What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-22 compared with 2020-07-30 · 110 added, 117 removed, 155 unchanged (59% of the section changed)

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Senior officers may also make verbal statements to analysts, investors, the media and others that are forward-looking.

These forward-looking statements include, without limitation, our expected ability to operate and protect our workforce during the COVID-19 pandemic, our strategy to grow our higher-margin automotive and industrial businesses, the execution and effect of our cost savings initiatives, our efforts and initiatives to help us emerge from the pandemic well-positioned, our ongoing efforts to maintain compliance and flexibility under our debt covenants, our liquidity position and actions to maximize cash flow to continue to operate during these highly uncertain times and plans for future cost savings.

These forward-looking statements include, without limitation, our expected ability to operate and protect our workforce during the COVID-19 pandemic, our strategies for growing our automotive and industrial businesses, the execution and effect of our cost savings initiatives, our efforts and initiatives to help us emerge from the pandemic well-positioned, our ongoing efforts to maintain compliance and flexibility under our debt covenants, our liquidity position and actions to maximize cash flow to continue to operate during these highly uncertain times and plans for future cost savings.

The Company cautions that its forward-looking statements involve risks and uncertainties, and while we believe that our expectations for the future are reasonable in view of currently available information, you are cautioned not to place undue reliance on our forward-looking statements.

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the uncertainties and costs of litigation;

disruptions caused by a failure or breach of the Company's information systems, as well as other risks and uncertainties discussed in the Company's Annual Report on Form 10-K for 2019, the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and Item 1A, risk factors, in this report on Form 10-Q (all of which risks may be amplified by the COVID-19 outbreak) and from time to time in the Company's subsequent filings with the SEC.

disruptions caused by a failure or breach of the Company's information systems, as well as other risks and uncertainties discussed in the Company's Annual Report on Form 10-K for 2019, the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, and Item 1A, Risk Factors, in this report on Form 10-Q (all of which risks may be amplified by the COVID-19 outbreak) and from time to time in the Company's subsequent filings with the SEC.

Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its forward-looking statements except as required by law.

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We have a long tradition of growth dating back to 1928, the year we were founded in Atlanta, Georgia.

The Company conducts business in North America, Europe and Australasia from approximately 3,600 locations.

The Company conducts business in North America, Europe and Australasia from approximately 3,600 Company locations.

At Genuine Parts Company, our mission is to be a world-class service organization and the employer of choice, supplier of choice, valued customer, good corporate citizen and investment of choice.

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and (4) effective capital allocation.

The Company's Automotive Parts Group operated in the U.S., Canada, Mexico, France, the U.K., Germany, Poland, the Netherlands, Belgium, Australia and New Zealand as of June 30, 2020, and accounted for 64% of total revenues for the six months ended June 30, 2020.

The Company's Automotive Parts Group operated in the U.S., Canada, Mexico, France, the U.K., Germany, Poland, the Netherlands, Belgium, Australia and New Zealand as of September 30, 2020, and accounted for 65% of total revenues for the nine months ended September 30, 2020.

Our Industrial Parts Group operated in the U.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore.

The Industrial Parts Group accounted for 36% of the Company's total revenues for the six months ended June 30, 2020.

During the six months ended June 30, 2020, the Company completed the divestiture of its Business Products Group and has accounted for this segment as discontinued operations for the periods presented.

The Industrial Parts Group accounted for 35% of the Company's total revenues for the nine months ended September 30, 2020.

As of June 30, 2020, the Company completed the divestiture of its Business Products Group and has accounted for this segment as discontinued operations for the periods presented.

COVID-19 Pandemic

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Overall, our business segments continue to face many uncertainties.

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

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

The Company's operations are vulnerable to the reduced economic activity caused by the COVID-19 outbreak, which led many governments to put in place temporary social distancing and shelter-in-place mandates in late March and early April.

As a result, our business segments experienced slowing sales trends as we entered the second quarter.

Sales results sequentially improved throughout the second quarter of 2020 as markets reopened and governments eased restrictions.

Sales results sequentially improved throughout the second and third quarter of 2020 as markets reopened and governments eased restrictions.

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

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During the first quarter we created a dedicated COVID-19 Taskforce and added enhanced protocols in response to COVID-19, including implementing many of the recommendations and requirements issued by the Centers for Disease Control and Prevention, WHO, and local, state and national health authorities, to protect our employees, customers, suppliers and communities.

As of June 30, 2020, substantially all operations are open for business.

Our supply chain partners have been very supportive and they continue to do their part to ensure our service levels to our customers remain strong.

