What changed in this filing

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Item 1. Financial Statements

2021-10-21 compared with 2021-07-22 · 107 added, 145 removed, 380 unchanged (40% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

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

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

Current assets:

18 unchanged sentences

Trade accounts payable $ 4,819,084 $ 4,128,084

$ 4,729,240 $ 4,128,084

Current portion of debt — 160,531

48,094 160,531

Dividends payable 116,356 114,043

117,536 114,043

Other current liabilities 1,601,883 1,491,426

1,626,325 1,491,426

Total current liabilities 6,537,323 5,894,084

6,521,195 5,894,084

Long-term debt 2,432,539 2,516,614

2,472,980 2,516,614

Operating lease liabilities 781,750 789,294

Pension and other post–retirement benefit liabilities 254,727 265,687

255,175 265,687

Deferred tax liabilities 222,467 212,910

230,463 212,910

Other long-term liabilities 549,574 543,623

562,945 543,623

Preferred stock, par value – $ 1 per share;

6 unchanged sentences

Additional paid-in capital 118,223 117,165

111,972 117,165

Retained earnings 3,995,537 3,979,779

3,982,159 3,979,779

Accumulated other comprehensive loss ( 1,073,086 ) ( 1,036,502 )

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

Total parent equity 3,183,177 3,204,796

3,233,879 3,204,796

Noncontrolling interests in subsidiaries 13,381 13,207

3,245,145 3,218,003

Total equity 3,196,558 3,218,003

Total liabilities and equity $ 13,974,938 $ 13,440,215

$ 14,085,982 $ 13,440,215

See accompanying notes to condensed consolidated financial statements.

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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

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

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

Net sales $ 4,818,849 $ 4,370,086 $ 14,067,301 $ 12,285,839

Cost of goods sold 3,108,082 2,842,020 9,126,614 8,079,108

3,094,633 2,532,740 6,018,532 5,237,088

1,689,105 1,290,487 3,229,920 2,678,665

Gross profit 1,710,767 1,528,066 4,940,687 4,206,731

Operating expenses:

5 unchanged sentences

Total operating expenses 1,415,173 1,225,854 4,115,848 4,026,708

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

Non-operating (income) expenses:

2 unchanged sentences

Total non-operating (income) expenses ( 3,380 ) 4,547 ( 29,601 ) 26,201

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

Income before income taxes 298,974 297,665 854,440 153,822

Income taxes 70,389 64,747 211,649 162,059

12 unchanged sentences

Weighted average common shares outstanding 142,871 144,273 143,826 144,528

144,211 144,262 144,312 144,657

Dilutive effect of stock options and non-vested restricted stock awards 718 762 796 —

Weighted average common shares outstanding – assuming dilution 143,589 145,035 144,622 144,528

144,983 144,262 145,158 144,657

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

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

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

(in thousands) 2021 2020 2021 2020

Net income (loss) $ 228,585 $ 227,531 $ 642,791 $ ( 200,306 )

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

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

Foreign currency translation adjustments, net of income taxes in 2021 — $ 11,328 and $ 25,494 ;

7 unchanged sentences

9,301 8,187 27,931 24,479

Other comprehensive income (loss), net of income taxes

20,206 120,957 32,948 ( 71,064 )

Other comprehensive (loss) income, net of income taxes ( 69,532 ) 45,800 ( 36,584 ) ( 25,264 )

Comprehensive income (loss) $ 159,053 $ 273,331 $ 606,207 $ ( 225,570 )

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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

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

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

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

Net income — — — — 228,585 228,585 — 228,585

Other comprehensive income, net of tax — — — 20,206 — 20,206 — 20,206

Other comprehensive loss, net of tax — — — ( 69,532 ) — ( 69,532 ) — ( 69,532 )

Cash dividend declared, $ 0.8150 per share

4 unchanged sentences

Noncontrolling interest activities — — — — — — 2,115 2,115

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

September 30, 2021 142,503,493 $ 142,503 $ 118,223 $ ( 1,073,086 ) $ 3,995,537 $ 3,183,177 $ 13,381 $ 3,196,558

Nine Months Ended September 30, 2021

9 unchanged sentences

Noncontrolling interest activities — — — — — — 174 174

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

September 30, 2021 142,503,493 $ 142,503 $ 118,223 $ ( 1,073,086 ) $ 3,995,537 $ 3,183,177 $ 13,381 $ 3,196,558

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)

Three Months Ended June 30, 2020

Three Months Ended September 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 )

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

4 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

9 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

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

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2021 2020

5 unchanged sentences

Depreciation and amortization 218,377 203,084

146,256 133,987

Loss on software disposal 61,063 —

Share-based compensation 20,841 16,274

Excess tax (benefits) deficiencies from share-based compensation ( 6,667 ) 375

Realized currency losses — 11,356

Goodwill impairment charge — 506,721

Realized currency and other divestiture losses — 11,356

Changes in operating assets and liabilities 71,791 697,611

136,074 499,795

Net cash provided by operating activities from continuing operations 1,008,196 1,427,184

704,430 920,720

Investing activities:

Purchases of property, plant and equipment ( 138,206 ) ( 105,428 )

( 89,993 ) ( 74,358 )

Proceeds from sale of property, plant and equipment 24,184 11,675

1 unchanged sentence

Acquisitions of businesses and other investing activities ( 142,567 ) ( 59,062 )

( 97,168 ) ( 15,393 )

Net cash (used in) provided by investing activities from continuing operations ( 239,902 ) 229,922

1 unchanged sentence

Proceeds from debt 242,332 1,888,622

31,599 1,885,109

Payments on debt ( 403,126 ) ( 2,466,031 )

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

Share-based awards exercised ( 19,398 ) ( 1,754 )

( 19,330 ) ( 790 )

Dividends paid ( 349,293 ) ( 339,294 )

( 231,627 ) ( 225,327 )

Purchases of stock ( 283,886 ) ( 95,719 )

( 184,365 ) ( 95,719 )

Other financing activities ( 5,353 ) ( 15,032 )

6 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents ( 20,639 ) ( 6,959 )

( 7,639 ) ( 6,959 )

Net increase in cash and cash equivalents

( 2,777 ) 706,767

Net (decrease) increase in cash and cash equivalents ( 71,069 ) 623,131

Cash and cash equivalents at beginning of period 990,166 276,992

990,166 276,992

Cash and cash equivalents at end of period $ 919,097 $ 900,123

$ 987,389 $ 983,759

See accompanying notes to condensed consolidated financial statements.

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These adjustments are of a normal recurring nature.

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

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.

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

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

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

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

However, the Company's operations remain vulnerable to the continuing negative economic effects caused by the pandemic.

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

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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.

impacts on customer demand, impacts on the Company's supply chain including the impact of higher shipping-related charges as a result of port slowdowns or congestion, and its ability to attract talent and keep operating locations open.

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

1 unchanged sentence

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,

2021 2020 2021 2020

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

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

2021 2020 2021 2020

Automotive $ 3,204,534 $ 2,960,379 $ 9,353,998 $ 8,038,863

Industrial 1,614,315 1,409,707 4,713,303 4,246,976

Total net sales $ 4,818,849 $ 4,370,086 $ 14,067,301 $ 12,285,839

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

Segment profit:

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

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

Automotive $ 281,150 $ 266,124 $ 807,586 $ 627,608

Industrial 165,754 125,620 441,459 348,481

Total segment profit 446,904 391,744 1,249,045 976,089

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

Interest expense, net ( 14,167 ) ( 25,221 ) ( 47,853 ) ( 69,965 )

( 15,362 ) ( 24,876 ) ( 33,686 ) ( 44,744 )

Intangible asset amortization ( 25,311 ) ( 24,223 ) ( 78,239 ) ( 70,219 )

( 27,384 ) ( 23,256 ) ( 52,928 ) ( 45,996 )

Corporate expense ( 47,389 ) ( 33,379 ) ( 130,029 ) ( 117,053 )

( 51,397 ) ( 28,613 ) ( 82,640 ) ( 83,674 )

Other unallocated costs (1) ( 61,063 ) ( 11,256 ) ( 138,484 ) ( 565,030 )

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

Income before income taxes from continuing operations $ 298,974 $ 297,665 $ 854,440 $ 153,822

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

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

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

2021 2020 2021 2020

Other unallocated costs:

Loss on software disposal (2) $ ( 61,063 ) $ — $ ( 61,063 ) $ —

Product liability damages award (3) — — ( 77,421 ) —

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Total other unallocated costs $ ( 61,063 ) $ ( 11,256 ) $ ( 138,484 ) $ ( 565,030 )

(2) Adjustment reflects a loss on an internally developed software project that was disposed of due to a change in management strategy related to advances in alternative technologies.

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

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

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

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

The costs are

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

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

1 unchanged sentence

Richards Headquarters and Distribution Center.

(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.

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

COVID-19 related costs include incremental costs incurred relating to fees to cancel marketing events and increased cleaning and sanitization materials, among other things.

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

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

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

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

2021 2020 2021 2020

North America:

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

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

Automotive $ 2,100,250 $ 1,934,503 $ 6,039,617 $ 5,381,566

Industrial 1,493,618 1,295,717 4,362,792 3,937,640

Total North America $ 3,593,868 $ 3,230,220 $ 10,402,409 $ 9,319,206

$ 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

Automotive $ 374,167 $ 355,874 $ 1,130,744 $ 911,595

Industrial 120,697 113,990 350,511 309,336

Total Australasia $ 494,864 $ 469,864 $ 1,481,255 $ 1,220,931

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

Europe – Automotive $ 730,117 $ 670,002 $ 2,183,637 $ 1,745,702

$ 731,029 $ 497,435 $ 1,453,520 $ 1,075,700

Total net sales $ 4,818,849 $ 4,370,086 $ 14,067,301 $ 12,285,839

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

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

2 unchanged sentences

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

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

Other comprehensive loss before reclassifications — — ( 75,738 ) ( 75,738 )

Amounts reclassified from accumulated other comprehensive loss 27,931 11,223 — 39,154

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 )

Other comprehensive income (loss), net of income taxes 27,931 11,223 ( 75,738 ) ( 36,584 )

Ending balance, September 30, 2021 $ ( 664,937 ) $ ( 18,784 ) $ ( 389,365 ) $ ( 1,073,086 )

Changes in Accumulated Other

5 unchanged sentences

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

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

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The Company considers the applicability and impact of all ASUs and has determined that any recently adopted accounting pronouncements did not have a material impact on the Company's condensed consolidated financial statements and all recent accounting pronouncements not yet adopted are not applicable or are expected to have an immaterial impact on the Company's condensed consolidated financial statements.

Property, Plant and Equipment

During the third quarter of 2021, the Company reconsidered its approach to an internally developed software project due to a change in management strategy related to advances in alternative technologies.

The Company decided to dispose of the software project as of September 30, 2021.

As a result, the Company recognized $ 61,063 of selling, administrative and other expense related to the disposal of this software.

Employee Benefit Plans

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

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

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

2021 2020 2021 2020

2 unchanged sentences

Expected return on plan assets ( 38,755 ) ( 38,550 ) ( 116,345 ) ( 115,483 )

Amortization of prior service credit 172 173 344 346

Amortization of prior service cost 172 173 516 519

Amortization of actuarial loss 12,465 11,130 37,430 33,340

Net periodic benefit income $ ( 5,160 ) $ ( 3,293 ) $ ( 15,431 ) $ ( 9,973 )

Service cost is recorded in selling, administrative and other expenses in the condensed consolidated statements of income while all other components are recorded within other non-operating (income) expenses.

Service cost is recorded in selling, administrative and other expenses in the condensed consolidated statements of income (loss) while all other components are recorded within other non-operating (income) expenses.

Pension benefits also include amounts related to supplemental retirement plans.

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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 .

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

As of September 30, 2021, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately $ 895,636 .

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

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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 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.

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

As of September 30, 2021, the Company has recognized certain assets and liabilities amounting to $ 80,000 each for the guarantees related to the independents’ and affiliates’ borrowings.

These assets and liabilities are included in other assets and other long-term liabilities in the condensed consolidated balance sheets.

The liabilities relate to the Company's noncontingent obligation to stand ready to perform under the guarantee programs and they are distinct from the Company's current expected credit loss reserve.

On September 30, 2021, the Company entered into the first amendment to the Syndicated Facility Agreement (the "Unsecured Revolving Credit Facility"), dated as of October 30, 2020.

The interest rates were amended to reduce the applicable rate by 12.5 basis points (resulting in a rate of LIBOR + 112.5 basis points) and the LIBOR floor from 0.5 % to 0.0 %.

The amendment also extended the maturity by one year to September 30, 2026.

Accounts Receivable Sales Agreement

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The Company accounts for transactions with the unaffiliated financial institution as sales of financial assets, with the associated receivables derecognized from the Company's condensed consolidated balance sheet.

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

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

The remaining receivables held by the SPE were pledged to secure the

collectability of the sold receivables.

The amount of receivables pledged as collateral as of September 30, 2021 and December 31, 2020 is approximately $ 983,000 and $ 771,000 , respectively.

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

1 unchanged sentence

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 June 30, 2021 and December 31, 2020, respectively.

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

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

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

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

2021 2020 2021 2020

4 unchanged sentences

The SPE incurs fees due to the unaffiliated financial institution related to the accounts receivable sales transactions.

Those fees, which are immaterial, are recorded within other non-operating (income) expense in the condensed consolidated statements of income.

Those fees, which are immaterial, are recorded within other non-operating (income) expense in the condensed consolidated statements of income (loss).

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

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

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

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

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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 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.

As of September 30, 2021 the fair value of the Company's senior unsecured notes was approximately $ 2,524,914 , which are designated as Level 2 in the fair value hierarchy.

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

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These involve fair value measurements on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy.

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

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

Derivatives and Hedging

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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 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:

June 30, 2021 December 31, 2020

Balance Sheet Location

Notional Balance Notional Balance

September 30, 2021 December 31, 2020

Instrument Balance Sheet Location Notional Balance Notional Balance

Net investment hedges:

Forward contracts

Prepaid expenses and other current assets

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

Forward contracts Prepaid expenses and other current assets $ 925,810 $ 59,397 $ 800,000 $ 7,668

Forward contracts Other current liabilities $ 235,180 $ 6,306 $ 360,990 $ 19,442

Foreign currency debt

Long-term debt

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

Foreign currency debt Long-term debt € 700,000 $ 811,790 € 700,000 $ 861,070

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

1 unchanged sentence

2021 2020 2021 2020

Three Months Ended June 30,

Three Months Ended September 30,

Cash flow hedges:

Interest rate contracts $ — $ ( 277 ) $ — $ —

$ — $ ( 4,370 ) $ — $ —

Net investment hedges:

Forward contracts 20,958 ( 49,660 ) 6,574 6,574

( 13,329 ) ( 31,147 ) 6,574 7,476

Foreign currency debt 21,000 ( 35,140 ) — —

( 12,670 ) ( 13,720 ) — —

Total $ 41,958 $ ( 85,077 ) $ 6,574 $ 6,574

1 unchanged sentence

2021 2020 2021 2020

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flow hedges:

11 unchanged sentences

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.

The Company recorded an adjustment to increase selling, general and other expenses by approximately $ 77,421 , inclusive of statutory interest and insurance coverage, in the condensed consolidated statements of income (loss) for the nine months ended September 30, 2021.

The damage award and statutory interest was fully paid as of September 30, 2021.

Environmental Liabilities

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

The Company acquired several businesses for approximately $ 142,669 and $ 77,393 , net of cash acquired, during the nine months ended September 30, 2021 and September 30, 2020, respectively.

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

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

Discontinued Operations

4 unchanged sentences

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 $ 70,576 , which is included within other assets on the condensed consolidated balance sheets, as of June 30, 2021.

Richard's (“SPR”), a business that previously belonged to the Business Products Group, with a carrying value of $ 69,700 , which is included within other assets on the condensed consolidated balance sheets, as of September 30, 2021.

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

4 unchanged sentences

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

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

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020

Net sales $ — $ 846,944

Cost of goods sold — 632,007

277,614 632,007

102,324 214,937

Gross profit — 214,937

Operating expenses — 179,461

1 unchanged sentence

Loss before income taxes ( 3,165 ) ( 188,007 )

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

Income tax expense 2,222 4,062

Net loss from discontinued operations $ ( 5,387 ) $ ( 192,069 )

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.

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

The effective income tax rate was 24.8 % for the nine months ended September 30, 2021, compared to 105.4 % for the same period in 2020.

For the three months ended September 30, 2021, the rate increase is primarily due to income mix shifts and statute related adjustments.

For the nine months ended September 30, 2021, the rate decrease is primarily due to the non-deductible goodwill impairment charge that occurred in 2020.

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

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.

Accordingly, the Company remeasured its deferred tax assets and liabilities as of June 30, 2021 .

Earnings Per Share

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

Certain outstanding options to purchase shares of common stock are not included in the diluted earnings per share calculation 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.

stock units (“RSUs”), performance awards, dividend equivalents and other share-based awards.

Certain outstanding options to purchase shares of common stock are not included in the diluted earnings per share calculation.

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

The following table summarizes anti-dilutive shares outstanding:

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

2021 2020 2021 2020

Anti-dilutive shares outstanding — 473 158 2,214

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