Item 1. Financial Statements

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Item 1. Financial Statements

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(in thousands, except share and per share data)	September 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	919,097	$	990,166
Trade accounts receivable, less allowance for doubtful accounts (2021 – $44,807; 2020 – $36,622)	1,888,253		1,556,966
Merchandise inventories, net	3,748,418		3,506,271
Prepaid expenses and other current assets	1,226,416		1,060,360
Total current assets	7,782,184		7,113,763
Goodwill	1,890,821		1,917,477
Other intangible assets, less accumulated amortization	1,409,886		1,498,257
Deferred tax assets	43,726		65,658
Property, plant and equipment, less accumulated depreciation (2021 – $1,315,825; 2020 – $1,268,170)	1,107,374		1,162,043
Operating lease assets	1,040,724		1,038,877
Other assets	700,223		644,140
Total assets	$	13,974,938	$	13,440,215

Liabilities and equity
Current liabilities:
Trade accounts payable	$	4,819,084	$	4,128,084
Current portion of debt	—		160,531
Dividends payable	116,356		114,043
Other current liabilities	1,601,883		1,491,426
Total current liabilities	6,537,323		5,894,084
Long-term debt	2,432,539		2,516,614
Operating lease liabilities	781,750		789,294
Pension and other post–retirement benefit liabilities	254,727		265,687
Deferred tax liabilities	222,467		212,910
Other long-term liabilities	549,574		543,623
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 – 2021 – 142,503,493 shares; 2020 – 144,354,335 shares	142,503		144,354
Additional paid-in capital	118,223		117,165
Retained earnings	3,995,537		3,979,779
Accumulated other comprehensive loss	(1,073,086)		(1,036,502)
Total parent equity	3,183,177		3,204,796
Noncontrolling interests in subsidiaries	13,381		13,207
Total equity	3,196,558		3,218,003
Total liabilities and equity	$	13,974,938	$	13,440,215

See accompanying notes to condensed consolidated financial statements.

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2021		2020		2021		2020
Net sales	$	4,818,849	$	4,370,086	$	14,067,301	$	12,285,839
Cost of goods sold	3,108,082		2,842,020		9,126,614		8,079,108
Gross profit	1,710,767		1,528,066		4,940,687		4,206,731
Operating expenses:
Selling, administrative and other expenses	1,338,768		1,140,156		3,883,241		3,254,442
Depreciation and amortization	72,121		69,097		218,377		203,084
Provision for doubtful accounts	4,284		5,633		14,230		23,452
Restructuring costs	—		10,968		—		39,009
Goodwill impairment charge	—		—		—		506,721
Total operating expenses	1,415,173		1,225,854		4,115,848		4,026,708
Non-operating (income) expenses:
Interest expense	14,958		25,788		50,127		72,218
Other	(18,338)		(21,241)		(79,728)		(46,017)
Total non-operating (income) expenses	(3,380)		4,547		(29,601)		26,201
Income before income taxes	298,974		297,665		854,440		153,822
Income taxes	70,389		64,747		211,649		162,059
Net income (loss) from continuing operations	228,585		232,918		642,791		(8,237)
Net loss from discontinued operations	—		(5,387)		—		(192,069)
Net income (loss)	$	228,585	$	227,531	$	642,791	$	(200,306)
Dividends declared per common share	$	0.8150	$	0.7900	$	2.4450	$	2.3700
Basic earnings (loss) per share:
Continuing operations	$	1.60	$	1.61	$	4.47	$	(0.06)
Discontinued operations	—		(0.03)		—		(1.33)
Basic earnings (loss) per share	$	1.60	$	1.58	$	4.47	$	(1.39)
Diluted earnings (loss) per share:
Continuing operations	$	1.59	$	1.61	$	4.44	$	(0.06)
Discontinued operations	—		(0.04)		—		(1.33)
Diluted earnings (loss) per share	$	1.59	$	1.57	$	4.44	$	(1.39)

Weighted average common shares outstanding	142,871		144,273		143,826		144,528
Dilutive effect of stock options and non-vested restricted stock awards	718		762		796		—
Weighted average common shares outstanding – assuming dilution	143,589		145,035		144,622		144,528

See accompanying notes to condensed consolidated financial statements.