As of September 30, 2020, substantially all operations are open for business.

Our supply chain partners have been very supportive, despite strain on the supply chain with respect to labor shortages and certain inventory shortages, delays in order fulfillment and increased backlogs, and they continue to do their part to help our service levels to our customers remain strong.

We remain in constant communication with our employees regarding changing conditions and protocol.

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Key Business Metrics

We consider comparable sales, daily sales and number of miles driven to be key business metrics because management has evaluated its results of operations using these metrics and believes that these key indicators provide additional perspective and insights when analyzing the operating performance of the Company from period to period and trends in its historical operating results.

These metrics should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented in this report.

We consider comparable sales to be a key business metric because management has evaluated its results of operations using this metric and we believe that this key indicator provides additional perspective and insights when analyzing the operating performance of the Company from period to period and trends in its historical operating results.

This metric should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented in this report.

Comparable Sales

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This is a metric that is widely used by analysts, investors and competitors in our industry, although our calculation of the metric may not be comparable to similar measures disclosed by other companies, because not all companies and analysts calculate this metric in the same manner.

Daily sales is a key metric that represents the amounts invoiced to the Company's customers each day.

Daily sales do not represent GAAP-based sales because, among other things, invoices are not always generated at the same time goods and services are delivered to customers and the amounts do not include adjustments for estimates of returns, rebates or other forms of variable consideration.

Management uses this metric to monitor demand trends at each of its subsidiaries throughout each month for the purposes of monitoring performance against forecasts and to make operational decisions.

The Company considers this metric useful to investors because it provides greater transparency into management’s view and assessment of the Company’s core ongoing operations.

The calculation of this metric may not be comparable to similar measures disclosed by other companies, because not all companies and analysts calculate this metric in the same manner.

Number of Miles Driven

The Company considers the number of miles driven, which is an industry-generated metric, to be a key metric because it influences the demand for repair and maintenance products sold within the automotive aftermarket.

We believe including this metric is useful to investors because it provides greater transparency into management’s view and assessment of trends in the Automotive Parts Group.

Results of Operations

The Company has remained substantially open during the COVID-19 pandemic, which slowed mobility and overall economic activity.

Despite the challenges of these unprecedented business conditions, our North American and Australasian automotive operations operated well and reported improved profit margins.

In addition, our Industrial Parts Group maintained a flat operating margin with the prior year quarter.

The Company improved its total gross margin in the quarter and executed on a number of accelerated cost savings initiatives to more effectively leverage our cost structure.

As a result of COVID-19 and its negative impact on demand, the Company has experienced and may continue to experience a decrease in volume-based buying incentives and increased freight, insurance, IT and cybersecurity costs.

In addition, primarily due to the significant impact of COVID-19 on the financial performance of our European reporting unit, the Company recognized a goodwill impairment charge of $506.7 million.

Despite the challenges of these unprecedented business conditions, our Automotive Parts Group operated well and reported improved profit margins across all regions during the three months ended September 30, 2020 when compared to the same period in the prior year.

Our Industrial Parts Group also improved profit margin this quarter when compared to the same prior year period.

The Company improved its total gross margin in the quarter and executed on a number of cost savings initiatives to more effectively leverage our cost structure.

As a result of COVID-19 and its negative impact on demand, the Company has experienced and may continue to experience a decrease in volume-based buying incentives.

These trends and uncertainties may persist and impact future results.

Sales for the three months ended June 30, 2020 were $3.8 billion, a 14.2% decrease as compared to $4.5 billion in the same period of the prior year period.

The decrease in sales is attributable to a 13.7% decline in comparable sales driven primarily by COVID-19 and related government actions, a 4.1% impact from divestitures and the net impact of foreign currency and other of 0.6%.

These items were partially offset by a 4.2% benefit from acquisitions.

Sales for the six months ended June 30, 2020 were $7.9 billion, a 9.2% decrease as compared to $8.7 billion in the same period of the prior year.

The decline in sales is due to a 9.0% comparable sales decrease due primarily to decreased demand caused by COVID-19, a 4.5% impact from divestitures and a 0.7% impact from foreign currency and other.

Sales for the three months ended September 30, 2020 were $4.4 billion, a 3.4% decrease compared to $4.5 billion in the same period of the prior year period.

The decrease in sales is attributable to a 1.8% decline in comparable sales driven primarily by COVID-19 and a 4.2% impact from divestitures.

These items were partially offset by a 1.3% benefit from acquisitions and the net impact of favorable foreign currency and other of 1.3%.

Sales for the quarter improved sequentially from the second quarter of 2020.

