 million, which includes the cumulative undistributed earnings from our foreign subsidiaries. We continue to be indefinitely reinvested in this outside basis difference. Determining the amount of net unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practicable. This is due to the complexities associated with the calculation to determine residual taxes on the undistributed earnings,

including the availability of foreign tax credits, applicability of any additional local withholding tax and other indirect tax consequences that may arise due to the distribution of these earnings.

14. Guarantees

We guarantee the borrowings of certain independently controlled automotive parts stores and businesses (“independents”) and certain other affiliates in which we have a noncontrolling equity ownership interest (“affiliates”). Presently, the independents are generally consolidated by unaffiliated enterprises that have controlling financial interests through ownership of a majority voting interest in the independents. We have no voting interest or equity conversion rights in any of the independents. We do not control the independents or the affiliates but receive a fee for the guarantees. We have concluded that the independents are variable interest entities, but that we are not the primary beneficiary. Specifically, the equity holders of the independents have the power to direct the activities that most significantly impact the entities’ economic performance including, but not limited to, decisions about hiring and terminating personnel, local marketing and promotional initiatives, pricing and selling activities, credit decisions, monitoring and maintaining appropriate inventories, and store hours. Separately, we concluded that the affiliates are not variable interest entities. Our maximum exposure to loss as a result of its involvement with these independents and affiliates is generally equal to the total borrowings subject to our guarantees. While such borrowings of the independents and affiliates are outstanding, we are required to maintain compliance with certain covenants. At December 31, 2022, we were in compliance with all such covenants.

At December 31, 2022, the total borrowings of the independents and affiliates subject to guarantee by us were approximately $916 million. These loans generally mature over periods from one to six years. We regularly monitor the performance of these loans and the ongoing operating results, financial condition and ratings from credit rating agencies of the independents and affiliates that participate in the guarantee programs. In the event that we are required to make payments in connection with these guarantees, we would obtain and liquidate certain collateral pledged by the independents or affiliates (e.g., accounts receivable and inventory) to recover all or a substantial portion of the amounts paid under the guarantees. We recognize a liability equal to current expected credit losses over the lives of the loans in the guaranteed loan portfolio, based on a consideration of historical experience, current conditions, the nature and expected value of any collateral, and reasonable and supportable forecasts. To date, we have had no significant losses in connection with guarantees of independents’ and affiliates’ borrowings and the current expected credit loss reserve is not material. As of December 31, 2022, there are no material guaranteed loans for which the borrower is experiencing financial difficulty and recovery is expected to be provided substantially through the operation or sale of the collateral.

We have recognized certain assets and liabilities amounting to $67 million and $81 million for the guarantees related to the independents’ and affiliates’ borrowings at December 31, 2022 and 2021, respectively. These assets and liabilities are included in other assets and other long-term liabilities in the consolidated balance sheets. The liabilities relate to our noncontingent obligation to stand ready to perform under the guarantee programs and they are distinct from our current expected credit loss reserve.

15. Commitments and Contingencies

Legal Matters

We are subject to various legal proceedings, many involving routine litigation incidental to the businesses, including approximately 2,228 pending product liability lawsuits resulting from our national distribution of automotive parts and supplies. Many of these involve claims of personal injury allegedly resulting from the use of automotive parts we distributed. During the fourth quarter of 2022, we revised our estimate of the number of claims to be incurred in future periods, among other assumptions, and recognized $29 million of expense included in selling, administrative and other expenses in the consolidated statements of income. The amount accrued for pending and future claims as of December 31, 2022 was $220 million, the central estimate within our range of $190 million to $270 million, discounted using a discount rate of 3.83%. The undiscounted product liability as of December 31, 2022 was $285 million. The amount accrued for pending and future claims as of December 31, 2021 was $181 million.

The amounts recorded are based on the best available information and assumptions that we believe are reasonable. While litigation of any type contains an element of uncertainty, we believe that our insurance coverage and our defense, and ultimate resolution of pending and reasonably anticipated claims will continue to occur within

the ordinary course of our business and that resolution of these claims will not have a material adverse effect on our business, results of operations or financial condition.

On April 17, 2017, a jury awarded damages against the company of $82 million in a litigated automotive product liability dispute. Through post-trial motions and offsets from previous settlements, the initial verdict was reduced to $77 million. We believed the verdict was not supported by the facts or the law and was contrary to our role in the automotive parts industry. We challenged the verdict through an appeal to a higher court. On February 19, 2020, the Washington Court of Appeals issued an order entirely reversing the jury's finding on damages and ordering a new trial on damages. The plaintiffs subsequently appealed this order to the Washington Supreme Court. On July 7, 2020, the Washington Supreme Court indicated that it would consider a further appeal on this matter, and oral arguments occurred on November 10, 2020. On July 8, 2021, the Washington Supreme Court overturned the order of the Washington Court of Appeals and reinstated the trial court's damage award of $77 million against the company. We recorded an adjustment to increase selling, administrative and other expenses by approximately $77 million, inclusive of statutory interest and insurance coverage, in the consolidated statements of income for the year ended December 31, 2021. The damage award and statutory interest was fully paid as of December 31, 2021.

Environmental Liabilities

Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believe will exceed an applied threshold not to exceed $1 million. Applying this threshold, there are no environmental matters to disclose for this period.