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020
Net income (loss)	$	228,585	$	227,531	$	642,791	$	(200,306)
Other comprehensive (loss) income, net of income taxes:
Foreign currency translation adjustments, net of income taxes in 2021 — $11,328 and $25,494; 2020 — $22,896 and $19,451, respectively	(82,574)		34,063		(75,738)		(36,951)
Cash flow hedge adjustments, net of income taxes in 2021 — $1,384 and $4,151; 2020 — $1,313 and $4,731, respectively	3,741		3,550		11,223		(12,792)
Pension and postretirement benefit adjustments, net of income taxes in 2021 — $3,425 and $10,280; 2020 — $2,998 and $9,023, respectively	9,301		8,187		27,931		24,479
Other comprehensive (loss) income, net of income taxes	(69,532)		45,800		(36,584)		(25,264)
Comprehensive income (loss)	$	159,053	$	273,331	$	606,207	$	(225,570)

See accompanying notes to condensed consolidated financial statements.

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)


	Three Months Ended September 30, 2021
(in thousands, except share and per share data)	Common Stock Shares	Common Stock Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Parent Equity		Non-controlling Interests in Subsidiaries		Total Equity
July 1, 2021	143,301,673	$	143,302	$	111,972	$	(1,003,554)	$	3,982,159	$	3,233,879	$	11,266	$	3,245,145
Net income	—	—		—		—		228,585		228,585		—		228,585
Other comprehensive loss, net of tax	—	—		—		(69,532)		—		(69,532)		—		(69,532)
Cash dividend declared, $0.8150 per share	—	—		—		—		(116,486)		(116,486)		—		(116,486)
Share-based awards exercised	2,256	1		(69)		—		—		(68)		—		(68)
Share-based compensation	—	—		6,320		—		—		6,320		—		6,320
Purchase of stock	(800,436)	(800)		—		—		(98,721)		(99,521)		—		(99,521)
Noncontrolling interest activities	—	—		—		—		—		—		2,115		2,115
September 30, 2021	142,503,493	$	142,503	$	118,223	$	(1,073,086)	$	3,995,537	$	3,183,177	$	13,381	$	3,196,558


	Nine Months Ended September 30, 2021
(in thousands, except share and per share data)	Common Stock Shares	Common Stock Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Parent Equity		Non-controlling Interests in Subsidiaries		Total Equity
January 1, 2021	144,354,335	$	144,354	$	117,165	$	(1,036,502)	$	3,979,779	$	3,204,796	$	13,207	$	3,218,003
Net income	—	—		—		—		642,791		642,791		—		642,791
Other comprehensive loss, net of tax	—	—		—		(36,584)		—		(36,584)		—		(36,584)
Cash dividend declared, $2.4450 per share	—	—		—		—		(351,606)		(351,606)		—		(351,606)
Share-based awards exercised	385,419	385		(19,783)		—		—		(19,398)		—		(19,398)
Share-based compensation	—	—		20,841		—		—		20,841		—		20,841
Purchase of stock	(2,236,261)	(2,236)		—		—		(281,650)		(283,886)		—		(283,886)
Cumulative effect from adoption of ASU 2019-12 (1)	—	—		—		—		6,223		6,223		—		6,223
Noncontrolling interest activities	—	—		—		—		—		—		174		174
September 30, 2021	142,503,493	$	142,503	$	118,223	$	(1,073,086)	$	3,995,537	$	3,183,177	$	13,381	$	3,196,558

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)

(UNAUDITED)


