What changed in this filing

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Item 1. Financial Statements

2020-10-22 compared with 2020-07-30 · 151 added, 146 removed, 509 unchanged (37% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data) June 30, 2020 December 31, 2019

(in thousands, except share and per share data) September 30, 2020 December 31, 2019

Current assets:

63 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands, except per share data) 2020 2019 2020 2019

14 unchanged sentences

1,225,854 1,242,558 4,026,708 3,611,812

Non-operating (income) expenses:

Non-operating expenses (income):

Interest expense

1 unchanged sentence

( 21,241 ) ( 47,655 ) ( 46,017 ) ( 62,737 )

Total non-operating (income) expenses

13,521 5,012 21,654 32,034

(Loss) income before income taxes

( 304,436 ) 282,199 ( 143,843 ) 474,214

59,065 72,680 97,312 119,011

Net (loss) income from continuing operations

Total non-operating expenses (income) 4,547 ( 21,204 ) 26,201 10,830

Income before income taxes 297,665 283,879 153,822 758,093

64,747 71,623 162,059 190,634

Net income (loss) from continuing operations 232,918 212,256 ( 8,237 ) 567,459

Net (loss) income from discontinued operations ( 5,387 ) 15,231 ( 192,069 ) 44,708

Net (loss) income $ ( 564,372 ) $ 224,430 $ ( 427,837 ) $ 384,680

Net income (loss) $ 227,531 $ 227,487 $ ( 200,306 ) $ 612,167

Dividends declared per common share

$ 0.7900 $ 0.7625 $ 2.3700 $ 2.2875

Basic (loss) earnings per share from continuing operations $ ( 2.52 ) $ 1.43 $ ( 1.67 ) $ 2.43

Diluted (loss) earnings per share from continuing operations $ ( 2.52 ) $ 1.43 $ ( 1.67 ) $ 2.42

Basic earnings (loss) per share:

Continuing operations $ 1.61 $ 1.46 $ ( 0.06 ) $ 3.89

Discontinued operations ( 0.03 ) 0.10 ( 1.33 ) 0.31

Basic earnings (loss) per share $ 1.58 $ 1.56 $ ( 1.39 ) $ 4.20

Diluted earnings (loss) per share:

Continuing operations $ 1.61 $ 1.45 $ ( 0.06 ) $ 3.87

Discontinued operations ( 0.04 ) 0.11 ( 1.33 ) 0.31

Diluted earnings (loss) per share $ 1.57 $ 1.56 $ ( 1.39 ) $ 4.18

Weighted average common shares outstanding

1 unchanged sentence

Dilutive effect of stock options and non-vested restricted stock awards

762 617 — 654

Weighted average common shares outstanding – assuming dilution

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands, except per share data) 2020 2019 2020 2019

Net (loss) income

$ ( 564,372 ) $ 224,430 $ ( 427,837 ) $ 384,680

Net income (loss) $ 227,531 $ 227,487 $ ( 200,306 ) $ 612,167

Other comprehensive income (loss), net of income taxes:

10 unchanged sentences

45,800 ( 73,401 ) ( 25,264 ) ( 30,976 )

Comprehensive (loss) income

$ ( 443,415 ) $ 219,238 $ ( 498,901 ) $ 427,105

Comprehensive income (loss) $ 273,331 $ 154,086 $ ( 225,570 ) $ 581,191

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended June 30, 2020

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

April 1, 2020 144,249,343 $ 144,249 $ 103,878 $ ( 1,333,329 ) $ 4,487,904 $ 3,402,702 $ 20,329 $ 3,423,031

Net loss — — — — ( 564,372 ) ( 564,372 ) — ( 564,372 )

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

5 unchanged sentences

Noncontrolling interest activities — — — — — — ( 920 ) ( 920 )

June 30, 2020 144,264,189 $ 144,264 $ 107,819 $ ( 1,212,372 ) $ 3,809,564 $ 2,849,275 $ 21,613 $ 2,870,888

Six Months Ended June 30, 2020

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

11 unchanged sentences

Noncontrolling interest activities — — — — — — ( 100 ) ( 100 )

June 30, 2020 144,264,189 $ 144,264 $ 107,819 $ ( 1,212,372 ) $ 3,809,564 $ 2,849,275 $ 21,613 $ 2,870,888

September 30, 2020 144,289,653 $ 144,290 $ 113,249 $ ( 1,166,572 ) $ 3,923,113 $ 3,014,080 $ 20,693 $ 3,034,773

