What changed in this filing

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Item 1. Financial Statements

2021-07-22 compared with 2021-04-22 · 192 added, 106 removed, 333 unchanged (47% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data) March 31, 2021 December 31, 2020

(in thousands, except share and per share data) June 30, 2021 December 31, 2020

Current assets:

44 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive loss ( 1,023,760 ) ( 1,036,502 )

111,972 117,165

Retained earnings

3,982,159 3,979,779

Accumulated other comprehensive loss

( 1,003,554 ) ( 1,036,502 )

Total parent equity

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,

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

(in thousands, except per share data) 2021 2020 2021 2020

8 unchanged sentences

Restructuring costs — 25,059 — 28,041

Goodwill impairment charge — 506,721 — 506,721

Total operating expenses

1,428,306 1,581,402 2,700,675 2,800,854

Non-operating (income) expense:

Non-operating (income) expenses:

Interest expense 16,107 25,465 35,169 46,430

Other ( 24,915 ) ( 11,944 ) ( 61,390 ) ( 24,776 )

Total non-operating (income) expense ( 17,413 ) 8,133

Income before income taxes 285,859 160,593

68,149 38,247

Net income from continuing operations 217,710 122,346

Net income from discontinued operations — 14,189

Net income $ 217,710 $ 136,535

Total non-operating (income) expenses ( 8,808 ) 13,521 ( 26,221 ) 21,654

Income (loss) before income taxes 269,607 ( 304,436 ) 555,466 ( 143,843 )

Income taxes 73,111 59,065 141,260 97,312

Net income (loss) from continuing operations 196,496 ( 363,501 ) 414,206 ( 241,155 )

Net loss from discontinued operations — ( 200,871 ) — ( 186,682 )

Net income (loss) $ 196,496 $ ( 564,372 ) $ 414,206 $ ( 427,837 )

Dividends declared per common share $ 0.8150 $ 0.7900 $ 1.6300 $ 1.5800

$ 0.8150 $ 0.7900

Basic earnings per share:

Basic earnings (loss) per share:

Continuing operations $ 1.36 $ ( 2.52 ) $ 2.87 $ ( 1.67 )

Discontinued operations — ( 1.39 ) — ( 1.29 )

Basic earnings per share $ 1.51 $ 0.94

Diluted earnings per share:

Basic earnings (loss) per share $ 1.36 $ ( 3.91 ) $ 2.87 $ ( 2.96 )

Diluted earnings (loss) per share:

Continuing operations $ 1.36 $ ( 2.52 ) $ 2.85 $ ( 1.67 )

Discontinued operations — ( 1.39 ) — ( 1.29 )

Diluted earnings per share $ 1.50 $ 0.94

Diluted earnings (loss) per share $ 1.36 $ ( 3.91 ) $ 2.85 $ ( 2.96 )

Weighted average common shares outstanding

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended March 31,

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

(in thousands, except per share data) 2021 2020 2021 2020

Net income $ 217,710 $ 136,535

Net income (loss) $ 196,496 $ ( 564,372 ) $ 414,206 $ ( 427,837 )

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

Foreign currency translation adjustments, net of income taxes in 2021 — $ 21,185 ;

2020 — $ 15,560

( 295 ) ( 182,613 )

Cash flow hedge adjustments, net of income taxes in 2021 — $ 1,384 ;

Foreign currency translation adjustments, net of income taxes in 2021 — $ 7,019 and $ 14,166 ;

2020 — $ 12,114 and $ 3,445 , respectively

7,131 111,599 6,836 ( 71,014 )

Cash flow hedge adjustments, net of income taxes in 2021 — $ 1,383 and $ 2,767 ;

2020 — $ 560 and $ 6,044 , respectively

3,741 1,514 7,482 ( 16,342 )

Pension and postretirement benefit adjustments, net of income taxes in 2021 — $ 3,421 ;

Pension and postretirement benefit adjustments, net of income taxes in 2021 — $ 3,434 and $ 6,855 ;