	Three Months Ended September 30, 2020
(in thousands, except share and per share data)	Common Stock Shares	Common Stock Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Parent Equity		Non-controlling Interests in Subsidiaries		Total Equity
July 1, 2020	144,264,189	$	144,264	$	107,819	$	(1,212,372)	$	3,809,564	$	2,849,275	$	21,613	$	2,870,888
Net income	—	—		—		—		227,531		227,531		—		227,531
Other comprehensive income, net of tax	—	—		—		45,800		—		45,800		—		45,800
Cash dividend declared, $0.7900 per share	—	—		—		—		(113,982)		(113,982)		—		(113,982)
Share-based awards exercised	25,464	26		(990)		—		—		(964)		—		(964)
Share-based compensation	—	—		6,420		—		—		6,420		—		6,420
Noncontrolling interest activities	—	—		—		—		—		—		(920)		(920)
September 30, 2020	144,289,653	$	144,290	$	113,249	$	(1,166,572)	$	3,923,113	$	3,014,080	$	20,693	$	3,034,773


	Nine Months Ended September 30, 2020
(in thousands, except share and per share data)	Common Stock Shares	Common Stock Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Parent Equity		Non-controlling Interests in Subsidiaries		Total Equity
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	—	—		—		—		(200,306)		(200,306)		—		(200,306)
Other comprehensive loss, net of tax	—	—		—		(25,264)		—		(25,264)		—		(25,264)
Cash dividend declared, $2.3700 per share	—	—		—		—		(342,426)		(342,426)		—		(342,426)
Share-based awards exercised	47,939	48		(1,802)		—		—		(1,754)		—		(1,754)
Share-based compensation	—	—		16,274		—		—		16,274		—		16,274
Purchase of stock	(1,136,444)	(1,136)		—		—		(94,583)		(95,719)		—		(95,719)
Cumulative effect from adoption of ASU 2016-13 (2)	—	—		—		—		(11,432)		(11,432)		—		(11,432)
Noncontrolling interest activities	—	—		—		—		—		—		(100)		(100)
September 30, 2020	144,289,653	$	144,290	$	113,249	$	(1,166,572)	$	3,923,113	$	3,014,080	$	20,693	$	3,034,773

(1)The Company adopted Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes, during the first quarter of 2021.

(2)The Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, during the first quarter of 2020.

See accompanying notes to condensed consolidated financial statements.

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
(in thousands)	2021		2020
Operating activities:
Net income (loss)	$	642,791	$	(200,306)
Net loss from discontinued operations	—		(192,069)
Net income (loss) from continuing operations	642,791		(8,237)
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:
Depreciation and amortization	218,377		203,084
Loss on software disposal	61,063		—
Share-based compensation	20,841		16,274
Excess tax (benefits) deficiencies from share-based compensation	(6,667)		375
Goodwill impairment charge	—		506,721
Realized currency and other divestiture losses	—		11,356
Changes in operating assets and liabilities	71,791		697,611
Net cash provided by operating activities from continuing operations	1,008,196		1,427,184
Investing activities:
Purchases of property, plant and equipment	(138,206)		(105,428)
Proceeds from sale of property, plant and equipment	24,184		11,675
Proceeds from divestitures of businesses	16,687		382,737
Acquisitions of businesses and other investing activities	(142,567)		(59,062)
Net cash (used in) provided by investing activities from continuing operations	(239,902)		229,922
Financing activities:
Proceeds from debt	242,332		1,888,622
Payments on debt	(403,126)		(2,466,031)
Share-based awards exercised	(19,398)		(1,754)
Dividends paid	(349,293)		(339,294)
Purchases of stock	(283,886)		(95,719)
Other financing activities	(5,353)		(15,032)
Net cash used in financing activities from continuing operations	(818,724)		(1,029,208)
Cash flows from discontinued operations:
Net cash provided by operating activities from discontinued operations	—		13,323
Net cash used in investing activities from discontinued operations	—		(11,131)
Net cash provided by financing activities from discontinued operations	—		—
Net cash provided by discontinued operations	—		2,192
Effect of exchange rate changes on cash and cash equivalents	(20,639)		(6,959)
Net (decrease) increase in cash and cash equivalents	(71,069)		623,131
Cash and cash equivalents at beginning of period	990,166		276,992
Cash and cash equivalents at end of period	$	919,097	$	900,123