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

April 1, 2019 146,063,911 $ 146,064 $ 77,424 $ ( 1,189,987 ) $ 4,517,430 $ 3,550,931 $ 21,901 $ 3,572,832

July 1, 2019 146,078,369 $ 146,078 $ 83,949 $ ( 1,195,179 ) $ 4,630,480 $ 3,665,328 $ 22,647 $ 3,687,975

Net income — — — — 227,487 227,487 — 227,487

5 unchanged sentences

Share-based compensation — — 6,739 — — 6,739 — 6,739

Purchase of stock ( 788,207 ) ( 789 ) — — ( 72,263 ) ( 73,052 ) — ( 73,052 )

Noncontrolling interest activities — — — — — — ( 101 ) ( 101 )

June 30, 2019 146,078,369 $ 146,078 $ 83,949 $ ( 1,195,179 ) $ 4,630,480 $ 3,665,328 $ 22,647 $ 3,687,975

Six Months Ended June 30, 2019

September 30, 2019 145,293,115 $ 145,293 $ 90,560 $ ( 1,268,580 ) $ 4,674,918 $ 3,642,191 $ 22,546 $ 3,664,737

Nine Months Ended September 30, 2019

1 unchanged sentence

Net income — — — — 612,167 612,167 — 612,167

Other comprehensive income, net of tax — — — 42,425 — 42,425 — 42,425

Other comprehensive loss, net of tax — — — ( 30,976 ) — ( 30,976 ) — ( 30,976 )

Cash dividend declared, $ 2.2875 per share

3 unchanged sentences

Share-based compensation — — 19,820 — — 19,820 — 19,820

Purchase of stock ( 788,207 ) ( 789 ) — — ( 72,263 ) ( 73,052 ) — ( 73,052 )

Cumulative effect from adoption of ASU 2018-02 (2)

— — — ( 122,526 ) 122,526 — — —

Cumulative effect from adoption of ASU 2016-02, net of tax (2)

— — — — 4,797 4,797 — 4,797

Noncontrolling interest activities — — — — — — 1,006 1,006

June 30, 2019 146,078,369 $ 146,078 $ 83,949 $ ( 1,195,179 ) $ 4,630,480 $ 3,665,328 $ 22,647 $ 3,687,975

September 30, 2019 145,293,115 $ 145,293 $ 90,560 $ ( 1,268,580 ) $ 4,674,918 $ 3,642,191 $ 22,546 $ 3,664,737

(1) The Company adopted Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments, during the first quarter of 2020.

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2020 2019

1 unchanged sentence

Net (loss) income $ ( 200,306 ) $ 612,167

$ ( 427,837 ) $ 384,680

Net (loss) income from discontinued operations ( 192,069 ) 44,708

( 186,682 ) 29,477

Net (loss) income from continuing operations ( 8,237 ) 567,459

1 unchanged sentence

Depreciation and amortization 203,084 186,968

133,987 121,301

Share-based compensation 16,274 17,310

Excess tax benefits from share-based compensation 375 ( 4,054 )

162 ( 3,986 )

Realized currency losses 11,356 27,037

Realized currency losses on divestitures 11,356 30,848

Goodwill impairment charge 506,721 —

Changes in operating assets and liabilities 697,611 ( 120,673 )

499,795 ( 262,997 )

Net cash provided by operating activities from continuing operations

2 unchanged sentences

Purchases of property, plant and equipment ( 105,428 ) ( 176,321 )

( 74,358 ) ( 102,180 )

Proceeds from sale of property, plant and equipment 11,675 10,281

1 unchanged sentence

Acquisitions of businesses and other investing activities ( 59,062 ) ( 636,137 )

( 15,393 ) ( 378,237 )

Net cash provided by (used in) investing activities from continuing operations

2 unchanged sentences

Proceeds from debt 1,888,622 3,928,716

1,885,109 2,973,236

Payments on debt ( 2,466,031 ) ( 3,749,509 )

( 2,082,271 ) ( 2,359,975 )

Share-based awards exercised ( 1,754 ) ( 7,495 )

( 790 ) ( 7,371 )

Dividends paid ( 339,294 ) ( 328,106 )

( 225,327 ) ( 216,724 )

Purchases of stock ( 95,719 ) ( 73,052 )

Other financing activities ( 15,032 ) —

Net cash (used in) provided by financing activities from continuing operations ( 527,355 ) 389,166

Net cash used in financing activities from continuing operations ( 1,029,208 ) ( 229,446 )

Cash flows from discontinued operations:

3 unchanged sentences

Net cash provided by discontinued operations 2,192 61,354

20,537 48,913

Effect of exchange rate changes on cash and cash equivalents ( 6,959 ) ( 6,645 )

( 6,959 ) 2,461

Net increase in cash and cash equivalents 623,131 117,728

706,767 229,004

Cash and cash equivalents at beginning of period 276,992 333,547

276,992 333,547

Cash and cash equivalents at end of period $ 900,123 $ 451,275

$ 983,759 $ 562,551

See accompanying notes to condensed consolidated financial statements.