Sales for the nine months ended September 30, 2020 were $12.3 billion, a 7.2% decrease compared to $13.2 billion in the same period of the prior year.

The decline in sales is due to a 6.5% comparable sales decrease due primarily to decreased demand caused by COVID-19 and a 4.4% impact from divestitures.

These items were partially offset by a 3.7% positive impact from acquisitions.

Sales for the Automotive Parts Group decreased 10.1% for the three months ended June 30, 2020, as compared to the same period in the prior year.

This group's revenue decrease for the three months ended June 30, 2020 consisted of an approximate 12.6% decrease in comparable sales driven primarily by COVID-19 and related government actions and the net impact of unfavorable foreign currency and other of 0.7%.

These items were partially offset by a 3.2% benefit from acquisitions.

group's 6.0% revenue decrease for the six months ended June 30, 2020 consisted of an approximate 8.9% decrease in comparable sales, a 1.0% net unfavorable impact from foreign currency and other and a 0.3% impact from the sale of Grupo Auto Todo in March of 2019.

The impact of foreign currency and other for the nine months ended September 30, 2020 was flat compared to the prior year period.

Sales for the Automotive Parts Group increased 6.0% for the three months ended September 30, 2020, compared to the same period in the prior year.

This group's revenue increase for the three months ended September 30, 2020 consisted of an approximate 2.2% increase in comparable sales driven by strong demand in Australasia and Europe, a 1.6% benefit from acquisitions and the net impact of favorable foreign currency and other of 2.2%.

Sales for the quarter improved sequentially from the second quarter of 2020.

This group's 1.9% revenue decrease for the nine months ended September 30, 2020 consisted of an approximate 5.1% decrease in comparable sales and a 0.2% impact from the sale of Grupo Auto Todo in March of 2019.

These items were partially offset by a 3.3% benefit from acquisitions.

Sales for the Industrial Parts Group decreased 21.1% for the three months ended June 30, 2020, as compared to the same period in 2019.

The decrease in this group's revenues reflects an approximate 16.7% decrease in comparable sales driven primarily by COVID-19 and related government actions, a 10.9% impact from the sale of EIS, which was sold in the third quarter of 2019, and a slightly unfavorable foreign currency impact.

Sales for the Industrial Parts Group decreased 18.6% for the three months ended September 30, 2020, compared to the same period in 2019.

The decrease in this group's revenues reflects an approximate 9.2% decrease in comparable sales driven primarily by COVID-19 and related government actions and a 9.9% impact from the sale of EIS, which was sold in the third quarter of 2019.

Foreign currency was flat compared to the same period in 2019.

These declines were slightly offset by a 0.4% benefit from acquisitions.

This group's 14.5% sales decrease for the six months ended June 30, 2020 reflects a 9.9% decrease in comparable sales, an 11.7% impact from the sale of EIS and a slight impact from foreign currency.

Sales for the quarter improved sequentially from the second quarter of 2020.

This group's 15.9% sales decrease for the nine months ended September 30, 2020 reflects a 9.6% decrease in comparable sales, an 11.0% impact from the sale of EIS and a slight impact from foreign currency.

This decrease was partially offset by a 4.9% benefit from acquisitions.

Cost of Goods Sold and Operating Expenses

Cost of goods sold for the three months ended June 30, 2020 was $2.5 billion, a 14.9% decrease from $3.0 billion for the same period in 2019.

As a percentage of net sales, cost of goods sold was 66.2% for the three months ended June 30, 2020, as compared to 66.7% in the same three month period of 2019.

Cost of goods sold for the six months ended June 30, 2020 was $5.2 billion, a 10.3% decrease from $5.8 billion for the same period in 2019.

As a percentage of net sales, cost of goods sold was 66.2% for the six months ended June 30, 2020, as compared to 67.0% in the same six month period of 2019.

The decrease in cost of goods sold for the three and six months ended June 30, 2020 primarily relates to the impact of divestitures and the overall decrease in sales volume due to COVID-19 for these periods as compared to the same three and six month period of the prior year.

The resulting improvement in gross margin, which we have reported for 11 consecutive quarters, is attributable to the favorable impact of divestitures as well as the acquisitions of higher gross margin businesses.

These items, as well as strategic category management initiatives including pricing and global sourcing actions and favorable product mix shifts were partially offset by a decrease in supplier incentives due to lower purchasing volumes.

The Company’s cost of goods sold includes the total cost of merchandise sold, including freight expenses associated with moving merchandise from our supplier to our distribution centers, retail stores and branches, as well as supplier volume incentives and inventory adjustments.