See accompanying notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements. On June 30, 2020, the Company completed the divestiture of its Business Products Group. Refer to the acquisitions, divestitures and discontinued operations footnote for more information. The Company's 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 condensed consolidated financial statements for all periods presented. Net income from discontinued operations for each period includes all costs that are directly attributable to these businesses and excludes certain corporate overhead costs that were previously allocated. Additionally, revenue from freight services provided by the Automotive Parts Group are grossed up and recast in continuing operations in each period because those sales are continuing with the discontinued operations after the divestiture. Except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K of Genuine Parts Company (the “Company,” “we,” “our,” “us,” or “its”) for the year ended December 31, 2020. Accordingly, the unaudited condensed consolidated financial statements and related disclosures herein should be read in conjunction with the Company’s 2020 Annual Report on Form 10-K.

The preparation of interim financial statements requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements. Specifically, the Company makes estimates and assumptions in its unaudited condensed consolidated financial statements for inventory adjustments, the accrual of bad debts, credit losses on guaranteed loans, customer sales returns, and volume incentives earned, among others. Inventory adjustments (including adjustments for a majority of inventories that are valued under the last-in, first-out (“LIFO”) method) are accrued on an interim basis and adjusted in the fourth quarter based on the annual book to physical inventory adjustment and LIFO valuation. Reserves for bad debts, credit losses on guaranteed loans and customer sales returns are estimated and accrued on an interim basis based on a consideration of historical experience, current conditions, and reasonable and supportable forecasts. Volume incentives are estimated based upon cumulative and projected purchasing levels. In the opinion of management, all adjustments necessary for a fair presentation of the Company’s financial results for the interim periods have been made. These adjustments are of a normal recurring nature.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of results for the year ended December 31, 2021. The Company's results of operations continued to improve in 2021 relative to the same period of 2020 as a result of several positive trends caused by the global response to the coronavirus (“COVID-19”) outbreak, which was declared a pandemic in March 2020. In particular, as widespread vaccine distribution continued, we have seen economic recovery in many of the markets where we operate and a significant uptick in consumer mobility. However, the Company's operations remain vulnerable to the continuing negative economic effects caused by the pandemic. The extent to which the pandemic impacts the Company will depend on numerous factors and future developments that the Company cannot predict, including the severity of the virus; the occurrence of additional waves or spikes in infection rates, including the spread of variant strains; the duration of the outbreak; governmental, business or other actions taken in response to the pandemic and the efficacy of these actions, including partial or complete shut downs, travel restrictions, and shelter-in-place orders among other actions; the effectiveness and distribution of COVID-19 vaccines; the ability of the global population to access such vaccines; impacts on customer demand, impacts on the Company's supply chain including the impact of higher shipping-related charges as a result of port slowdowns or congestion, and its ability to attract talent and keep operating locations open.

The Company has evaluated subsequent events through the date the unaudited condensed consolidated financial statements covered by this quarterly report were issued.

2. Segment Information

The following table presents a summary of the Company's reportable segment financial information from continuing operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net sales:
Automotive	$	3,204,534	$	2,960,379	$	9,353,998	$	8,038,863
Industrial	1,614,315		1,409,707		4,713,303		4,246,976
Total net sales	$	4,818,849	$	4,370,086	$	14,067,301	$	12,285,839
Segment profit:
Automotive	$	281,150	$	266,124	$	807,586	$	627,608
Industrial	165,754		125,620		441,459		348,481
Total segment profit	446,904		391,744		1,249,045		976,089
Interest expense, net	(14,167)		(25,221)		(47,853)		(69,965)
Intangible asset amortization	(25,311)		(24,223)		(78,239)		(70,219)
Corporate expense	(47,389)		(33,379)		(130,029)		(117,053)
Other unallocated costs (1)	(61,063)		(11,256)		(138,484)		(565,030)
Income before income taxes from continuing operations	$	298,974	$	297,665	$	854,440	$	153,822

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Other unallocated costs:
Loss on software disposal (2)	$	(61,063)	$	—	$	(61,063)	$	—
Product liability damages award (3)	—		—		(77,421)		—
Goodwill impairment charge (4)	—		—		—		(506,721)
Restructuring costs (5)	—		(10,968)		—		(39,009)
Realized currency loss (6)	—		—		—		(11,356)
Gain on insurance proceeds related to SPR Fire (7)	—		—		—		13,448
Transaction and other costs (8)	—		(288)		—		(21,392)
Total other unallocated costs	$	(61,063)	$	(11,256)	$	(138,484)	$	(565,030)

(2)Adjustment 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. Refer to the property, plant and equipment footnote to the condensed consolidated financial statements for more information.