4 unchanged sentences

GAAP”) for complete financial statements.

During the six months ended June 30, 2020, the Company completed the divestiture of its Business Products Group.

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.

1 unchanged sentence

Net (loss) 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, certain intercompany sales from the Automotive Parts Group are grossed up and recast in continuing operations in each period because those sales will continue with the discontinued operations after the divestiture.

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, 2019.

8 unchanged sentences

The Company has reclassified certain prior period amounts to conform to the current period presentation.

The results of operations for the six months ended June 30, 2020 are not necessarily indicative of results for the entire year.

The Company's operations are concentrated in North America, Europe and Australasia and are vulnerable to the reduced economic activity caused by the COVID-19 outbreak, which was declared a pandemic in March 2020 and led many governments to put in place temporary social distancing and shelter-in-place mandates.

In May and early June, many governments began phased reopenings of their economies.

These phased approaches promote economic activity while adhering to new guidelines and enhanced safety measures.

The results of operations for the nine months ended September 30, 2020 are not necessarily indicative of results for the entire year.

The extent to which the COVID-19 pandemic impacts the Company will depend on numerous factors and future developments that the Company cannot predict, including the severity of the virus;

3 unchanged sentences

and impacts on the Company's supply chain, its ability to keep operating locations open, and on customer demand.

The Company's foreign subsidiaries are benefiting from various forms of government economic assistance including certain temporary subsidies that were received in the second quarter of 2020, which have been classified as a reduction of selling, administrative and other expenses.

If the pandemic persists or worsens, the estimates and assumptions management made as of June 30, 2020 could change in subsequent interim reports and upon final determination at year-end, and it is reasonably possible such changes could be significant.

The Company benefited from various forms of government economic assistance including certain temporary subsidies that were received primarily in the second quarter of 2020, which have been classified as a reduction of selling, administrative and other expenses.

If the pandemic persists or worsens, the estimates and assumptions management made as of September 30, 2020 could change upon final determination at year-end, and it is reasonably possible such changes could be significant.

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

2 unchanged sentences

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

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

15 unchanged sentences

Other unallocated costs (1) ( 11,256 ) 12,413 ( 565,030 ) ( 24,809 )

(Loss) income before income taxes from continuing operations

$ ( 304,436 ) $ 282,199 $ ( 143,843 ) $ 474,214

Income before income taxes from continuing operations $ 297,665 $ 283,879 $ 153,822 $ 758,093

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

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

2 unchanged sentences

Restructuring costs (3) ( 10,968 ) — ( 39,009 ) —

Realized currency loss (4) ( 11,356 ) — ( 11,356 ) ( 27,037 )

Realized currency loss on divestitures (4) — ( 7,664 ) ( 11,356 ) ( 34,701 )

Gain on insurance proceeds related to SPR Fire (5) — — 13,448 —

Gain on equity investment (6) — 38,663 — 38,663

Transaction and other costs (7) ( 288 ) ( 18,586 ) ( 21,392 ) ( 28,771 )

10 unchanged sentences

Refer to the commitments and contingencies footnote.

(6) Adjustment reflects (i) $ 2,481 and $ 8,490 of incremental costs associated with COVID-19 for the three and six months ended June 30, 2020, respectively, and (ii) costs associated with certain divestitures.

(6) Adjustment relates to the gain recognized upon remeasuring the Company's preexisting 35 % equity investment to fair value upon acquiring the remaining equity of Inenco on July 1, 2019.

Refer to the acquisitions, divestitures and discontinued operations footnote.

(7) Adjustment includes $ 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.

For the three and nine months ended September 30, 2019, adjustments also include transaction and other costs related to acquisitions and divestitures.