2020 — $ 3,008 and $ 6,025 , respectively

9,334 7,844 18,630 16,292

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

(in thousands, except share and per share data) Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Parent Equity Non-controlling Interests in Subsidiaries Total Equity

January 1, 2021 144,354,335 $ 144,354 $ 117,165 $ ( 1,036,502 ) $ 3,979,779 $ 3,204,796 $ 13,207 $ 3,218,003

April 1, 2021 144,458,057 $ 144,458 $ 117,867 $ ( 1,023,760 ) $ 4,085,998 $ 3,324,563 $ 11,546 $ 3,336,109

Net income — — — — 196,496 196,496 — 196,496

2 unchanged sentences

— — — — ( 117,406 ) ( 117,406 ) — ( 117,406 )

Share-based awards exercised, including tax benefit of $ 1,764

103,722 104 ( 5,533 ) — — ( 5,429 ) — ( 5,429 )

Share-based awards exercised 279,441 280 ( 14,181 ) — — ( 13,901 ) — ( 13,901 )

Share-based compensation — — 8,286 — — 8,286 — 8,286

Cumulative effect from adoption of ASU 2019-12 (1) — — — — 6,223 6,223 — 6,223

Purchase of stock ( 1,435,825 ) ( 1,436 ) — — ( 182,929 ) ( 184,365 ) — ( 184,365 )

Noncontrolling interest activities — — — — — — ( 280 ) ( 280 )

March 31, 2021 144,458,057 $ 144,458 $ 117,867 $ ( 1,023,760 ) $ 4,085,998 $ 3,324,563 $ 11,546 $ 3,336,109

Three Months Ended March 31, 2020

June 30, 2021 143,301,673 $ 143,302 $ 111,972 $ ( 1,003,554 ) $ 3,982,159 $ 3,233,879 $ 11,266 $ 3,245,145

Six Months Ended June 30, 2021

4 unchanged sentences

— — — — ( 235,120 ) ( 235,120 ) — ( 235,120 )

Share-based awards exercised, including tax benefit of $ 221

Share-based awards exercised 383,163 384 ( 19,714 ) — — ( 19,330 ) — ( 19,330 )

Share-based compensation — — 14,521 — — 14,521 — 14,521

Purchase of stock ( 1,435,825 ) ( 1,436 ) — — ( 182,929 ) ( 184,365 ) — ( 184,365 )

Cumulative effect from adoption of ASU 2019-12 (1) — — — — 6,223 6,223 — 6,223

Noncontrolling interest activities — — — — — — ( 1,941 ) ( 1,941 )

June 30, 2021 143,301,673 $ 143,302 $ 111,972 $ ( 1,003,554 ) $ 3,982,159 $ 3,233,879 $ 11,266 $ 3,245,145

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)

Three Months Ended June 30, 2020

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 )

Other comprehensive income, net of tax — — — 120,957 — 120,957 — 120,957

Cash dividend declared, $ 0.7900 per share

— — — — ( 113,968 ) ( 113,968 ) — ( 113,968 )

Share-based awards exercised 14,846 15 ( 464 ) — — ( 449 ) — ( 449 )

Share-based compensation — — 4,405 — — 4,405 — 4,405

Noncontrolling interest activities — — — — — — 1,284 1,284

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

January 1, 2020 145,378,158 $ 145,378 $ 98,777 $ ( 1,141,308 ) $ 4,571,860 $ 3,674,707 $ 20,793 $ 3,695,500

Net loss — — — — ( 427,837 ) ( 427,837 ) — ( 427,837 )

Other comprehensive loss, net of tax — — — ( 71,064 ) — ( 71,064 ) — ( 71,064 )

Cash dividend declared, $ 1.5800 per share

— — — — ( 228,444 ) ( 228,444 ) — ( 228,444 )

Share-based awards exercised 22,475 22 ( 812 ) — — ( 790 ) — ( 790 )

Share-based compensation — — 9,854 — — 9,854 — 9,854

Purchase of stock ( 1,136,444 ) ( 1,136 ) — — ( 94,583 ) ( 95,719 ) — ( 95,719 )