Cost of goods sold for the three months ended September 30, 2020 was $2.8 billion, a 5.9% decrease from $3.0 billion for the same period in 2019.

As a percentage of net sales, cost of goods sold was 65.0% for the three months ended September 30, 2020, compared to 66.7% in the same three month period of 2019.

Cost of goods sold for the nine months ended September 30, 2020 was $8.1 billion, an 8.8% decrease from $8.9 billion for the same period in 2019.

As a percentage of net sales, cost of goods sold was 65.8% for the nine months ended September 30, 2020, compared to 66.9% in the same nine month period of 2019.

The Company’s cost of goods sold includes the total cost of merchandise sold, including freight expenses associated with moving merchandise from our suppliers to our distribution centers, retail stores and branches, as well as supplier volume incentives and inventory adjustments.

Gross profit as a percentage of net sales may fluctuate based on (i) changes in merchandise costs and related supplier volume incentives or pricing, (ii) variations in product and customer mix, (iii) price changes in response to competitive pressures, (iv) physical inventory and LIFO adjustments, (v) changes in foreign currency exchange rates, and (vi) the impact of tariffs.

Tariffs did not have a material impact in the periods presented.

Total operating expenses increased to $1.6 billion for the three months ended June 30, 2020 as compared to $1.2 billion for the same three month period in 2019.

As a percentage of net sales, operating expenses increased to 41.4% as compared to 26.8% in the same three month period of the previous year.

For the six months ended June 30, 2020, these expenses totaled $2.8 billion as compared to $2.4 billion for the same six month period in 2019.

As a percentage of net sales, operating expenses increased to 35.4% as compared to 27.2% in the same six month period of the previous year.

The increase in total operating expenses as a percentage of net sales for the three and six months ended June 30, 2020 is primarily related to the goodwill impairment charge related to our European reporting unit and the restructuring, transaction and other costs and income recorded thus far in 2020.

Additionally, the Company continues to experience the effects of rising costs in areas such as insurance, IT and cyber-security and its ability to leverage its expenses was negatively impacted by lower comparable sales relative to the prior year.

To offset these trends, the Company is focused on the execution of ongoing cost control initiatives, including its $100 million cost savings plan announced in 2019.

In association with this plan we achieved $40 million in savings in the second quarter of 2020 for a total of $70 million in expense reductions through June 30, 2020.

In addition, the Company benefited from accelerated cost reduction initiatives implemented in association with the onset of COVID-19.

Combined, these initiatives produced cost savings in payroll, freight, facility, legal and professional costs, among others, of approximately $200 million in the second quarter of 2020.

Included in the savings are approximately $40 million of temporary government subsidies received by certain of our foreign operations.

The decreases in costs of goods sold for the three and nine month periods ended September 30, 2020 are primarily driven by the sales decreases as discussed above as well as improvements in gross margin.

The gross margin improvements primarily reflect the favorable impact of sales mix shifts to higher gross margin operations, positive product mix (especially in the Industrial Parts Group), strategic category management initiatives including pricing and global sourcing actions and the favorable impact of divestitures.

These items were partially offset by a decrease in supplier incentives due to lower purchasing volumes.

We have reported improved gross margin for 12 quarter over quarter periods.

Total operating expenses decreased to $1.23 billion for the three months ended September 30, 2020 compared to $1.24 billion for the same three month period in 2019 due to the positive impact of the cost actions implemented during 2020.

For the nine months ended September 30, 2020, operating expenses totaled $4.0 billion compared to $3.6 billion for the same nine month period in 2019 due primarily to the $506.7 million goodwill impairment charge r ecognized in the second quarter related to our European reporting unit.

As a percentage of net sales, operating expenses increased to 28.1% compared to 27.5% and 32.8% compared to 27.3% in the three and nine month periods ended September 30, 2020, as compared to the same prior year periods, respectively.

The increases as a percentage of net sales in the periods are primarily due to loss of leverage caused by declining sales volume as discussed above.

The Company’s operating expenses are substantially comprised of compensation and benefit-related costs for personnel.

Other major expense categories include facility occupancy costs for headquarters, distribution centers and retail store/branch operations, insurance costs, accounting, legal and professional services, technology and digital costs, transportation and delivery costs, and travel and advertising.

Management’s ongoing cost control measures in these areas have served to improve the Company’s overall cost structure.

The Company's recent acquisitions have lower costs of goods sold and higher levels of operating costs as compared to the Company's other businesses;

however, the operating profit margins generally remain consistent.

In accordance with our $100 million cost savings plan announced in late 2019, we recognized more than $40 million in savings in the third quarter of 2020 driven by transformative reductions in payroll and facility costs.

Our permanent expense reductions associated with this plan now total over $110 million for the nine months ended September 30, 2020.

We have continued to execute on a number of additional savings initiatives in response to the impact of COVID-19, which have contributed approximately $60 million in incremental, temporary savings in the third quarter related to furloughs, reduced travel and other initiatives.

Segment Profit

Segment profit decreased to $327.8 million for the three months ended June 30, 2020, compared to $365.1 million for the same three month period of the prior year, a decrease of 10.2%.

Segment profit margin was 8.6% as compared to 8.2% in the same three month period of 2019.

The increase in segment profit margin for the three months ended June 30, 2020 reflects the improvement in gross margin and significant cost savings relative to the prior year.

For the six months ended June 30, 2020, segment profit decreased to $584.3 million compared to $665.7 million for the same six month period of the prior year, a decrease of 12.2%.

Segment profit margin was 7.4% as compared to 7.6% in the same six month period of 2019, driven by reduced sales volume as a result of COVID-19 and its impact on leverage prior to the Company's implementation of its accelerated cost initiatives in the second quarter of 2020.

Segment profit increased to $391.7 million for the three months ended September 30, 2020, compared to $360.1 million for the same three month period of the prior year, an increase of 8.8%.

Segment profit margin was 9.0% compared to 8.0% in the same three month period of 2019.

The increase in segment profit margin for the three months ended September 30, 2020 reflects the improvement in gross margin and significant cost savings relative to the prior year.

For the nine months ended September 30, 2020, segment profit decreased to $976.1 million compared to $1.0 billion for th e same nine month period of the prior year, a decrease of 4.8%.

However, segment profit margin increased to 7.9% compared to 7.7% in the same nine month period of 2019, driven by the Company's implementation of its gross margin and cost saving initiatives which have allowed the Company to better leverage expenses.

As more fully discussed in our 2019 Form 10-K, in the fourth quarter of 2019 the Company began to implement certain restructuring actions across its subsidiaries under the 2019 Cost Savings Plan, primarily targeted at simplifying organizational structures and distribution networks.

We believe that these actions, coupled with our ongoing focus on driving top line sales growth and accelerated cost initiatives in response to COVID-19, will continue to create value for our stakeholders.

The Automotive Parts Group’s segment profit decreased 4.3% in the three months ended June 30, 2020 as compared to the same period of 2019, and its segment profit margin was 8.8% as compared to 8.2% in the same period of the previous year.

This improvement in segment profit margin reflects the strong operating results in our North American and Australasian businesses, driven by significant cost reductions and the benefit of government subsidies in our international businesses.

For the six months ended June 30, 2020, the Automotive Parts Group's segment profit decreased approximately 11.5% and the segment profit margin was 7.1% as compared to 7.6% in the same six month period of 2019.

The decrease in segment profit margin for the six months is primarily due to the deleveraging of expenses due to lower automotive sales volumes, although the Canadian and Australasian operations have operated well and show improved segment profit margins for the six months in 2020 relative to 2019.

The Industrial Parts Group's segment profit decreased 20.1% in the three months ended June 30, 2020 as compared to the same three month period of 2019, and the segment profit margin for this group was 8.2% compared to 8.1% for the same period of the previous year.

Segment profit for the Industrial Parts Group decreased 13.4% in the six months ended June 30, 2020 as compared to the same six month period of 2019, and the segment profit margin for this group improved to 7.9% compared to 7.8% for the same period of the previous year.

The improved segment profit margins for both periods reflect the growing efficiencies in Industrial Parts Group's operating structure as well as the positive impact of acquisitions and the sale of EIS.

We believe that these actions, coupled with our ongoing focus on driving top line sales growth, gross margin improvement and accelerated cost initiatives in response to COVID-19, will continue to create value for our stakeholders.

The Automotive Parts Group’s segment profit increased 19.6% in the three months ended September 30, 2020 compared to the same period of 2019, and its segment profit margin was 9.0% compared to 8.0% in the same period of the previous year.

This improvement in segment profit margin reflects the strong operating results in all regions, driven by improving sales trends and the positive impact of cost actions.

For the nine months ended September 30, 2020, the Automotive Parts Group's segment

profit decreased approximately 0.5%.

However, segment profit margin increased to 7.8% compared to 7.7% in the same nine month period of 2019, reflecting the cost actions, better leveraging of expenses despite lower automotive sales volumes and benefit of government subsidies received primarily in the second quarter.

The Industrial Parts Group's segment profit decreased 8.7% in the three months ended September 30, 2020 compared to the same three month period of 2019, although the segment profit margin for this group increased to 8.9% compared to 7.9% for the same period of the previous year.

Segment profit for the Industrial Parts Group decreased 11.8% in the nine months ended September 30, 2020 compared to the same nine month period of 2019, however the segment profit margin for this group improved to 8.2% compared to 7.8% for the same period of the previous year.

The improved segment profit margins for both periods primarily reflects the growing efficiencies and gross margin improvements in the Industrial Parts Group's operating structure and the accretive benefit of the sale of EIS.

Goodwill Impairment

Due to several factors that coalesced in the second quarter of 2020 we performed an interim impairment test as of May 31, 2020 for our European reporting unit and recorded a goodwill impairment charge of $506.7 million.

These 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.

These 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.

Refer to the goodwill and other intangible assets footnote within the notes to the condensed consolidated financial statements for additional information.

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

However, as of June 30, 2020, we determined that there were no other indicators that goodwill was impaired at any of our 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.

Net (Loss) Income

For the three months ended June 30, 2020, the Company recorded consolidated net loss from continuing operations of $363.5 million, a decrease of 273.5% as compared to consolidated net income from continuing operations of $209.5 million in the same three month period of the prior year.

On a per share diluted basis, net loss was $2.52, a decrease of 276.2% as compared to net income per diluted share of $1.43 for the same three month period of 2019.

For the six months ended June 30, 2020, the Company recorded consolidated net loss from continuing operations of $241.2 million, a decrease of 167.9% as compared to consolidated net income from continuing operations of $355.2 million in the same six month period of the prior year.

On a per share diluted basis, net loss from continuing operations was $1.67, a decrease of 169.0% as compared to net income per diluted

share of $2.42 in the same six month period of 2019.

The decrease in income for these periods was primarily driven by reduced sales volume as a result of COVID-19.

During the three and six months ended June 30, 2020, the Company incurred $555.5 million and $553.8 million, respectively, of adjustments.

These adjustments include a goodwill impairment charge of $506.7 million related to our European reporting unit and also represents restructuring costs, realized currency losses and transaction and other costs and income.

As of September 30, 2020, we determined that there were no indicators that goodwill was impaired at any of our reporting units.

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.

Net (Loss) Income from Continuing Operations

For the three months ended September 30, 2020, the Company recorded consolidated net income from continuing operations of $232.9 million, an increase of 9.7% compared to consolidated net income from continuing operations of $212.3 million in the same three month period of the prior year.

On a per share diluted basis, net income from continuing operations was $1.61, an increase of 11.0% compared to $1.45 for the same three month period of 2019.

For the nine months ended September 30, 2020, the Company recorded consolidated net loss from continuing operations of $8.2 million, a decrease of 101.5% compared to consolidated net income from continuing operations of $567.5 million in the same nine month period of the prior year.

On a per share diluted basis, net loss from continuing operations was $0.06, a decrease of 101.6% compared to net income from continuing operations of $3.87 in the same nine month period of 2019.

The decrease in net income from continuing operations for the nine months ended September 30, 2020 was primarily driven by the second quarter goodwill impairment charge of $506.7 million, as well as reduced sales volumes due to COVID-19.

During the three and nine months ended September 30, 2020, the Company incurred $11.3 million and $565.0 million, respectively, of adjustments.

These adjustments include a second quarter goodwill impairment charge of $506.7 million related to our European reporting unit and also represents restructuring costs, realized currency losses and transaction and other costs and income.

Transaction and other costs primarily include incremental costs associated with certain divestitures and COVID-19, slightly offset by income from the SPR Fire insurance proceeds.

Refer to the acquisitions, divestitures and discontinued operations footnote and commitments and contingencies footnote for more information.

For the three months ended June 30, 2020, before the impact of goodwill impairment, realized currency losses, restructuring, transaction and other costs and insurance proceeds related to the SPR fire, the Company's adjusted net income from continuing operations was $190.5 million, a decrease of 11.5% as compared to adjusted net income from continuing operations of $215.4 million in the same three month period of the prior year.

On a per share basis, adjusted net income from continuing operations was $1.32 for the three months ended June 30, 2020, a decrease of 10.2% as compared to $1.47 for the same three month period of 2019.

For the six months ended June 30, 2020, before giving effect to the adjustments discussed above, adjusted net income from continuing operations was $307.3 million, a decrease of 20.7% for the same six month period of 2019.

On a per share diluted basis, adjusted net income from continuing operations was $2.12 for the six months ended June 30, 2020, a decrease of 19.4% as compared to $2.63 for the same six month period of the prior year.

Refer to the acquisitions, divestitures and discontinued operations footnote and commitments and contingencies footnote in the notes to the condensed consolidated financial statements for more information.

For the three months ended September 30, 2020, before the impact of restructuring and transaction and other costs, the Company's adjusted net income from continuing operations was $236.8 million, an increase of 16.1% compared to adjusted net income from continuing operations of $203.8 million in the same three month period of the prior year.

On a per share basis, adjusted net income from continuing operations was $1.63 for the three months ended September 30, 2020, an increase of 17.3% compared to $1.39 for the same three month period of 2019.

For the nine months ended September 30, 2020, before the impact of adjustments related to goodwill impairment, realized currency losses, restructuring, transaction and other costs and insurance proceeds related to the SPR fire, adjusted net income from continuing operations was $544.1 million, a decrease of 8.0% compared to the same nine month period of 2019.

On a per share diluted basis, adjusted net income from continuing

operations was $3.76 for the nine months ended September 30, 2020, a decrease of 6.7% compared to $4.03 for the same nine month period of the prior year.

Each of adjusted net (loss) income from continuing operations and adjusted diluted net (loss) income from continuing operations per common share is a non-GAAP measure (see table below for reconciliations to the most directly comparable GAAP measures).

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The Company does not, nor does it suggest investors should, consider such non-GAAP financial measures, as superior to, in isolation from, or as a substitute for, GAAP financial information.

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

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

(in thousands) 2020 2019 2020 2019

GAAP net (loss) income from continuing operations $ (363,501) $ 209,519 $ (241,155) $ 355,203

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

Goodwill impairment charge (1) — — 506,721 —

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Gain on insurance proceeds related to SPR Fire (4) — — (13,448) —

Gain in equity investment (5) — (38,663) — (38,663)

Transaction and other costs (6) 288 18,586 21,392 28,771

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The table below represent amounts per common share assuming dilution:

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

GAAP net (loss) income from continuing operations (2.52) 1.43 (1.67) 2.42

GAAP net income (loss) from continuing operations $ 1.61 $ 1.45 $ (0.06) $ 3.87

Goodwill impairment charge (1) — — 3.51 —

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Gain on insurance proceeds related to SPR Fire (4) — — (0.09) —

Gain in equity investment (5) — (0.26) — (0.26)

Transaction and other costs (6) — 0.12 0.15 0.19

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Weighted average common shares outstanding – assuming dilution 145,035 146,189 144,528 146,529

The table below clarifies where the items that have been adjusted above to improve comparability of the financial information from period to period are presented in the condensed consolidated statements of income.

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

The table below clarifies where the adjusted items are presented in the condensed consolidated statements of income.

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

(in thousands) 2020 2019 2020 2019

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Richards Headquarters and Distribution Center.

(5) Adjustment reflects (i) $2.5 million and $8.5 million 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.

(5) 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.

(6) Adjustment includes $8.5 million 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.

Financial Condition

The Company’s cash balance of $983.8 million at June 30, 2020 increased $706.8 million, or 255.2%, from December 31, 2019.

For the six months ended June 30, 2020, the Company had net cash provided by operating activities of $920.7 million, net cash provided by investing activities of $299.8 million and net cash used in financing activities of $527.4 million.

The cash provided by operating activities was primarily driven by entry into the A/R Sales Agreement to sell receivables, which generated $500 million in operating cash flows, and the effective management of our working capital.

The investing activities consisted primarily $389.6 million proceeds from divestitures and the sale of property, plant and equipment, slightly offset by $74.4 million for capital expenditures and $15.4 million for acquisitions and other investing activities.

The financing activities

consisted primarily of $197.2 million net payments on debt, $225.3 million for dividends paid to the Company’s shareholders and $95.7 million paid for share repurchases.

The Company’s cash balance of $900.1 million at September 30, 2020 increased $623.1 million, or 225.0%, from December 31, 2019.

For the nine months ended September 30, 2020, the Company had net cash provided by operating activities of $1.4 billion, net cash provided by investing activities of $0.2 billion and net cash used in financing activities of $1.0 billion.

cash provided by operating activities was primarily driven by entry into the A/R Sales Agreement to sell receivables, which provided a $500 million benefit to operating cash flows, and the effective management of our working capital.

Refer to the accounts receivable sales agreement footnote in the notes to the condensed consolidated financial statements for more information.

The investing activities consisted primarily of $394.4 million proceeds from the divestiture of the Business Products Group and the sale of property, plant and equipment, slightly offset by $105.4 million for capital expenditures and $59.1 million for acquisitions and other investing activities.

The financing activities consisted primarily of $577.4 million net payments on debt, $339.3 million for dividends paid to the Company’s shareholders and $95.7 million paid for share repurchases.

Accounts receivable decreased $488.0 million, or 20.0%, from December 31, 2019 primarily due to entering into the A/R Sales Agreement.

As we continue to operate through 2020 and this uncertain environment, we will be closely monitoring our collection trends.

However, collection trends are currently meeting our expectations and we have observed that many of our small and medium-sized customers in the U.S.

and international markets are receiving various forms of government assistance.

Inventory decreased $92.1 million, or 2.7%, and accounts payable decreased $203.0 million, or 5.1% from December 31, 2019.

Total debt of $3.2 billion at June 30, 2020 decreased $209.2 million, or 6.1%, from December 31, 2019.

Inventory decreased $24.5 million, or 0.7%, due to ongoing inventory management initiatives and accounts payable increased $82.3 million, or 2.1% from December 31, 2019 partly due to extended payment terms with certain suppliers.

Total debt of $2.9 billion at September 30, 2020 decreased $0.5 billion, or 15.2%, from December 31, 2019 primarily due to a reduction in the amounts outstanding on our revolving credit facility.

We continue to negotiate extended payment dates with our suppliers.

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All activity related to amounts due to suppliers that elected to participate in the SCF program is reflected in cash flows from operating activities in our condensed consolidated statement of cash flows.

We have been informed by the financial institutions that as of June 30, 2020 and December 31, 2019, suppliers elected to sell $1.8 billion and $1.8 billion, respectively, of our outstanding payment obligations to the financial institutions.

The amount settled through the SCF program was $1.3 billion for the six months ended June 30, 2020.

We have been informed by the financial institutions that as of September 30, 2020 and December 31, 2019, suppliers elected to sell $1.8 billion and $1.8 billion, respectively, of our outstanding payment obligations to the financial institutions.

The amount settled through the SCF program was $1.9 billion for the nine months ended September 30, 2020.

Liquidity and Capital Resources

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The Company currently believes that the existing lines of credit and cash generated from operations will be sufficient to fund anticipated operations for the foreseeable future.

On April 6, 2020, the Board of Directors declared a regular quarterly cash dividend of seventy-nine cents ($0.79) per share on the Company’s common stock.

On February 18, 2020, the Company announced a 4% increase in the regular quarterly cash dividend for 2020.

The Board of Directors increased the cash dividend payable to an annual rate of $3.16 per share compared with the previous dividend of $3.05 per share.

GPC has paid a cash dividend every year since going public in 1948, and 2020 marks the 64th consecutive year of increased dividends paid to shareholders.

At this time, we expect to continue to pay dividends in the ordinary course.

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On May 29, 2020, we entered into an agreement (the "A/R Sales Agreement") to sell short-term receivables from certain customer trade accounts to an unaffiliated financial institution.

The A/R Sales Agreement has a one year term, which the

Company intends to renew each year.

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

The terms of the A/R Sales Agreement limit the balance of receivables sold to approximately $500 million at any point in time.

In addition, we qualify and are taking advantage of certain employer payroll tax credits and the deferral of certain tax payments that are allowed under the Coronavirus Aid, Relief, and Economic Security Act.

In addition, we qualify and are taking advantage of certain employer payroll tax credits and the deferral of certain tax payments that are allowed under the U.S.

Coronavirus Aid, Relief, and Economic Security Act.

Although we expect our borrowing costs to increase in the near term as a result of credit market disruptions caused by the COVID-19 pandemic, we expect to be able to continue to borrow funds at reasonable rates over the long term.

At June 30, 2020, the Company's total average cost of debt was 2.85%, and the Company remained in compliance with all covenants connected with its borrowings, such covenants include, among others, a financial covenant to maintain a certain leverage ratio of consolidated debt to consolidated EBITDA under our credit facility.

At September 30, 2020, the Company's total average cost of debt was 2.95%, and the Company remained in compliance with all covenants connected with its borrowings, such covenants include, among others, a financial covenant to maintain a certain leverage ratio of consolidated debt to consolidated Adjusted EBITDA under our credit facility.

Any failure to comply with our debt covenants or restrictions could result in a default under our financing arrangements or could require us to obtain waivers from our lenders for failure to comply with these restrictions.

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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 2. Management’s Discussion and Analysis