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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

13 unchanged sentences

Accumulated Other Comprehensive Loss

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

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

8 unchanged sentences

24,479 ( 12,792 ) ( 36,951 ) ( 25,264 )

Ending balance, June 30, 2020 $ ( 688,123 ) $ ( 37,013 ) $ ( 487,236 ) $ ( 1,212,372 )

Ending balance, September 30, 2020 $ ( 679,936 ) $ ( 33,463 ) $ ( 453,173 ) $ ( 1,166,572 )

Changes in Accumulated Other

2 unchanged sentences

Beginning balance, January 1, 2019 $ ( 626,322 ) $ ( 4,631 ) $ ( 484,125 ) $ ( 1,115,078 )

Other comprehensive income (loss) before reclassifications

— ( 10,827 ) 20,936 10,109

Other comprehensive loss before reclassifications — ( 18,494 ) ( 65,026 ) ( 83,520 )

Amounts reclassified from accumulated other comprehensive loss (1)

4 unchanged sentences

( 122,526 ) — — ( 122,526 )

Ending balance, June 30, 2019 $ ( 739,183 ) $ ( 19,844 ) $ ( 436,152 ) $ ( 1,195,179 )

(1) Amount includes realized currency losses of $ 27,037 that were reclassified out of foreign currency translation into earnings in connection with the March 7, 2019 sale of Grupo Auto Todo.

Ending balance, September 30, 2019 $ ( 732,159 ) $ ( 21,971 ) $ ( 514,450 ) $ ( 1,268,580 )

(1) Amount includes realized currency losses of $ 34,701 that were reclassified out of foreign currency translation into earnings in connection with the March 7, 2019 sale of Grupo Auto Todo and the September 30, 2019 sale of EIS.

Refer to the acquisitions, divestitures and discontinued operations footnote for further details.

20 unchanged sentences

Employee Benefit Plans

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

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

Pension Benefits

2 unchanged sentences

Expected return on plan assets ( 38,550 ) ( 38,551 )

Amortization of prior service credit 173 ( 17 )

Amortization of prior service cost (credit) 173 ( 17 )

Amortization of actuarial loss 11,130 7,752

Net periodic benefit income $ ( 3,293 ) $ ( 4,059 )

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

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

Pension Benefits

4 unchanged sentences

( 115,483 ) ( 115,585 )

Amortization of prior service credit

Amortization of prior service cost (credit) 519 ( 51 )

Amortization of actuarial loss

2 unchanged sentences

$ ( 9,973 ) $ ( 12,180 )

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 (income) expenses.

Pension benefits also include amounts related to supplemental retirement plans.

8 unchanged sentences

While such borrowings of the independents and affiliates are outstanding, the Company is required to maintain compliance with certain covenants, including a debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio and certain limitations on additional borrowings.

At June 30, 2020, the Company was in compliance with all such covenants.

As of June 30, 2020, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately $ 925,109 .

At September 30, 2020, the Company was in compliance with all such covenants.

As of September 30, 2020, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately $ 904,349 .

These loans generally mature over periods from one to six years .

2 unchanged sentences

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 June 30, 2020, 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 June 30, 2020, the Company has recognized certain assets and liabilities amounting to $ 90,000 each for the guarantees related to the independents’ and affiliates’ borrowings.

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, 2020, 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, 2020, the Company has recognized certain assets and liabilities amounting to $ 85,000 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.

3 unchanged sentences

(i) the Amended and Restated Syndicated Credit Facility Agreement, dated as of October 30, 2017 ("Credit Facility") and (ii) the Notes Purchase Agreement with certain investors governing the Series I, J, K, L and M senior notes, dated as of October 30, 2017 ("Notes Agreement").

The financial covenants in these agreements were amended to provide for the debt to EBITDA ratio to increase from 3.50 to 1.0 to 4.00 to 1.0 through

December 31, 2020 (and then to revert to 3.50 to 1.0 after such date).

The financial covenants in these agreements were amended to provide for the debt to EBITDA ratio to increase from 3.50 to 1.0 to 4.00 to 1.0 through December 31, 2020 (and then to revert to 3.50 to 1.0 after such date).

With respect to the Credit Facility, the interest rates were amended to increase the applicable rate by 75 basis points (resulting in a rate of LIBOR + 225 basis points) and the LIBOR floor from 0.0 % to 1.0 %.

With respect to the Notes Agreement, the interest rates were amended to increase the coupon applicable to each series of the Senior Notes by 50 basis points, effective immediately and applicable through December 31, 2020, and to increase the coupon applicable to each series of the Senior Notes by an additional 50 basis points, if and only if the debt to EBITDA ratio exceeds 3.50 to 1.0.

With respect to the Notes Agreement, the interest rates were amended to increase the coupon applicable to each series of the Senior Notes by 50 basis points, effective immediately and applicable through March 31, 2021, and to increase the coupon applicable to each series of the Senior Notes by an additional 50 basis points, if and only if the debt to EBITDA ratio exceeds 3.50 to 1.0.