(3)Adjustment reflects damages reinstated by the Washington Supreme Court order on July 8, 2021 in connection with a 2017 automotive product liability claim. Refer to the commitments and contingencies footnote to the condensed consolidated financial statements for more information.

(4)Adjustment reflects the 2020 goodwill impairment charge related to the Company's European reporting unit.

(5)Adjustment reflects restructuring costs related to the execution of certain restructuring actions across the Company's subsidiaries primarily targeted at simplifying the organizational structures and distribution networks implemented by the Company in October 2019 (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.

(6)Adjustment reflects realized currency losses related to divestitures.

(7)Adjustment reflects insurance recoveries in excess of losses incurred on inventory, property, plant and equipment and other fire-related costs related to the S.P. Richards Headquarters and Distribution Center.

(8)Adjustment reflects $8,490 of incremental costs associated with COVID-19 for the nine months ended September 30, 2020 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.

Net sales are disaggregated by geographical region for each of the Company’s reportable segments, as the Company deems 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:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
North America:
Automotive	$	2,100,250	$	1,934,503	$	6,039,617	$	5,381,566
Industrial	1,493,618		1,295,717		4,362,792		3,937,640
Total North America	$	3,593,868	$	3,230,220	$	10,402,409	$	9,319,206
Australasia:
Automotive	$	374,167	$	355,874	$	1,130,744	$	911,595
Industrial	120,697		113,990		350,511		309,336
Total Australasia	$	494,864	$	469,864	$	1,481,255	$	1,220,931
Europe – Automotive	$	730,117	$	670,002	$	2,183,637	$	1,745,702
Total net sales	$	4,818,849	$	4,370,086	$	14,067,301	$	12,285,839

3. Accumulated Other Comprehensive Loss

The following tables present the changes in accumulated other comprehensive loss (“AOCL”) by component for the nine months ended September 30:


	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 loss before reclassifications	—		—		(75,738)		(75,738)
Amounts reclassified from accumulated other comprehensive loss	27,931		11,223		—		39,154
Other comprehensive income (loss), net of income taxes	27,931		11,223		(75,738)		(36,584)
Ending balance, September 30, 2021	$	(664,937)	$	(18,784)	$	(389,365)	$	(1,073,086)


	Changes in Accumulated Other Comprehensive Loss by Component
	Pension and Other Post-Retirement Benefits		Cash Flow Hedges		Foreign Currency Translation		Total
Beginning balance, January 1, 2020	$	(704,415)	$	(20,671)	$	(416,222)	$	(1,141,308)
Other comprehensive loss before reclassifications	—		(21,248)		(48,307)		(69,555)
Amounts reclassified from accumulated other comprehensive loss	24,479		8,456		11,356		44,291
Other comprehensive income (loss), net of income taxes	24,479		(12,792)		(36,951)		(25,264)
Ending balance, September 30, 2020	$	(679,936)	$	(33,463)	$	(453,173)	$	(1,166,572)

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 (loss) in the same period that the related pre-tax AOCL reclassifications are recognized.

4. Recent Accounting Pronouncements

Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASU”) to the FASB Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs and has determined that any recently adopted accounting pronouncements did not have a material impact on the Company's condensed consolidated financial statements and all recent accounting pronouncements not yet adopted are not applicable or are expected to have an immaterial impact on the Company's condensed consolidated financial statements.

5. Property, Plant and Equipment

During the third quarter of 2021, the Company reconsidered its approach to an internally developed software project due to a change in management strategy related to advances in alternative technologies. The Company decided to dispose of the software project as of September 30, 2021. As a result, the Company recognized $61,063 of selling, administrative and other expense related to the disposal of this software.