1 unchanged sentence

Noncontrolling interest activities — — — — — — 820 820

March 31, 2020 144,249,343 $ 144,249 $ 103,878 $ ( 1,333,329 ) $ 4,487,904 $ 3,402,702 $ 20,329 $ 3,423,031

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

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2021 2020

Operating activities:

Net income $ 217,710 $ 136,535

Net income from discontinued operations — 14,189

Net income from continuing operations 217,710 122,346

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:

Net income (loss) $ 414,206 $ ( 427,837 )

Net loss from discontinued operations — ( 186,682 )

Net income (loss) from continuing operations 414,206 ( 241,155 )

Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:

Depreciation and amortization

146,256 133,987

Share-based compensation

Excess tax benefits from share-based compensation ( 1,764 ) ( 221 )

Excess tax (benefits) deficiencies from share-based compensation ( 6,627 ) 162

Realized currency losses — 11,356

Goodwill impairment charge — 506,721

Changes in operating assets and liabilities

136,074 499,795

Net cash provided by operating activities from continuing operations

2 unchanged sentences

Purchases of property, plant and equipment

( 89,993 ) ( 74,358 )

Proceeds from sale of property, plant and equipment 22,065 6,838

1 unchanged sentence

Acquisitions of businesses and other investing activities

Net cash used in investing activities from continuing operations ( 40,672 ) ( 28,978 )

( 97,168 ) ( 15,393 )

Net cash (used in) provided by investing activities from continuing operations ( 151,391 ) 299,824

Financing activities:

Proceeds from debt

31,599 1,885,109

Payments on debt

( 142,295 ) ( 2,082,271 )

Share-based awards exercised

( 19,330 ) ( 790 )

Dividends paid

( 231,627 ) ( 225,327 )

Purchases of stock

( 184,365 ) ( 95,719 )

Other financing activities ( 2,159 ) ( 8,357 )

Net cash (used in) provided by financing activities from continuing operations ( 115,994 ) 53,456

Net cash used in financing activities from continuing operations ( 548,177 ) ( 527,355 )

Cash flows from discontinued operations:

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Effect of exchange rate changes on cash and cash equivalents

( 7,639 ) ( 6,959 )

Net increase in cash and cash equivalents

( 2,777 ) 706,767

Cash and cash equivalents at beginning of period

990,166 276,992

Cash and cash equivalents at end of period

$ 987,389 $ 983,759

See accompanying notes to condensed consolidated financial statements.

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

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of results for the year ended December 31, 2021.

The Company's results of operations improved in the first quarter of 2021 relative to the first quarter of 2020 as a result of several positive trends caused by the global response to the coronavirus (“COVID-19”) outbreak, which was declared a pandemic in March 2020.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of results for the year ended December 31, 2021.

The Company's results of operations improved in the first half of 2021 relative to the first half of 2020 as a result of several positive trends caused by the global response to the coronavirus (“COVID-19”) outbreak, which was declared a pandemic in March 2020.

In particular, as widespread vaccine distribution continued, we have seen economic recovery in many of the markets where we operate and a significant uptick in consumer mobility.

However, the Company's operations remain vulnerable to reversal of these trends or other continuing negative effects caused by COVID-19.

However, the Company's operations remain vulnerable to continuing negative effects caused by COVID-19.

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

the occurrence of additional waves or spikes in infection rates;

the occurrence of additional waves or spikes in infection rates, including the spread of variant strains;

the duration of the outbreak;

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the effectiveness and distribution of COVID-19 vaccines;

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

the ability of the global population to access such vaccines;

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

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

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

Three Months Ended March 31,

Automotive $ 2,953,165 $ 2,582,685

Industrial 1,511,549 1,509,841

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

2021 2020 2021 2020

$ 3,196,299 $ 2,495,799 $ 6,149,464 $ 5,078,484

1,587,439 1,327,428 3,098,988 2,837,269

Total net sales

$ 4,783,738 $ 3,823,227 $ 9,248,452 $ 7,915,753

Segment profit:

Automotive $ 235,678 $ 142,578

Industrial 125,292 113,933

$ 290,758 $ 218,906 $ 526,436 $ 361,484

150,413 108,928 275,705 222,861

Total segment profit

441,171 327,834 802,141 584,345

Interest expense, net

5 unchanged sentences

Other unallocated costs (1) ( 77,421 ) ( 555,525 ) ( 77,421 ) ( 553,774 )

Income before income taxes from continuing operations $ 285,859 $ 160,593

Income (loss) before income taxes from continuing operations $ 269,607 $ ( 304,436 ) $ 555,466 $ ( 143,843 )

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

Three Months Ended March 31,

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

2021 2020 2021 2020

Other unallocated costs:

Product liability damages award (2) $ ( 77,421 ) $ — $ ( 77,421 ) $ —

Goodwill impairment charge (3) — ( 506,721 ) — ( 506,721 )

Restructuring costs (4) — ( 25,059 ) — ( 28,041 )

Realized currency loss (5) — ( 11,356 ) — ( 11,356 )

Gain on insurance proceeds related to SPR Fire (6) — 1,166 — 13,448

1 unchanged sentence

Total other unallocated costs $ ( 77,421 ) $ ( 555,525 ) $ ( 77,421 ) $ ( 553,774 )

(2) Adjustment reflects restructuring costs related to the execution of the 2019 Cost Savings Plan.

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

Refer to the commitments and contingencies footnote to the condensed consolidated financial statements for more information.

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

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

The costs are primarily associated with severance and other employee costs, including a voluntary retirement program, and facility and closure costs related to the consolidation of operations.

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

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

Richards Headquarters and Distribution Center.

(4) Adjustment reflects $ 6,000 of incremental costs associated with COVID-19 for the three months ended March 31, 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.

(7) 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.

COVID-19 related costs include

incremental costs incurred relating to fees to cancel marketing events and increased cleaning and sanitization materials, among other things.

Net sales are disaggregated by geographical region for each of the Company’s reportable segments, as the Company deems this presentation best depicts how the nature, amount, timing and uncertainty of net sales and cash flows are affected by economic factors.

The following table presents disaggregated geographical net sales from contracts with customers by reportable segment:

Three Months Ended March 31,

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

2021 2020 2021 2020

North America:

Automotive $ 1,862,805 $ 1,731,496

Industrial 1,399,399 1,410,715

$ 2,076,562 $ 1,715,567 $ 3,939,367 $ 3,447,063

1,469,775 1,231,208 2,869,174 2,641,923

Total North America

Automotive $ 367,869 $ 272,924

Industrial 112,150 99,126

$ 3,546,337 $ 2,946,775 $ 6,808,541 $ 6,088,986

$ 388,708 $ 282,797 $ 756,577 $ 555,721

117,664 96,220 229,814 195,346

Total Australasia

$ 506,372 $ 379,017 $ 986,391 $ 751,067

Europe – Automotive

3 unchanged sentences

Accumulated Other Comprehensive Loss

The following tables present the changes in accumulated other comprehensive loss (“AOCL”) by component for the three months ended March 31:

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

Changes in Accumulated Other

2 unchanged sentences

Beginning balance, January 1, 2021 $ ( 692,868 ) $ ( 30,007 ) $ ( 313,627 ) $ ( 1,036,502 )

Other comprehensive loss before reclassifications — — ( 295 ) ( 295 )

Other comprehensive income before reclassifications — — 6,836 6,836

Amounts reclassified from accumulated other comprehensive loss

Other comprehensive income (loss), net of income taxes 9,296 3,741 ( 295 ) 12,742

Ending balance, March 31, 2021 $ ( 683,572 ) $ ( 26,266 ) $ ( 313,922 ) $ ( 1,023,760 )

18,630 7,482 — 26,112

Other comprehensive income, net of income taxes 18,630 7,482 6,836 32,948

Ending balance, June 30, 2021 $ ( 674,238 ) $ ( 22,525 ) $ ( 306,791 ) $ ( 1,003,554 )

Changes in Accumulated Other

5 unchanged sentences

Other comprehensive income (loss), net of income taxes 16,292 ( 16,342 ) ( 71,014 ) ( 71,064 )

Ending balance, March 31, 2020 $ ( 695,967 ) $ ( 38,527 ) $ ( 598,835 ) $ ( 1,333,329 )

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

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

Generally, tax effects in AOCL are established at the currently enacted tax rate and reclassified to net income in the same period that the related pre-tax AOCL reclassifications are recognized.