Accounts Receivable Sales Agreement

1 unchanged sentence

The A/R Sales Agreement has a 364 day term, which the Company intends to renew each year.

The terms of the A/R Sales Agreement limit the total principal amount outstanding of receivables sold to approximately $ 500,000 at any point in time.

As part of the A/R Sales Agreement, the Company continuously sells designated pools of trade accounts receivable to a separate bankruptcy-remote special purpose entity whose assets would be first available to satisfy the creditor claims of the unaffiliated financial institution.

The Company controls and therefore consolidates the special purpose entity in its condensed consolidated financial statements.

The special purpose entity in turn sells certain of the receivables to the unaffiliated financial institution on a monthly basis.

These sales to the unaffiliated financial institution are accounted for as sales because control over the receivables is transferred to the unaffiliated financial institution under the terms of the agreement.

The following table represents a summary of the activity under the A/R Sales Agreement since its inception:

June 30, 2020

Receivables sold to the financial institution and derecognized $ 902,326

Cash collected on sold receivables $ 402,302

Receivables pledged as collateral on sold receivables as of period-end $ 342,636

Cash proceeds related to the receivables sold are included in cash from operating activities in the condensed consolidated statement of cash flows.

The fees recorded in connection with the sales are immaterial and are recorded within other non-operating (income) expenses in the condensed consolidated statements of income.

The future amount may fluctuate based on the level of activity and other factors.

The Company maintains continuing involvement with the sold receivables by providing collection services.

The associated servicing liability is not material given the high quality of the customers underlying the receivables and the anticipated short collection period.

The Company may incur a recourse obligation in limited circumstances.

Separate accruals for recourse obligations are immaterial.

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 subsidiary.

The assets of the special purpose subsidiary would be first available to satisfy the creditor claims of the unaffiliated financial institution.

The Company controls and therefore consolidates the special purpose subsidiary in its condensed consolidated financial statements.

At the inception of the A/R Sales Agreement, the special purpose subsidiary transferred ownership and control of approximately $ 500,000 in 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 special purpose subsidiary were pledged to secure the collectability of the sold receivables.

The amount of receivables pledged as collateral as of September 30, 2020 is approximately $ 1,100,000 .

The Company continues to be involved with the receivables transferred by the special purpose subsidiary to the unaffiliated financial institution by providing collection services.

As cash is collected on sold receivables, the special purpose subsidiary 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 $ 500,000 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.

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

September 30, 2020

Receivables sold to the financial institution and derecognized since inception $ 2,181,746

Cash collected on sold receivables since inception $ 1,681,732

Total principal amount outstanding of receivables sold at period end $ 500,014

Cash activity related to the A/R Sales Agreement is presented in cash from operating activities in the condensed consolidated statement of cash flows.

The special purpose subsidiary 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) expenses in the condensed consolidated statements of income.

The special purpose subsidiary 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, 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.

Fair Value of Financial Instruments

The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, trade accounts receivable, trade accounts payable, and borrowings under the line of credit and term loan approximate their respective fair values based on the short-term nature of these instruments.

As of June 30, 2020, the carrying amount, net of debt issuance costs, and the fair value of fixed rate debt were approximately $ 1,939,978 and $ 1,845,693 , respectively.

As of September 30, 2020, the carrying amount, net of debt issuance costs, and the fair value of fixed rate debt were approximately $ 1,996,621 and $ 2,061,093 , respectively.

The fair value of fixed rate debt is designated as Level 2 in the fair value hierarchy (i.e., significant observable inputs) and is based primarily on the discounted value of future cash flows using current market interest rates offered for debt of similar credit risk and maturity.

The carrying amount, net of debt issuance costs, of fixed rate debt of $ 1,939,978 is included in long-term debt in the condensed consolidated balance sheets.

The carrying amount, net of debt issuance costs, of fixed rate debt of $ 1,996,621 is included in long-term debt in the condensed consolidated balance sheet as of September 30, 2020.

Refer to the derivatives and hedging footnote for information on the fair value of derivative instruments.

10 unchanged sentences

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:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Balance Sheet Location

7 unchanged sentences

$ 925,810 $ 42,181 $ 925,810 $ 39,965

Forward contract Other current liabilities $ 235,180 $ 9,098 $ — $ —

Foreign currency debt

9 unchanged sentences

On May 1, 2020, the Company dedesignated its interest rate swaps and modified them to match the terms of its modified debt agreement and as a result the $ 48,492 payable as of that date was deemed a financing transaction.