6. Employee Benefit Plans

Net periodic benefit income from the Company's pension plans included the following components:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Service cost	$	3,043	$	3,012	$	9,185	$	8,919
Interest cost	17,915		20,942		53,783		62,732
Expected return on plan assets	(38,755)		(38,550)		(116,345)		(115,483)
Amortization of prior service cost	172		173		516		519
Amortization of actuarial loss	12,465		11,130		37,430		33,340
Net periodic benefit income	$	(5,160)	$	(3,293)	$	(15,431)	$	(9,973)

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

7. Guarantees

The Company guarantees the borrowings of certain independently controlled automotive parts stores and businesses (“independents”) and certain other affiliates in which the Company has a noncontrolling equity ownership interest (“affiliates”). Presently, the independents are generally consolidated by unaffiliated enterprises that have controlling financial interests through ownership of a majority voting interest in the independents. The Company has no voting interest or equity conversion rights in any of the independents. The Company does not control the independents or the affiliates but receives a fee for the guarantees. The Company has concluded that the independents are variable interest entities, but that the Company is not the primary beneficiary. Specifically, the equity holders of the independents have the power to direct the activities that most significantly impact the entities’ economic performance including, but not limited to, decisions about hiring and terminating personnel, local marketing and promotional initiatives, pricing and selling activities, credit decisions, monitoring and maintaining appropriate inventories, and store hours. Separately, the Company concluded that the affiliates are not variable interest entities. The Company’s maximum exposure to loss as a result of its involvement with these independents and affiliates is generally equal to the total borrowings subject to the Company’s guarantees. While such borrowings of the independents and affiliates are outstanding, the Company is required to maintain compliance with certain covenants. At September 30, 2021, the Company was in compliance with all such covenants.

As of September 30, 2021, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately $895,636. These loans generally mature over periods from one to six years. The Company regularly monitors the performance of these loans and the ongoing operating results, financial condition and ratings from credit rating agencies of the independents and affiliates that participate in the guarantee programs. In the event that the Company is required to make payments in connection with these guarantees, the Company would obtain and liquidate certain collateral pledged by the independents or affiliates (e.g., accounts receivable and inventory) to recover all or a substantial portion of the amounts paid under the guarantees. The Company recognizes a liability equal to current expected credit losses over the lives of the loans in the guaranteed loan portfolio, based on a consideration of historical experience, current conditions, the nature and expected value of any collateral, and reasonable and supportable forecasts. To date, the Company has 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 September 30, 2021, 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.

As of September 30, 2021, the Company has recognized certain assets and liabilities amounting to $80,000 each for the guarantees related to the independents’ and affiliates’ borrowings. These assets and liabilities are included in other assets and other long-term liabilities in the condensed consolidated balance sheets. The liabilities relate to the Company's noncontingent obligation to stand ready to perform under the guarantee programs and they are distinct from the Company's current expected credit loss reserve.

8. Debt

On September 30, 2021, the Company entered into the first amendment to the Syndicated Facility Agreement (the "Unsecured Revolving Credit Facility"), dated as of October 30, 2020. The interest rates were amended to reduce the applicable rate by 12.5 basis points (resulting in a rate of LIBOR + 112.5 basis points) and the LIBOR floor from 0.5% to 0.0%. The amendment also extended the maturity by one year to September 30, 2026.

9. Accounts Receivable Sales Agreement

The Company has an accounts receivable sales agreement (the “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 the Company intends to renew.

As part of the A/R Sales Agreement, the Company continuously sells designated pools of receivables as they are originated by it and certain U.S. subsidiaries to a separate bankruptcy-remote special purpose entity (“SPE”). The assets of the SPE would be first available to satisfy the creditor claims of the unaffiliated financial institution. The Company controls and therefore consolidates the SPE in its condensed 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. The Company accounts for transactions with the unaffiliated financial institution as sales of financial assets, with the associated receivables derecognized from the Company's condensed 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 September 30, 2021 and December 31, 2020 is approximately $983,000 and $771,000, respectively.

