Item 1. Financial Statements

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)						September 30, 2022						December 31, 2021
Assets
Current assets:
Cash and cash equivalents						$	629,198					$	714,701
Trade accounts receivable, less allowance for doubtful accounts (2022 – $47,262; 2021 – $44,425)						2,215,032						1,797,955
Merchandise inventories, net						4,300,709						3,889,919
Prepaid expenses and other current assets						1,678,259						1,353,847
Total current assets						8,823,198						7,756,422
Goodwill						2,460,911						1,915,307
Other intangible assets, less accumulated amortization						1,748,274						1,406,401
Property, plant and equipment, less accumulated depreciation (2022 – $1,369,770; 2021 – $1,339,706)						1,241,567						1,234,399
Operating lease assets						1,073,858						1,053,689
Other assets						1,029,272						985,884
Total assets						$	16,377,080					$	14,352,102
Liabilities and equity
Current liabilities:
Trade accounts payable						$	5,531,253					$	4,804,939
Current portion of debt						1,629						—
Dividends payable						126,434						115,876
Other current liabilities						1,835,803						1,660,768
Total current liabilities						7,495,119						6,581,583
Long-term debt						3,231,668						2,409,363
Operating lease liabilities						809,495						789,175
Pension and other post–retirement benefit liabilities						262,820						265,134
Deferred tax liabilities						398,797						280,778
Other long-term liabilities						500,989						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 – 140,962,009 shares; 2021 – 142,180,683 shares						140,962						142,181
Additional paid-in capital						132,240						119,975
Accumulated other comprehensive loss						(1,074,316)						(857,739)
Retained earnings						4,465,565						4,086,325
Total parent equity						3,664,451						3,490,742
Noncontrolling interests in subsidiaries						13,741						12,548
Total equity						3,678,192						3,503,290
Total liabilities and equity						$	16,377,080					$	14,352,102

See accompanying notes to condensed consolidated financial statements.

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

						Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands, except per share data)						2022						2021						2022						2021
Net sales						$	5,675,274					$	4,818,849					$	16,572,323					$	14,067,301
Cost of goods sold						3,695,607						3,108,082						10,805,910						9,126,614
Gross profit						1,979,667						1,710,767						5,766,413						4,940,687
Operating expenses:
Selling, administrative and other expenses						1,458,418						1,338,768						4,226,412						3,883,241
Depreciation and amortization						86,563						72,121						259,822						218,377
Provision for doubtful accounts						6,146						4,284						13,539						14,230
Total operating expenses						1,551,127						1,415,173						4,499,773						4,115,848
Non-operating expense (income):
Interest expense, net						18,220						14,167						58,318						47,853
Other						(7,616)						(17,547)						(26,897)						(77,454)
Total non-operating expense (income)						10,604						(3,380)						31,421						(29,601)
Income before income taxes						417,936						298,974						1,235,219						854,440
Income taxes						105,578						70,389						304,494						211,649
Net income						$	312,358					$	228,585					$	930,725					$	642,791
Dividends declared per common share						$	0.8950					$	0.8150					$	2.6850					$	2.4450
Basic earnings per share						$	2.21					$	1.60					$	6.57					$	4.47
Diluted earnings per share						$	2.20					$	1.59					$	6.53					$	4.44
Weighted average common shares outstanding						141,336						142,871						141,609						143,826
Dilutive effect of stock options and non-vested restricted stock awards						773						718						819						796
Weighted average common shares outstanding – assuming dilution						142,109						143,589						142,428						144,622

See accompanying notes to condensed consolidated financial statements.

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

						Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands)						2022						2021						2022						2021
Net income						$	312,358					$	228,585					$	930,725					$	642,791
Other comprehensive loss, net of income taxes:
Foreign currency translation adjustments, net of income taxes in 2022 — $33,843 and $73,892; 2021 — $11,328 and $25,494, respectively						(131,811)						(82,574)						(248,757)						(75,738)
Cash flow hedge adjustments, net of income taxes in 2022 — $1,384 and $4,151 ; 2021 — $1,384 and $4,151, respectively						3,741						3,741						11,223						11,223
Pension and postretirement benefit adjustments, net of income taxes in 2022 — $2,576 and $7,736; 2021 — $3,425 and $10,280, respectively						6,982						9,301						20,957						27,931
Other comprehensive loss, net of income taxes						(121,088)						(69,532)						(216,577)						(36,584)
Comprehensive income						$	191,270					$	159,053					$	714,148					$	606,207

See accompanying notes to condensed consolidated financial statements.

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

						Three Months Ended September 30, 2022
(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, 2022						141,280,841						$	141,281					$	123,388					$	(953,228)					$	4,329,115					$	3,640,556					$	13,007					$	3,653,563
Net income						—						—						—						—						312,358						312,358						—						312,358
Other comprehensive loss, net of tax						—						—						—						(121,088)						—						(121,088)						—						(121,088)
Cash dividend declared, $0.895 per share						—						—						—						—						(126,434)						(126,434)						—						(126,434)
Share-based awards exercised, including tax benefit of $731						14,619						15						(1,039)						—						—						(1,024)						—						(1,024)
Share-based compensation						—						—						9,891						—						—						9,891						—						9,891
Purchase of stock						(333,451)						(334)						—						—						(49,474)						(49,808)						—						(49,808)
Noncontrolling interest activities						—						—						—						—						—						—						734						734
September 30, 2022						140,962,009						$	140,962					$	132,240					$	(1,074,316)					$	4,465,565					$	3,664,451					$	13,741					$	3,678,192

						Nine Months Ended September 30, 2022
(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, 2022						142,180,683						$	142,181					$	119,975					$	(857,739)					$	4,086,325					$	3,490,742					$	12,548					$	3,503,290
Net income						—						—						—						—						930,725						930,725						—						930,725
Other comprehensive loss, net of tax						—						—						—						(216,577)						—						(216,577)						—						(216,577)
Cash dividend declared, $2.685 per share						—						—						—						—						(380,041)						(380,041)						—						(380,041)
Share-based awards exercised, including tax benefit of $3,868						63,877						64						(15,508)						—						—						(15,444)						—						(15,444)
Share-based compensation						—						—						27,773						—						—						27,773						—						27,773
Purchase of stock						(1,282,551)						(1,283)						—						—						(171,444)						(172,727)						—						(172,727)
Noncontrolling interest activities						—						—						—						—						—						—						1,193						1,193
September 30, 2022						140,962,009						$	140,962					$	132,240					$	(1,074,316)					$	4,465,565					$	3,664,451					$	13,741					$	3,678,192

						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, $0.815 per share						—						—						—						—						(116,486)						(116,486)						—						(116,486)
Share-based awards exercised, including tax benefit of $40						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, $2.445 per share						—						—						—						—						(351,606)						(351,606)						—						(351,606)
Share-based awards exercised, including tax benefit of $6,667						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

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

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)						2022						2021
Operating activities:
Net income						$	930,725					$	642,791
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization						259,822						218,377
Loss on software disposal						—						61,063
Share-based compensation						27,773						20,841
Gain on sale of real estate						(102,803)						—
Intangible asset impairment						17,461						—
Excess tax benefits from share-based compensation						(3,868)						(6,667)
Changes in operating assets and liabilities						115,481						71,791
Net cash provided by operating activities						1,244,591						1,008,196
Investing activities:
Purchases of property, plant and equipment						(243,998)						(138,206)
Proceeds from sale of property, plant and equipment						141,228						24,184
Proceeds from divestitures of businesses						32,620						16,687
Acquisitions of businesses and other investing activities						(1,586,812)						(142,567)
Net cash used in investing activities						(1,656,962)						(239,902)
Financing activities:
Proceeds from debt						4,547,511						242,332
Payments on debt						(3,586,954)						(403,126)
Share-based awards exercised						(15,444)						(19,398)
Dividends paid						(369,483)						(349,293)
Purchases of stock						(172,727)						(283,886)
Other financing activities						(16,869)						(5,353)
Net cash provided by (used in) financing activities						386,034						(818,724)
Effect of exchange rate changes on cash and cash equivalents						(59,166)						(20,639)
Net decrease in cash and cash equivalents						(85,503)						(71,069)
Cash and cash equivalents at beginning of period						714,701						990,166
Cash and cash equivalents at end of period						$	629,198					$	919,097

See accompanying notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General

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. 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, 2021. Accordingly, the unaudited condensed consolidated financial statements and related disclosures herein should be read in conjunction with our 2021 Annual Report on Form 10-K. Significant accounting policies and other items disclosed in our Annual Report have been omitted from this report because they have not changed.

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, we make estimates and assumptions in our 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 our financial results for the interim periods have been made. These adjustments are of a normal recurring nature. We have reclassified certain prior period amounts to conform to the current period presentation. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of results for the year ended December 31, 2022. We have evaluated subsequent events through the date the unaudited condensed consolidated financial statements covered by this quarterly report were issued.

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”). We consider the applicability and impact of all ASUs and have determined that any recently adopted accounting pronouncements did not have a material impact on our condensed consolidated financial statements.

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 guidance is effective in the first quarter of 2023, except for the rollforward, which is effective in the first quarter of 2024. Early adoption is permitted. We are evaluating the adoption of this new guidance.

Debt

1.750% and 2.750% Senior Notes Offering

On January 6, 2022, we issued $500 million of unsecured 1.750% Senior Notes due 2025. Simultaneously, we issued $500 million of unsecured 2.750% 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.

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 and cash flows associated with changes in these rates. Derivative instruments are recognized in the condensed 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.

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

												September 30, 2022												December 31, 2021
Instrument						Balance Sheet Classification						Notional						Balance						Notional						Balance
Net investment hedges:
Forward contracts						Prepaid expenses and other current assets						$	1,513,750					$	261,813					$	925,810					$	73,819
Forward contract						Other current liabilities						$	—					$	—					$	235,180					$	2,935
Foreign currency debt						Long-term debt						€	700,000					$	686,980					€	700,000					$	792,820

The tables below present gains related to designated net investment hedges:

						Gain Recognized in AOCL before Reclassifications												Gain Recognized in Interest Expense for Excluded Components
(in thousands)						2022						2021						2022						2021
Three months ended September 30,
Forward contracts						$	81,454					$	20,958					$	7,965					$	6,574
Foreign currency debt						43,890						21,000						—						—
Total						$	125,344					$	41,958					$	7,965					$	6,574

						Gain Recognized in AOCL before Reclassifications												Gain Recognized in Interest Expense for Excluded Components
(in thousands)						2022						2021						2022						2021
Nine months ended September 30,
Forward contracts						$	167,834					$	45,143					$	23,095					$	19,722
Foreign currency debt						105,840						49,280						—						—
Total						$	273,674					$	94,423					$	23,095					$	19,722

Fair Value of Financial Instruments

As of September 30, 2022 the fair value of our senior unsecured notes was approximately $2.8 billion, 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.

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”). While such borrowings of the independents and affiliates are outstanding, we are required to maintain compliance with certain covenants. At September 30, 2022, we were in compliance with all such covenants.

As of September 30, 2022, the total borrowings of the independents and affiliates subject to guarantee by us were approximately $908 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 not had 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, 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.

As of September 30, 2022, we have recognized certain assets and liabilities amounting to $74 million 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 our noncontingent obligation to stand ready to perform under the guarantee programs and they are distinct from our current expected credit loss reserve.

Earnings Per Share

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. Certain outstanding options are not included in the diluted earnings per share calculation 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,
						2022						2021						2022						2021
Anti-dilutive shares outstanding						360						—						1,142						158

2. Segment Information

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

						Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands)						2022						2021						2022						2021
Net sales:
Automotive						$	3,490,462					$	3,204,534					$	10,233,577					$	9,353,998
Industrial						2,184,812						1,614,315						6,338,746						4,713,303
Total net sales						$	5,675,274					$	4,818,849					$	16,572,323					$	14,067,301
Segment profit:
Automotive						$	309,349					$	281,150					$	896,475					$	807,586
Industrial						242,505						165,754						656,330						441,459
Total segment profit						551,854						446,904						1,552,805						1,249,045
Interest expense, net						(18,220)						(14,167)						(58,318)						(47,853)
Intangible asset amortization						(39,416)						(25,311)						(118,740)						(78,239)
Corporate expense						(72,820)						(47,389)						(187,883)						(130,029)
Other unallocated (expenses) income (1)						(3,462)						(61,063)						47,355						(138,484)
Income before income taxes						$	417,936					$	298,974					$	1,235,219					$	854,440

(1) The following table presents a summary of the other unallocated income and expenses:

						Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands)						2022						2021						2022						2021
Other unallocated (expenses) income:
Gain on sale of real estate (2)						$	—					$	—					$	102,803					$	—
Gain on insurance proceeds (3)						—						—						1,507						—
Product liability damages award (4)						—						—						—						(77,421)
Loss on software disposal (5)						—						(61,063)						—						(61,063)
Transaction and other costs (6)						(3,462)						—						(56,955)						—
Total other unallocated (expenses) income						$	(3,462)					$	(61,063)					$	47,355					$	(138,484)

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

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

(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 primarily reflects costs associated with the January 3, 2022 acquisition and integration of KDG. These costs also include a $17 million impairment charge 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. Refer to the acquisition footnote for more information regarding the acquisition.

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:

						Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands)						2022						2021						2022						2021
North America:
Automotive						$	2,333,390					$	2,100,250					$	6,766,271					$	6,039,617
Industrial						2,064,569						1,493,618						5,996,299						4,362,792
Total North America						$	4,397,959					$	3,593,868					$	12,762,570					$	10,402,409
Australasia:
Automotive						$	404,708					$	374,167					$	1,182,557					$	1,130,744
Industrial						120,243						120,697						342,447						350,511
Total Australasia						$	524,951					$	494,864					$	1,525,004					$	1,481,255
Europe – Automotive						$	752,364					$	730,117					$	2,284,749					$	2,183,637
Total net sales						$	5,675,274					$	4,818,849					$	16,572,323					$	14,067,301

3. Accounts Receivable Sales Agreement

Under our accounts receivable sales agreement (the "A/R Sales Agreement"), we continuously sell designated pools of receivables as they are originated by us and certain U.S. subsidiaries to a separate bankruptcy-remote special purpose entity (“SPE”). The A/R Sales Agreement has a three year term, which we intend to renew.

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 billion at any point in time (which is the maximum amount allowed under the agreement as amended on January 3, 2022).

The total principal amount outstanding of receivables sold is approximately $1.0 billion and $800 million as of September 30, 2022 and December 31, 2021, respectively. The amount of receivables pledged as collateral as of September 30, 2022 and December 31, 2021 is approximately $1.1 billion and $973 million, respectively.

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

						Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands)						2022						2021						2022						2021
Receivables sold to the financial institution and derecognized						$	2,281,934					$	1,884,023					$	6,760,652					$	5,700,895
Cash collected on sold receivables						$	2,281,926					$	1,884,028					$	6,560,655					$	5,700,896

Continuous cash activity related to the A/R Sales Agreement is reflected in net cash provided by operating activities in the condensed consolidated statements 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 expense (income) in the condensed 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 September 30, 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.

4. Employee Benefit Plans

Net periodic benefit income from our pension plans included the following components for our pension benefits:

						Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands)						2022						2021						2022						2021
Service cost						$	2,532					$	3,043					$	7,734					$	9,185
Interest cost						18,804						17,915						56,520						53,783
Expected return on plan assets						(37,569)						(38,755)						(112,887)						(116,345)
Amortization of prior service cost						172						172						516						516
Amortization of actuarial loss						9,264						12,465						27,818						37,430
Net periodic benefit income						$	(6,797)					$	(5,160)					$	(20,299)					$	(15,431)

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

5. Acquisitions

We acquired several businesses, including KDG, for approximately $1.6 billion, net of cash acquired, during the nine months ended September 30, 2022. For the nine months ended September 30, 2021, acquisitions totaled $143 million, net of cash acquired.

During the nine months ended September 30, 2022, we recognized approximately $408 million and $818 million of revenue, net of store closures, related to our Automotive and Industrial acquisitions, respectively. The results of operations for acquired businesses are included in our condensed consolidated statements of income beginning on their respective acquisition dates.

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. Excluding KDG, for the nine months ended September 30, 2022 and September 30, 2021, we recorded approximately $200 million and $97 million of goodwill and other intangible assets associated with acquisitions. Other intangible assets acquired consisted primarily of customer relationships with a weighted average amortization lives of 20 years.

KDG Acquisition

On January 3, 2022, we, through our 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. KDG, which is headquartered in Bloomfield, Connecticut, is a power transmission, automation and fluid power industrial distributor and solutions provider with operations throughout the United States, providing electro-mechanical products, bearings, power transmission, motion control and electrical and fluid power components to MRO and OEM customers. KDG has approximately 1,700 employees with approximately 220 locations across the United States and Puerto Rico. As of January 3, 2022, KDG had estimated annual revenues of approximately $1 billion.

The net cash consideration transferred of approximately $1.3 billion is net of the estimated cash acquired of approximately $30 million.

The KDG acquisition was financed using a combination of borrowings 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 preliminary, estimated fair values of the assets acquired and liabilities assumed at the acquisition date as well as adjustments made to the acquisition accounting during the nine months ended September 30, 2022 (referred to as the "measurement period adjustments"). The measurement period adjustments primarily resulted from revisions to the valuation of certain tangible and intangible assets. The fair value of the acquired identifiable intangible assets is provisional pending completion of the final valuations for these assets. We are in the process of analyzing the estimated values of all assets acquired and liabilities assumed as of the acquisition date, including, among other things, obtaining valuations of certain tangible and intangible assets, as well as the fair value of certain contracts and the determination of certain tax balances. Additional adjustments may be made to the acquisition accounting during the measurement period primarily related to intangible asset revaluations, tax accounting and leases.

						As of January 3, 2022
(in thousands)						Initial Balance			Measurement Period Adjustments			As Adjusted
Trade accounts receivable						$	156,000		$	—		$	156,000
Merchandise inventories						166,000			(1,000)			165,000
Prepaid expenses and other current assets						39,000			(2,000)			37,000
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			4,000			596,000
Total assets acquired						1,603,000			(12,000)			1,591,000
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			(10,000)			111,000
Other long-term liabilities						39,000			(4,000)			35,000
Total liabilities assumed						294,000			(15,000)			279,000
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.

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

For the nine months ended September 30, 2022, approximately $5 million of inventory amortization step-up cost related to this acquisition was included in cost of goods sold. Further, $49 million of transaction and other one-time

costs, inclusive of the impairment charge described below, were included in selling, administrative, and other expenses in the condensed consolidated statements of income.

In June 2022, we incurred 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.

6. Accumulated Other Comprehensive Loss

The following tables present the changes in AOCL by component for the nine months ended September 30:

						Changes in Accumulated Other Comprehensive Loss by Component
(in thousands)						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						—						—						(248,757)						(248,757)
Amounts reclassified from accumulated other comprehensive loss						20,957						11,223						—						32,180
Other comprehensive income (loss), net of income taxes						20,957						11,223						(248,757)						(216,577)
Ending balance, September 30, 2022						$	(442,270)					$	(3,819)					$	(628,227)					$	(1,074,316)

						Changes in Accumulated Other Comprehensive Loss by Component
(in thousands)						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						—						—						(75,738)						(75,738)
Amounts reclassified from accumulated other comprehensive loss						27,931						11,223						—						39,154
Other comprehensive income, 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)

The AOCL components related to the pension benefits are included in the computation of net periodic benefit income in the employee benefit plans 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.

7. Commitments and Contingencies

Legal Matters

From time to time, we are involved in various claims and legal actions that arise in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity and capital resources. There have been no significant developments to the information presented in our 2021 Annual Report on Form 10-K with respect to litigation or commitments and contingencies.

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.