As of September 30, 2020, the amount payable was $ 41,803 .

Subsequent cash flows to pay this amount over the remaining term of the agreement are reflected within financing activities in the condensed consolidated statement of cash flows.

This payable is classified within other current liabilities on the condensed consolidated balance sheets.

The corresponding amount in AOCL is being amortized to interest expense on a straight-line basis over the remaining life of the hedged instrument.

The corresponding amount in AOCL is being amortized to interest expense on a straight-line basis over the remaining life of the

hedged instrument.

The Company redesignated the portion of the modified interest rate swap that is not related to the financing agreement as a qualifying hedging instrument.

6 unchanged sentences

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

(Loss) Gain Recognized in AOCL Before Reclassifications Gain Recognized in Interest Expense For Excluded Components

2020 2019 2020 2019

Three Months Ended June 30,

Three Months Ended September 30,

Cash flow hedges:

7 unchanged sentences

Total $ ( 85,077 ) $ 62,060 $ 6,574 $ 5,596

Gain (Loss) Recognized in AOCL Before Reclassifications Gain Recognized in Interest Expense For Excluded Components

(Loss) Gain Recognized in AOCL Before Reclassifications Gain Recognized in Interest Expense For Excluded Components

2020 2019 2020 2019

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flow hedges:

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The Company maintains property and casualty loss insurance coverage.

The Company recognized a gain of $ 1,165 and $ 13,448 during the three and six months ended June 30, 2020, respectively, for insurance recoveries in excess of losses it has incurred on inventory, property, plant and equipment and other fire-related costs.

The gain is included within other non-operating (income) expenses on the condensed consolidated statements of income.

The Company expects to receive additional insurance recoveries in the future which will result in additional gains.

The Company recognized a gain of $ 13,448 during the nine months ended September 30, 2020 for insurance recoveries in excess of losses it has incurred on inventory, property, plant and equipment and other fire-related costs.

The gain is included within other non-operating expenses (income) on the condensed consolidated statements of income.

No gains or losses were recognized during the three months ended September 30, 2020.

Acquisitions, Divestitures and Discontinued Operations

The Company acquired several businesses for approximately $ 33,047 and $ 378,744 , net of cash acquired, during the six months ended June 30, 2020 and June 30, 2019, respectively.

The Company finalized the acquisition accounting for certain businesses acquired in prior periods, but there have been no significant measurement period adjustments during the three and six months ended June 30, 2020.

The Company received cash proceeds from divestitures of businesses totaling $ 382,737 and $ 12,028 for the six months ended June 30, 2020 and June 30, 2019, respectively.

The Company acquired several businesses for approximately $ 77,393 and $ 642,468 , net of cash acquired, during the nine months ended September 30, 2020 and September 30, 2019, respectively.

The Company has not recognized any significant measurement period adjustments from finalizing acquisition accounting during the three and nine months ended September 30, 2020.

The Company acquired the remaining 65 % equity investment in Inenco in July 2019.

Inenco is one of Australasia's leading industrial distributors of key product categories such as bearings, power transmission and seals and it generates estimated annual revenues of approximately $ 400,000 .

Prior to the 65 % acquisition, the Company accounted for its 35 % investment under the equity method of accounting.

The acquisition-date fair value of the 35 % investment was $ 123,385 and is included in the measurement of the consideration transferred.

The difference between the acquisition-date fair value and the carrying amount of the equity method investment resulted in the recognition of a gain of $ 38,663 on the acquisition date.

The acquisition-date fair value was determined using a market and income approach with the assistance of a third party valuation firm.

The gain is included within other non-operating expenses (income) on the condensed consolidated statement of income and comprehensive income for the three and nine months ended September 30, 2019.

The Company received cash proceeds from divestitures of businesses totaling $ 382,737 and $ 416,784 for the nine months ended September 30, 2020 and September 30, 2019, respectively.

Grupo Auto Todo

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Grupo Auto Todo contributed annual revenues of approximately $ 15,900 for the year ended December 31, 2019 .

The Company incurred realized currency losses of $ 27,037 from this transaction during the three months ended June 30, 2019.

These losses are included within other non-operating (income) expenses on the condensed consolidated statements of income.

The Company incurred realized currency losses of $ 27,037 from this transaction during the nine months ended September 30, 2019.

These losses are included within other non-operating expenses (income) on the condensed consolidated statements of income.

On September 30, 2019, the Company sold all of its equity in EIS, a wholly owned subsidiary within the Industrial Parts Group.