The nature of the cash flow hedges are discussed in the derivatives and hedging footnote.

Generally, tax effects in AOCL are established at the currently enacted tax rate and reclassified to net income (loss) in the same period that the related pre-tax AOCL reclassifications are recognized.

Recent Accounting Pronouncements

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Employee Benefit Plans

Net periodic benefit income from the Company's pension plans included the following components for the three months ended March 31:

Pension Benefits

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

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

2021 2020 2021 2020

Service cost $ 3,101 $ 2,925 $ 6,142 $ 5,907

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Expected return on plan assets ( 38,858 ) ( 38,410 ) ( 77,590 ) ( 76,933 )

Amortization of prior service cost 172 173

Amortization of prior service credit 172 173 344 346

Amortization of actuarial loss 12,509 11,088 24,965 22,210

Net periodic benefit income $ ( 5,114 ) $ ( 3,359 ) $ ( 10,271 ) $ ( 6,680 )

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) expense.

Pension benefits also include amounts related to supplemental retirement plans.

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The Company’s maximum exposure to loss as a result of its involvement with these independents and affiliates is generally equal to the total borrowings subject to the Company’s guarantees.

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

At March 31, 2021, the Company was in compliance with all such covenants.

As of March 31, 2021, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately $ 911,865 .

While such borrowings of the independents and affiliates are outstanding, the Company is required to maintain compliance with certain covenants.

At June 30, 2021, the Company was in compliance with all such covenants.

As of June 30, 2021, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately $ 896,080 .

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

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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 March 31, 2021, there are no material guaranteed loans for which the borrower is experiencing financial difficulty and recovery is expected to be provided substantially through the operation or sale of the collateral.

As of March 31, 2021, the Company has recognized certain assets and liabilities amounting to $ 82,000 each for the guarantees related to the independents’ and affiliates’ borrowings.

As of June 30, 2021, there are no material guaranteed loans for which the borrower is experiencing financial difficulty and recovery is expected to be provided substantially through the operation or sale of the collateral.

As of June 30, 2021, the Company has recognized certain assets and liabilities amounting to $ 78,000 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.

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Accounts Receivable Sales Agreement

In 2020, the Company entered into an accounts receivable sales agreement (the “A/R Sales Agreement”) to sell short-term receivables from certain customer trade accounts to an unaffiliated financial institution on a revolving basis.

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

The Company has an accounts receivable sales agreement (the “A/R Sales Agreement”) to sell short-term receivables from certain customer trade accounts to an unaffiliated financial institution on a revolving basis.

The A/R Sales Agreement has a 3 year term, which the Company intends to renew.

As part of the A/R Sales Agreement, the Company continuously sells designated pools of receivables as they are originated by it and certain U.S.

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The remaining receivables held by the SPE were pledged to secure the collectability of the sold receivables.

The amount of receivables pledged as collateral as of March 31, 2021 and December 31, 2020 is approximately $ 957,000 and $ 771,000 , respectively.

The amount of receivables pledged as collateral as of June 30, 2021 and December 31, 2020 is approximately $ 959,000 and $ 771,000 , respectively.

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

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The future amount of receivables outstanding as sold could decrease, based on the level of activity and other factors.

Total principal amount outstanding of receivables sold is approximately $ 800,000 as of March 31, 2021 and December 31, 2020, respectively.

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

Three Months Ended March 31,

Total principal amount outstanding of receivables sold is approximately $ 800,000 as of June 30, 2021 and December 31, 2020, respectively.

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

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

2021 2020 2021 2020

Receivables sold to the financial institution and derecognized $ 1,888,942 $ 902,326 $ 3,816,873 $ 902,326

5 unchanged sentences

The SPE has a recourse obligation to repurchase from the unaffiliated financial institution any previously sold receivables that are not collected due to the occurrence of certain events, including credit quality deterioration and customer sales returns.

The reserve recognized for this recourse obligation as of March 31, 2021 and December 31, 2020 is not material.

The reserve recognized for this recourse obligation as of June 30, 2021 and December 31, 2020 is not material.

The servicing liability related to the Company's collection services also is not material, given the high quality of the customers underlying the receivables and the anticipated short collection period.

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

As of March 31, 2021 the fair value of the Company's senior unsecured notes was approximately $ 2,617,989 , which are designated as Level 2 in the fair value hierarchy.

As of June 30, 2021 the fair value of the Company's senior unsecured notes was approximately $ 2,617,081 , which are designated as Level 2 in the fair value hierarchy.

Our valuation technique is based primarily on prices and other relevant information generated by observable transactions involving identical or comparable assets or liabilities.

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The Company formally documents relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions.

This process includes linking cash flow hedges to specific forecasted transactions or variability of cash flows to be paid.

This process includes linking cash flow hedges to specific forecasted transactions or variability of cash flow to be paid.

The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the designated derivative and non-derivative instruments that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items.

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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:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Balance Sheet Location

1 unchanged sentence

Net investment hedges:

Forward contracts Prepaid expenses and other current assets

Forward contracts

Prepaid expenses and other current assets

$ 925,810 $ 37,783 $ 800,000 $ 7,668

Forward contracts Other current liabilities $ 235,180 $ 12,223 $ 360,990 $ 19,442

Foreign currency debt Long-term debt

Foreign currency debt

Long-term debt

€ 700,000 $ 832,790 € 700,000 $ 861,070

2 unchanged sentences

2021 2020 2021 2020

Three Months Ended March 31,

Three Months Ended June 30,

Cash flow hedges:

Interest rate contracts

$ — $ ( 4,370 ) $ — $ —

Net investment hedges:

4 unchanged sentences

Total $ ( 25,999 ) $ ( 49,237 ) $ 6,574 $ 7,476

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

2021 2020 2021 2020

Six Months Ended June 30,

Cash flow hedges:

Interest rate contracts $ — $ ( 28,830 ) $ — $ —

Net investment hedges:

Forward contracts 24,186 15,701 13,148 13,998

Foreign currency debt 28,280 ( 2,940 ) — —

Total $ 52,466 $ ( 16,069 ) $ 13,148 $ 13,998

Commitments and Contingencies

Legal Matters

As more fully discussed in the Company's notes to the consolidated financial statements in its 2020 Annual Report on Form 10-K, a jury awarded damages against the Company in a litigated automotive product liability dispute.

As more fully discussed in the Company's notes to the consolidated financial statements in its 2020 Annual Report on Form 10-K, a jury awarded damages in 2017 against the Company in a litigated automotive product liability dispute.

On February 19, 2020, the Washington Court of Appeals issued an order entirely reversing the jury’s finding on damages and ordering a new trial on damages.

1 unchanged sentence

On July 7, 2020, the Washington Supreme Court indicated that it would consider a further appeal on this matter, and oral arguments occurred on November 10, 2020.

A ruling from Washington Supreme Court is expected in 2021.

At the time of the filing of these financial statements, based upon the Company’s legal defenses and insurance coverage, the Company does not believe this matter will have a material impact to the condensed consolidated financial statements.

On July 8, 2021, the Washington Supreme Court overturned the order of the Washington Court of Appeals and reinstated the trial court's damage award of $ 77,100 against the Company.

The Company recorded an adjustment to increase Selling, general and other expenses by approximately $ 77,421 , inclusive of statutory interest and insurance coverage, in the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2021.

Environmental Liabilities

Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that the Company reasonably believes will exceed an applied threshold not to exceed $1 million.

Applying this threshold, there are no environmental matters to disclose for this period.

Acquisitions, Divestitures and Discontinued Operations

The Company acquired several businesses for approximately $ 20,340 and $ 20,874 , net of cash acquired, during the three months ended March 31, 2021 and March 31, 2020, respectively.

The measurement period is still open for certain businesses acquired in prior periods, but there have been no significant measurement period adjustments from finalizing acquisition accounting during the three months ended March 31, 2021.

The Company received cash proceeds from divestitures of businesses totaling $ 10,345 and $ 10,442 for the three months ended March 31, 2021 and March 31, 2020, respectively.

The Company acquired several businesses for approximately $ 98,018 and $ 33,047 , net of cash acquired, during the six months ended June 30, 2021 and June 30, 2020, respectively.

The measurement period is still open for certain businesses acquired in prior periods, but there have been no significant measurement period adjustments during the three and six months ended June 30, 2021.

The Company received cash proceeds from divestitures of businesses totaling $ 13,705 and $ 382,737 for the six months ended June 30, 2021 and June 30, 2020, respectively.

Discontinued Operations

2 unchanged sentences

This divestiture represented a single plan to exit the Business Products Group segment and was considered a strategic shift that had a major effect on the Company’s operations and financial results.

Therefore, the results of operations, financial position and cash flows for the Business Products Group are reported as discontinued operations for all periods presented.

Therefore, the results of operations, financial position and cash flows for the Business Products Group are reported as discontinued operations for all prior periods presented.

The Company retains an investment in S.P.

Richard's (“SPR”), a business that previously belonged to the Business Products Group, with a carrying value of $ 70,883 , which is included within other assets on the condensed consolidated balance sheets, as of March 31, 2021.

The Company maintains an allowance equal to the current expected credit loss based on a consideration of

historical experience, current market conditions and reasonable and supportable forecasts related to this investment and other related assets of $ 17,000 .

Richard's (“SPR”), a business that previously belonged to the Business Products Group, with a carrying value of $ 70,576 , which is included within other assets on the condensed consolidated balance sheets, as of June 30, 2021.

The Company maintains an allowance equal to the current expected credit loss based on a consideration of historical experience, current market conditions and reasonable and supportable forecasts related to this investment and other related assets of $ 17,000 .

The Company also remains involved with SPR for a limited period of time through various lease, sublease, freight distribution and transition service agreements.

3 unchanged sentences

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

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020

Net sales $ 379,938 $ 846,944

Cost of goods sold

Gross profit 112,613

Operating and non-operating expenses 90,076

Loss on divestiture 4,185

Income before income taxes 18,352

Income taxes 4,163

Net income from discontinued operations $ 14,189

277,614 632,007

102,324 214,937

Operating expenses 89,385 179,461

Loss on disposal 216,133 220,318

Loss before income taxes ( 203,194 ) ( 184,842 )

Income tax (benefit) expense ( 2,323 ) 1,840

Net loss from discontinued operations $ ( 200,871 ) $ ( 186,682 )

The Company's effective income tax rate was 27.1 % for the three months ended June 30, 2021, compared to negative 19.4 % for the same three month period in 2020.

The effective income tax rate was 25.4 % for the six months ended June 30, 2021, compared to negative 67.7 % for the same period in 2020.

The rate increase is primarily due to the non-deductible goodwill impairment charge that occurred in 2020.

In addition, during the second quarter of 2021 the United Kingdom enacted legislation raising its corporate tax rate from 19% to 25% effective April 2023.

The Company remeasured its deferred tax assets and liabilities as of June 30, 2021, primarily related to its intangible assets.

The rate increase was partially offset by stock compensation excess tax benefits.

Earnings Per Share

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

Certain outstanding options to purchase are not included in the diluted earnings per share calculation because their inclusion would have been anti-dilutive.

There were no anti-dilutive shares outstanding for the three months ended March 31, 2021, as compared to approximately 1,410 for the three months ended March 31, 2020.

Certain outstanding options to purchase shares of common stock are not included in the diluted earnings per share calculation because their inclusion would have been anti-dilutive.

Options to purchase approximately 186 and 99 shares of common stock were outstanding but excluded from the computations of diluted earnings per share for the three and six month periods ended June 30, 2021, respectively, as compared

to approximately 2,537 and 2,418 for the three and six month periods ended June 30, 2020, respectively.

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

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