The Company continues to be involved with the receivables transferred by the SPE to the unaffiliated financial institution by providing collection services. As cash is collected on sold receivables, the SPE continuously transfers ownership and control of new qualifying receivables to the unaffiliated financial institution so that the total principal amount outstanding of receivables sold is approximately $800,000 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 $800,000 as of September 30, 2021 and December 31, 2020, respectively.

The following table summarizes the activity under the A/R Sales Agreement for the following periods:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Receivables sold to the financial institution and derecognized	$	1,884,023	$	1,279,420	$	5,700,895	$	2,181,746
Cash collected on sold receivables	$	1,884,028	$	1,279,430	$	5,700,896	$	1,681,732

Upon entry into the A/R Sales Agreement, the Company received an initial benefit from cash from operations of approximately $800,000 in the year ended December 31, 2020. Continuous cash activity related to the A/R Sales Agreement is reflected in cash from operating activities in the condensed consolidated statement of cash flows. The SPE incurs fees due to the unaffiliated financial institution related to the accounts receivable sales transactions. Those fees, which are immaterial, are recorded within other non-operating (income) expense in the condensed consolidated statements of income (loss). 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 September 30, 2021 and December 31, 2020 is not material. The servicing liability related to the Company's collection services also is not material, given the high quality of the customers underlying the receivables and the anticipated short collection period.

10. Fair Value of Financial Instruments

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

As of September 30, 2021 the fair value of the Company's senior unsecured notes was approximately $2,524,914, 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. Refer to the derivatives and hedging footnote for further information.

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 condensed 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.

11. Derivatives and Hedging

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

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

Cash Flow Hedges

In 2020, the Company terminated its interest rate swaps and settled the outstanding balances through cash payments totaling $41,000. The remaining amount in AOCL is being amortized to interest expense on a straight-line basis over the remaining life of the previously hedged instrument.

Net Investment Hedges

The Company has designated certain derivative instruments and a portion of its foreign currency denominated debt, a non-derivative financial instrument, as hedges of the foreign currency exchange rate exposure of the Company's Euro-denominated net investment in a European subsidiary. The Company applies 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.

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:


		September 30, 2021				December 31, 2020
Instrument	Balance Sheet Location	Notional		Balance		Notional		Balance
Net investment hedges:
Forward contracts	Prepaid expenses and other current assets	$	925,810	$	59,397	$	800,000	$	7,668
Forward contracts	Other current liabilities	$	235,180	$	6,306	$	360,990	$	19,442
Foreign currency debt	Long-term debt	€	700,000	$	811,790	€	700,000	$	861,070

The tables below presents gains and losses related to designated cash flow hedges and net investment hedges:


	Gain (Loss) Recognized in AOCL Before Reclassifications				Gain Recognized in Interest Expense For Excluded Components
	2021		2020		2021		2020
Three Months Ended September 30,
Cash flow hedges:
Interest rate contracts	$	—	$	(277)	$	—	$	—
Net investment hedges:
Forward contracts	20,958		(49,660)		6,574		6,574
Foreign currency debt	21,000		(35,140)		—		—
Total	$	41,958	$	(85,077)	$	6,574	$	6,574


	Gain (Loss) Recognized in AOCL Before Reclassifications				Gain Recognized in Interest Expense For Excluded Components
	2021		2020		2021		2020
Nine Months Ended September 30,
Cash flow hedges:
Interest rate contracts	$	—	$	(29,107)	$	—	$	—
Net investment hedges:
Forward contracts	45,143		(33,959)		19,722		20,572
Foreign currency debt	49,280		(38,080)		—		—
Total	$	94,423	$	(101,146)	$	19,722	$	20,572

12. Commitments and Contingencies

Legal Matters

As more fully discussed in the Company's notes to the consolidated financial statements in its 2020 Annual Report on Form 10-K, a jury awarded damages in 2017 against the Company in a litigated automotive product liability dispute. 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 $77,100 against the Company. The Company recorded an adjustment to increase selling, general and other expenses by approximately $77,421, inclusive of statutory interest and insurance coverage, in the condensed consolidated statements of income (loss) for the nine months ended September 30, 2021. The damage award and statutory interest was fully paid as of September 30, 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 the Company reasonably believes will exceed an applied threshold not to exceed $1,000. Applying this threshold, there are no environmental matters to disclose for this period.

13. Acquisitions, Divestitures and Discontinued Operations

Acquisitions

The Company acquired several businesses for approximately $142,669 and $77,393, net of cash acquired, during the nine months ended September 30, 2021 and September 30, 2020, respectively. The measurement period is still open for certain businesses acquired in prior periods, but there have been no significant measurement period adjustments during the three and nine months ended September 30, 2021.

Divestitures

The Company received cash proceeds from divestitures of businesses totaling $16,687 and $382,737 for the nine months ended September 30, 2021 and September 30, 2020, respectively.

Discontinued Operations

Business Products Group

During 2020, the Company completed the divestiture of its Business Products Group as part of its long-term strategic initiative to streamline its operations and optimize its portfolio so that it can drive shareholder value by focusing on its global Automotive and Industrial Parts Groups. This divestiture represented a single plan to exit the Business Products Group segment and was considered a strategic shift that had a major effect on the Company’s operations and financial results. Therefore, the results of operations, financial position and cash flows for the Business Products Group are reported as discontinued operations for all prior periods presented.

The Company retains an investment in S.P. Richard's (“SPR”), a business that previously belonged to the Business Products Group, with a carrying value of $69,700, which is included within other assets on the condensed consolidated balance sheets, as of September 30, 2021. The Company maintains an allowance equal to the current expected credit loss based on a consideration of historical experience, current market conditions and reasonable and supportable forecasts related to this investment and other related assets of $17,000.

The Company also remains involved with SPR for a limited period of time through various lease, sublease, freight distribution and transition service agreements. The Company has concluded that SPR is a variable interest entity, but the Company is not the primary beneficiary and therefore the entity is not consolidated. Among other things, the Company does not have any voting rights and does not have the power to direct the activities that most significantly affect SPR's economic performance. For a limited period of time as SPR completes its transition away from the Company’s shared services platform, the Company continues to pay certain payables on SPR’s behalf and at SPR’s direction with full reimbursement from SPR under the terms of a transition services agreement.

The Company’s results of operations for discontinued operations were:


	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Net sales	$	—	$	846,944
Cost of goods sold	—		632,007
Gross profit	—		214,937
Operating expenses	—		179,461
Loss on disposal	3,165		223,483
Loss before income taxes	(3,165)		(188,007)
Income tax expense	2,222		4,062
Net loss from discontinued operations	$	(5,387)	$	(192,069)

14. Income Taxes

The Company's effective income tax rate was 23.5% for the three months ended September 30, 2021, compared to 21.8% for the same three month period in 2020. The effective income tax rate was 24.8% for the nine months ended September 30, 2021, compared to 105.4% for the same period in 2020.

For the three months ended September 30, 2021, the rate increase is primarily due to income mix shifts and statute related adjustments. For the nine months ended September 30, 2021, the rate decrease is primarily due to the non-deductible goodwill impairment charge that occurred in 2020. In addition, during the second quarter of 2021, the United Kingdom enacted legislation raising its corporate tax rate from 19% to 25% effective April 2023. Accordingly, the Company remeasured its deferred tax assets and liabilities as of June 30, 2021.

15. Earnings Per Share

As more fully discussed in the share-based compensation footnote of the Company’s notes to the consolidated financial statements in its 2020 Annual Report on Form 10-K, the Company maintains various long-term incentive plans, which provide for the granting of stock options, stock appreciation rights (“SARs”), restricted stock, restricted

stock units (“RSUs”), performance awards, dividend equivalents and other share-based awards. Certain outstanding options to purchase shares of common stock are not included in the diluted earnings per share calculation. These options are excluded because their inclusion would have been anti-dilutive.

The following table summarizes anti-dilutive shares outstanding:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Anti-dilutive shares outstanding	—	473	158	2,214

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