EIS contributed $ 588,031 for the year ended December 31, 2019.

The Company incurred realized currency losses of $ 7,664 from this transaction, which are included in the line item "other" within non-operating (income) expenses on the condensed consolidated statement of income for the three and nine months ended September 30, 2019.

Discontinued Operations

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Richards Company ("SPR") in separate transactions.

There may be additional cash payments or receipts in subsequent quarters as the Company finalizes customary post-transaction working capital adjustments.

The Company has recognized $ 3,165 during the three months ended September 30, 2020 of additional loss on divestiture, classified as discontinued operations, as part of customary post-transaction working capital adjustments, among other things.

These divestitures are part of the Company's 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.

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The Company maintains an immaterial investment in SPR and has concluded that SPR is a variable interest entity.

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 is not the primary beneficiary and therefore does not consolidate SPR.

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, weekly reimbursement from SPR under the terms of a transition services agreement.

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

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

1 unchanged sentence

Cost of goods sold — 370,546 632,007 1,093,332

277,614 360,452 632,007 722,786

102,324 115,877 214,937 231,247

Operating expenses 89,385 95,947 179,461 190,820

Loss (gain) on disposal 216,133 — 220,318 1,000

Income before income taxes

( 203,194 ) 19,930 ( 184,842 ) 39,427

Gross profit — 119,193 214,937 350,440

Operating and non-operating expenses — 98,539 179,461 289,359

Loss on divestiture 3,165 — 223,483 1,000

(Loss) income before income taxes ( 3,165 ) 20,654 ( 188,007 ) 60,081

Income taxes (1) 2,222 5,423 4,062 15,373

( 2,323 ) 5,019 1,840 9,950

Net (loss) income from discontinued operations $ ( 5,387 ) $ 15,231 $ ( 192,069 ) $ 44,708

Basic (loss) earnings per share from discontinued operations $ ( 1.39 ) $ 0.10 $ ( 1.29 ) $ 0.20

Diluted (loss) earnings per share from discontinued operations $ ( 1.39 ) $ 0.10 $ ( 1.29 ) $ 0.20

Weighted average common shares outstanding 144,262 146,075 144,657 146,029

Weighted average common shares outstanding – assuming dilution 144,262 146,736 144,657 146,713

(1) Income taxes include a $ 7,125 tax benefit associated with the (loss) gain on the disposal for the three and six months ended June 30, 2020.

(1) The effective income tax rate was negative 2.2 % for the nine months ended September 30, 2020, compared to 25.6 % for the same period in 2019.

The rate decrease for the nine months ended September 30, 2020 is primarily due to a non-deductible loss on divestiture.

The Company’s assets and liabilities for discontinued operations, by major class, were:

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Other current liabilities 59,954

Operating lease liabilities 68,906

Long-term liabilities

Total liabilities of discontinued operations $ 287,023

Goodwill and Other Intangible Assets

Total consolidated goodwill as of June 30, 2020 is $ 1,771,835 , net of $ 506,721 of accumulated impairment loss.

The changes in the carrying amount of goodwill during the periods ended June 30, 2020 and December 31, 2019 by reportable segment, as well as other identifiable intangible assets, are summarized as follows:

Total consolidated goodwill as of September 30, 2020 is $ 1,829,946 , net of $ 506,721 of accumulated impairment loss.

The changes in the carrying amount of goodwill during the periods ended September 30, 2020 and December 31, 2019 by reportable segment, as well as other identifiable intangible assets, are summarized as follows:

Automotive Industrial Total Other Intangible Assets, Net

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Foreign currency translation 27,932 ( 323 ) 27,609 10,499

Balance as of June 30, 2020 $ 1,383,764 $ 388,071 $ 1,771,835 $ 1,422,680

Balance as of September 30, 2020 $ 1,429,234 $ 400,712 $ 1,829,946 $ 1,449,446

(1) Additions include measurement period adjustments related to prior year acquisitions.

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The Company tests goodwill for impairment at the reporting unit level, which is an operating segment or a level below an operating segment (a component).

If there are sustained declines in macroeconomic or business conditions in future periods, including as a result of the COVID-19 pandemic, affecting the projected earnings and cash flows at the Company's reporting units, among other things, there can be no assurance that goodwill at one or more reporting units may not be impaired.

Based on the Company's interim impairment assessment as of September 30, 2020, which included reviewing the revenue and operating margin growth forecasts based on the current projections, the Company has determined that it is not more likely than not that the goodwill is impaired for all reporting units.

Due to several factors that coalesced in the second quarter of 2020 the Company performed an interim impairment test as of May 31, 2020 for its European reporting unit and recorded a goodwill impairment charge of $ 506,721 .

The factors primarily resulted from the ongoing market volatility and uncertainty caused by the COVID-19 pandemic, which have extended into the second quarter and have impacted several critical impairment testing assumptions including weighted average cost of capital and market multiples, and near-term revenue and operating margin projections for the reporting unit.

The Company also assessed the finite-lived, identifiable tangible and intangible assets at the European reporting unit for impairment under the undiscounted cash flows approach and concluded there was no impairment.

The factors primarily resulted from the ongoing market volatility and uncertainty caused by the COVID-19 pandemic, which extended into the second quarter and impacted several critical impairment testing assumptions including weighted average cost of capital and market multiples, and near-term revenue and operating margin projections for the reporting unit.

During the second quarter, the Company also assessed the finite-lived, identifiable tangible and intangible assets at the European reporting unit for impairment under the undiscounted cash flows approach and concluded there was no impairment.

The European reporting unit’s fair value was calculated using a combination of both income and market approaches and involved significant unobservable inputs (Level 3 inputs).

The assumptions used in the income approach include projected

revenue growth rates, operating margins, the estimated weighted average costs of capital and terminal value.

The assumptions used in the income approach include projected revenue growth rates, operating margins, the estimated weighted average costs of capital and terminal value.

The weighted-average cost of capital used in the income approach was adjusted to reflect the specific risks and uncertainties associated with the COVID-19 pandemic in developing the cash flow projections.

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Should actual results differ from certain key assumptions used in the interim impairment test, including revenue and operating margin growth rates, which are both impacted by economic conditions, or should other key assumptions change, including benchmark company market multiples, weighted average costs of capital and terminal value, in subsequent periods the Company could record additional impairment charges for this reporting unit.

Based on the Company's interim impairment assessment as of June 30, 2020, which included reviewing the previous revenue and operating margin growth forecasts based on the current projections, the Company has determined that it is not more likely than not that the goodwill is impaired for all other reporting units.

The Company's effective income tax rate was negative 19.4 % for the three months ended June 30, 2020, compared to 25.8 % for the same three month period in 2019.

The effective income tax rate was negative 67.7 % for the six months ended June 30, 2020, compared to 25.1 % for the same period in 2019.

The rate decrease is primarily due to the non-deductible goodwill impairment charge and certain transaction and other costs.

The Company's effective income tax rate was 21.8 % for the three months ended September 30, 2020, compared to 25.2 % for the same three month period in 2019.

The effective income tax rate was 105.4 % for the nine months ended September 30, 2020, compared to 25.1 % for the same period in 2019.

The rate decrease during the third quarter is due primarily to the benefit of statute-related adjustments and income mix shifts.

The rate increase for the nine months ended September 30, 2020 is primarily due to a non-deductible goodwill impairment charge and certain transaction and other costs incurred during the period.

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 2019 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.

Options to purchase approximately 2,537 and 2,418 shares of common stock were outstanding but excluded from the computations of diluted earnings per share for the three and six month period ended June 30, 2020, respectively, as compared to approximately 247 and 135 for the three and six month period ended June 30, 2019, respectively.

Options to purchase approximately 473 and 2,214 shares of common stock were outstanding but excluded from the computations of diluted earnings per share for the three and nine month period ended September 30, 2020, respectively, compared to approximately 544 and 223 for the three and nine month period ended September 30, 2019, respectively.

These options were excluded because their inclusion would have been anti-dilutive.

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The 2019 Cost Savings Plan was approved and funded by the Company's corporate office and therefore these costs are not allocated to the Company's segments.

The cumulative amount of costs incurred as of June 30, 2020 since inception is $ 182,982 .

The cumulative amount of costs incurred as of September 30, 2020 since inception is $ 181,789 .

The table below summarizes the activity related to the restructuring costs discussed above.

As of June 30, 2020, the current portion of the restructuring liability of $ 32,586 is included in other current liabilities on the condensed consolidated balance sheet.

As of September 30, 2020, the current portion of the restructuring liability is included in other current liabilities on the condensed consolidated balance sheet.

Severance and other employee costs Facility and closure costs Accelerated operating lease costs Asset impairments Total

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Translation 85 59 — — 144

Liability as of June 30, 2020 $ 24,603 $ 8,773 $ — $ — $ 33,376

Liability as of September 30, 2020 $ 17,526 $ 8,113 $ — $ — $ 25,639

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements