What changed in this filing

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Item 1. Financial Statements

2022-04-21 compared with 2021-10-21 · 183 added, 311 removed, 176 unchanged (74% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(in thousands, except share and per share data) March 31, 2022 December 31, 2021

Current assets:

8 unchanged sentences

Other intangible assets, less accumulated amortization 1,935,153 1,406,401

Deferred tax assets 43,726 65,658

Property, plant and equipment, less accumulated depreciation (2022 – $ 1,386,714 ;

24 unchanged sentences

Additional paid-in capital 126,064 119,975

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

Accumulated other comprehensive loss ( 804,877 ) ( 857,739 )

Retained earnings 4,132,925 4,086,325

Total parent equity 3,595,740 3,490,742

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GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,

(in thousands, except per share data) 2022 2021

6 unchanged sentences

Provision for doubtful accounts 4,494 4,909

Restructuring costs — 10,968 — 39,009

Goodwill impairment charge — — — 506,721

Total operating expenses 1,495,842 1,272,369

Non-operating (income) expenses:

Interest expense 14,958 25,788 50,127 72,218

Non-operating expense (income):

Interest expense, net 19,850 18,324

Other ( 15,461 ) ( 35,737 )

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

Total non-operating expense (income) 4,389 ( 17,413 )

Income before income taxes 325,716 285,859

Income taxes 79,878 68,149

Net income (loss) from continuing operations 228,585 232,918 642,791 ( 8,237 )

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

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

Net income $ 245,838 $ 217,710

Dividends declared per common share $ 0.8950 $ 0.8150

Basic earnings (loss) per share:

Continuing operations $ 1.60 $ 1.61 $ 4.47 $ ( 0.06 )

Discontinued operations — ( 0.03 ) — ( 1.33 )

Basic earnings (loss) per share $ 1.60 $ 1.58 $ 4.47 $ ( 1.39 )

Diluted earnings (loss) per share:

Continuing operations $ 1.59 $ 1.61 $ 4.44 $ ( 0.06 )

Discontinued operations — ( 0.04 ) — ( 1.33 )

Diluted earnings (loss) per share $ 1.59 $ 1.57 $ 4.44 $ ( 1.39 )

Basic earnings per share $ 1.73 $ 1.51

Diluted earnings per share $ 1.72 $ 1.50

Weighted average common shares outstanding 141,916 144,413

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GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31,

(in thousands) 2022 2021

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

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

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

2020 — $ 22,896 and $ 19,451 , respectively

Net income $ 245,838 $ 217,710

Other comprehensive income, net of income taxes:

Foreign currency translation adjustments, net of income taxes in 2022 — $ 8,411 ;

2021 — $ 21,185

Cash flow hedge adjustments, net of income taxes in 2021 — $ 1,384 and $ 4,151 ;

2020 — $ 1,313 and $ 4,731 , respectively

42,132 ( 295 )

Pension and postretirement benefit adjustments, net of income taxes in 2021 — $ 3,425 and $ 10,280 ;

2020 — $ 2,998 and $ 9,023 , respectively

Cash flow hedge adjustments, net of income taxes in 2022 — $ 1,384 ;

2021 — $ 1,384

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 )

Pension and postretirement benefit adjustments, net of income taxes in 2022 — $ 2,580 ;

2021 — $ 3,421

Other comprehensive income, net of income taxes 52,862 12,742

Comprehensive income $ 298,700 $ 230,452

See accompanying notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended September 30, 2021

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

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

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

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

Cash dividend declared, $ 0.8150 per share

— — — — ( 116,486 ) ( 116,486 ) — ( 116,486 )

Share-based awards exercised 2,256 1 ( 69 ) — — ( 68 ) — ( 68 )

Share-based compensation — — 6,320 — — 6,320 — 6,320

Purchase of stock ( 800,436 ) ( 800 ) — — ( 98,721 ) ( 99,521 ) — ( 99,521 )

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

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

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

1 unchanged sentence

Net income — — — — 245,838 245,838 — 245,838

Other comprehensive loss, net of tax — — — ( 36,584 ) — ( 36,584 ) — ( 36,584 )

Other comprehensive income, net of tax — — — 52,862 — 52,862 — 52,862

Cash dividend declared, $ 0.8950 per share

— — — — ( 126,891 ) ( 126,891 ) — ( 126,891 )

Share-based awards exercised 385,419 385 ( 19,783 ) — — ( 19,398 ) — ( 19,398 )

Share-based awards exercised, including tax benefit of $ 714

18,670 19 ( 1,082 ) — — ( 1,063 ) — ( 1,063 )

Share-based compensation — — 7,171 — — 7,171 — 7,171

Purchase of stock ( 571,604 ) ( 572 ) — — ( 72,347 ) ( 72,919 ) — ( 72,919 )

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

Noncontrolling interest activities — — — — — — ( 412 ) ( 412 )

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 September 30, 2020

March 31, 2022 141,627,749 $ 141,628 $ 126,064 $ ( 804,877 ) $ 4,132,925 $ 3,595,740 $ 12,136 $ 3,607,876

Three Months Ended March 31, 2021

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

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

Net income — — — — 217,710 217,710 — 217,710

2 unchanged sentences

— — — — ( 117,714 ) ( 117,714 ) — ( 117,714 )

Share-based awards exercised 25,464 26 ( 990 ) — — ( 964 ) — ( 964 )

Share-based compensation — — 6,420 — — 6,420 — 6,420

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

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

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 — — — — ( 200,306 ) ( 200,306 ) — ( 200,306 )

Other comprehensive loss, net of tax — — — ( 25,264 ) — ( 25,264 ) — ( 25,264 )

Cash dividend declared, $ 2.3700 per share

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

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

Share-based awards exercised 47,939 48 ( 1,802 ) — — ( 1,754 ) — ( 1,754 )

Share-based compensation — — 6,235 — — 6,235 — 6,235

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

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

Noncontrolling interest activities — — — — — — ( 1,661 ) ( 1,661 )

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.

(2) The Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, during the first quarter of 2020.

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

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

See accompanying notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2022 2021

Operating activities:

Net income (loss) $ 642,791 $ ( 200,306 )

Net loss from discontinued operations — ( 192,069 )

Net income (loss) from continuing operations 642,791 ( 8,237 )

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

Net income $ 245,838 $ 217,710

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 87,369 72,296

Loss on software disposal 61,063 —

Share-based compensation 7,171 6,235

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

Goodwill impairment charge — 506,721

Realized currency and other divestiture losses — 11,356

Excess tax benefits from share-based compensation ( 714 ) ( 1,764 )

Changes in operating assets and liabilities 59,144 6,465

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

Net cash provided by operating activities 398,808 300,942

Investing activities:

3 unchanged sentences

Acquisitions of businesses and other investing activities ( 1,374,734 ) ( 19,489 )

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

Net cash used in investing activities ( 1,420,945 ) ( 40,672 )

Financing activities:

5 unchanged sentences

Other financing activities ( 1,593 ) ( 1,354 )

Net cash used in financing activities from continuing operations ( 818,724 ) ( 1,029,208 )

Cash flows from discontinued operations:

Net cash provided by operating activities from discontinued operations — 13,323

Net cash used in investing activities from discontinued operations — ( 11,131 )

Net cash provided by financing activities from discontinued operations — —

Net cash provided by discontinued operations — 2,192

Net cash provided by (used in) financing activities 913,964 ( 115,994 )

Effect of exchange rate changes on cash and cash equivalents 4,248 ( 16,454 )

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

Basis of Presentation

1 unchanged sentence

GAAP”) for complete financial statements.

On June 30, 2020, the Company completed the divestiture of its Business Products Group.

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

The Company's results of operations for the Business Products Group are reported as discontinued operations and all information related to the discontinued operations has been excluded from the notes to the condensed consolidated financial statements for all periods presented.

Net income from discontinued operations for each period includes all costs that are directly attributable to these businesses and excludes certain corporate overhead costs that were previously allocated.

Additionally, revenue from freight services provided by the Automotive Parts Group are grossed up and recast in continuing operations in each period because those sales are continuing with the discontinued operations after the divestiture.

Except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K of Genuine Parts Company (the “Company,” “we,” “our,” “us,” or “its”) for the year ended December 31, 2021.

Accordingly, the unaudited condensed consolidated financial statements and related disclosures herein should be read in conjunction with the Company’s 2020 Annual Report on Form 10-K.

Accordingly, the unaudited condensed consolidated financial statements and related disclosures herein should be read in conjunction with our 2021 Annual Report on Form 10-K.

The preparation of interim financial statements requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements.

Specifically, the Company makes estimates and assumptions in its unaudited condensed consolidated financial statements for inventory adjustments, the accrual of bad debts, credit losses on guaranteed loans, customer sales returns, and volume incentives earned, among others.

Specifically, we make estimates and assumptions in our unaudited condensed consolidated financial statements for inventory adjustments, the accrual of bad debts, credit losses on guaranteed loans, customer sales returns, and volume incentives earned, among others.

Inventory adjustments (including adjustments for a majority of inventories that are valued under the last-in, first-out (“LIFO”) method) are accrued on an interim basis and adjusted in the fourth quarter based on the annual book to physical inventory adjustment and LIFO valuation.

1 unchanged sentence

Volume incentives are estimated based upon cumulative and projected purchasing levels.

In the opinion of management, all adjustments necessary for a fair presentation of the Company’s financial results for the interim periods have been made.

In the opinion of management, all adjustments necessary for a fair presentation of our financial results for the interim periods have been made.

These adjustments are of a normal recurring nature.

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 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;

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

the duration of the outbreak;

governmental, business or other actions taken in response to the pandemic and the efficacy of these actions, including partial or complete shut downs, travel restrictions, and shelter-in-place orders among other actions;

the effectiveness and distribution of COVID-19 vaccines;

the ability of the global population to access such vaccines;

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.

We have reclassified certain prior period amounts to conform to the current period presentation.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of results for the year ended December 31, 2022.

We have evaluated subsequent events through the date the unaudited condensed consolidated financial statements covered by this quarterly report were issued.

Recent Accounting Pronouncements

Changes to U.S.

GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASU”) to the FASB Accounting Standards Codification (“ASC”).

We consider the applicability and impact of all ASUs and have determined that any recently adopted accounting pronouncements did not have a material impact on our condensed consolidated financial statements and all recent accounting pronouncements not yet adopted are not applicable or are expected to have an immaterial impact on our condensed consolidated financial statements.

Segment Information

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

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

2021 2020 2021 2020

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

Three Months Ended March 31,

(in thousands) 2022 2021

Automotive $ 3,275,621 $ 2,953,165

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Other unallocated costs (1) ( 25,915 ) —

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

Income before income taxes $ 325,716 $ 285,859

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

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

2021 2020 2021 2020

Three Months Ended March 31,

(in thousands) 2022 2021

Other unallocated costs:

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

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

Goodwill impairment charge (4) — — — ( 506,721 )

Restructuring costs (5) — ( 10,968 ) — ( 39,009 )

Realized currency loss (6) — — — ( 11,356 )

Gain on insurance proceeds related to SPR Fire (7) — — — 13,448

Gain on insurance proceeds (2) $ 634 $ —

Transaction and other costs (3) ( 26,549 ) —

Total other unallocated costs $ ( 25,915 ) $ —

(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.

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

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

(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.

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

(7) 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.

(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.

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

(3) Adjustment primarily reflects costs associated with the January 3, 2022 acquisition of Kaman Distribution Group.

Refer to the acquisition footnote for more information regarding the acquisition.

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

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

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

2021 2020 2021 2020

Three Months Ended March 31,

(in thousands) 2022 2021

North America:

7 unchanged sentences

Total net sales $ 5,294,635 $ 4,464,714

Accumulated Other Comprehensive Loss

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

Comprehensive Loss by Component

Pension and Other Post-Retirement Benefits Cash Flow Hedges Foreign Currency Translation Total

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

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

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

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

Comprehensive Loss by Component

Pension and Other Post-Retirement Benefits Cash Flow Hedges Foreign Currency Translation Total

Beginning balance, January 1, 2020 $ ( 704,415 ) $ ( 20,671 ) $ ( 416,222 ) $ ( 1,141,308 )

Other comprehensive loss before reclassifications — ( 21,248 ) ( 48,307 ) ( 69,555 )

Amounts reclassified from accumulated other comprehensive loss 24,479 8,456 11,356 44,291

Other comprehensive income (loss), net of income taxes 24,479 ( 12,792 ) ( 36,951 ) ( 25,264 )

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.

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

Changes to U.S.

GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASU”) to the FASB Accounting Standards Codification (“ASC”).

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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Service cost $ 3,043 $ 3,012 $ 9,185 $ 8,919

Interest cost 17,915 20,942 53,783 62,732

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

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 (loss) while all other components are recorded within other non-operating (income) expenses.

Pension benefits also include amounts related to supplemental retirement plans.

The Company guarantees the borrowings of certain independently controlled automotive parts stores and businesses (“independents”) and certain other affiliates in which the Company has a noncontrolling equity ownership interest (“affiliates”).

Presently, the independents are generally consolidated by unaffiliated enterprises that have controlling financial interests through ownership of a majority voting interest in the independents.

The Company has no voting interest or equity conversion rights in any of the independents.

The Company does not control the independents or the affiliates but receives a fee for the guarantees.

The Company has concluded that the independents are variable interest entities, but that the Company is not the primary beneficiary.

Specifically, the equity holders of the independents have the power to direct the activities that most significantly impact the entities’ economic performance including, but not limited to, decisions about hiring and terminating personnel, local marketing and promotional initiatives, pricing and selling activities, credit decisions, monitoring and maintaining appropriate inventories, and store hours.

Separately, the Company concluded that the affiliates are not variable interest entities.

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.

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 .

The Company regularly monitors the performance of these loans and the ongoing operating results, financial condition and ratings from credit rating agencies of the independents and affiliates that participate in the guarantee programs.

In the event that the Company is required to make payments in connection with these guarantees, the Company would obtain and liquidate certain collateral pledged by the independents or affiliates (e.g., accounts receivable and inventory) to recover all or a substantial portion of the amounts paid under the guarantees.

The Company recognizes a liability equal to current expected credit losses over the lives of the loans in the guaranteed loan portfolio, based on a consideration of historical experience, current conditions, the nature and expected value of any collateral, and reasonable and supportable forecasts.

To date, the Company has had no significant losses in connection with guarantees of independents’ and affiliates’ borrowings and the current expected credit loss reserve is not material.

As of 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

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.

Under our accounts receivable sales agreement (the "A/R Sales Agreement"), we continuously sell designated pools of receivables as they are originated by us and certain U.S.

subsidiaries to a separate bankruptcy-remote special purpose entity (“SPE”).

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

The Company controls and therefore consolidates the SPE in its condensed consolidated financial statements.

The SPE transferred ownership and control of certain receivables that met certain qualifying conditions to the unaffiliated financial institution in exchange for cash.

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

The remaining receivables held by the 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.

As cash is collected on sold receivables, the SPE continuously transfers ownership and control of new qualifying receivables to the unaffiliated financial institution so that the total principal amount outstanding of receivables sold is approximately $ 800,000 at any point in time (which is the maximum amount allowed under the agreement).

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

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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

The A/R Sales Agreement has a three year term, which we intend to renew.

We continue to be involved with the receivables transferred by the SPE to the unaffiliated financial institution by providing collection services.

As cash is collected on sold receivables, the SPE continuously transfers ownership and control of new qualifying receivables to the unaffiliated financial institution so that the total principal amount outstanding of receivables sold is approximately $ 1.0 billion at any point in time (which is the maximum amount allowed under the agreement as amended on January 3, 2022).

Total principal amount outstanding of receivables sold is approximately $ 1.0 billion and $ 800.0 million as of March 31, 2022 and December 31, 2021, respectively.

The amount of receivables pledged as collateral as of March 31, 2022 and December 31, 2021 is approximately $ 1.1 billion and $ 973.0 million, respectively.

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

Three Months Ended March 31,

(in thousands) 2022 2021

Receivables sold to the financial institution and derecognized $ 2,236,445 $ 1,927,931

Cash collected on sold receivables $ 2,036,455 $ 1,927,928

Upon entry into the A/R Sales Agreement, the Company received an initial benefit from cash from operations of approximately $ 800,000 in the year ended December 31, 2020.

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

Continuous cash activity related to the A/R Sales Agreement is reflected in net cash provided by operating activities in the condensed consolidated statements of cash flows.

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

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

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

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

The reserve recognized for this recourse obligation as of September 30, 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.

Fair Value of Financial Instruments

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

Additionally, ASC 820, Fair Value Measurements , defines levels within a hierarchy based upon observable and non-observable inputs.

Observable inputs such as quoted prices in active markets;

Inputs, other than quoted prices in active markets, that are observable either directly or indirectly;

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

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.

Derivative instruments are recognized in the consolidated balance sheets at fair value and are designated as Level 2 in the fair value hierarchy.

They are valued using inputs other than quoted prices, such as foreign exchange rates and yield curves.

Refer to the derivatives and hedging footnote for further information.

Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analyses of goodwill, other intangible assets, and long-lived assets.

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 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.

The reserve recognized for this recourse obligation as of March 31, 2022 and December 31, 2021 is not material.

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

1.750 % and 2.750 % Senior Notes Offering

On January 6, 2022, we issued $ 500.0 million of unsecured 1.750 % Senior Notes due 2025.

Simultaneously, we issued $ 500.0 million of unsecured 2.750 % Senior Notes due 2032.

For both offerings, interest is payable semi-annually on February 1 and August 1 of each year, beginning August 1, 2022.

We utilized the proceeds from these offerings to repay the borrowings under our Revolving Credit Facility, which were incurred to finance a significant portion of the Kaman Distribution Group ("KDG") acquisition.

Derivatives and Hedging

The Company is exposed to various risks arising from business operations and market conditions, including fluctuations in interest rates and certain foreign currencies.

When deemed appropriate, the Company uses derivative and non-derivative instruments as risk management tools to mitigate the potential impact of interest rate and foreign exchange rate risks.

The objective of using these tools is to reduce fluctuations in the Company’s earnings and cash flows associated with changes in these rates.

We are exposed to various risks arising from business operations and market conditions, including fluctuations in interest rates and certain foreign currencies.

When deemed appropriate, we use derivative and non-derivative instruments as risk management tools to mitigate the potential impact of interest rate and foreign exchange rate risks.

The objective of using these tools is to reduce fluctuations in our earnings and cash flows associated with changes in these rates.

Derivative financial instruments are not used for trading or other speculative purposes.

The Company has not historically incurred, and does not expect to incur in the future, any losses as a result of counterparty default related to derivative instruments.

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.

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.

We have not historically incurred, and do not expect to incur in the future, any losses as a result of counterparty default related to derivative instruments.

We formally document our 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.

We also formally assess, 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.

When a designated instrument is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, hedge accounting is discontinued prospectively.

Cash Flow Hedges

In 2020, the Company terminated its interest rate swaps and settled the outstanding balances through cash payments totaling $ 41,000 .

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

Net Investment Hedges

The Company has designated certain derivative instruments and a portion of its foreign currency denominated debt, a non-derivative financial instrument, as hedges of the foreign currency exchange rate exposure of the Company's Euro-denominated net investment in a European subsidiary.

The Company applies the spot method to assess the hedge effectiveness of the derivative instruments and this assessment for each instrument excludes the initial value related to the difference at contract inception between the foreign exchange spot rate and the forward rate (i.e., the forward points).

We have designated certain derivative instruments and a portion of our foreign currency denominated debt, a non-derivative financial instrument, as hedges of the foreign currency exchange rate exposure of our Euro-denominated net investment in a European subsidiary.

We apply the spot method to assess the hedge effectiveness of the derivative instruments and this assessment for each instrument excludes the initial value related to the difference at contract inception between the foreign exchange spot rate and the forward rate (i.e., the forward points).

The initial value of this excluded component is recognized as a reduction to interest expense in a systematic and rational manner over the term of the derivative instrument.

All other changes in value for the net investment hedges are included in AOCL within foreign currency translation and would only be reclassified to earnings if the European subsidiary were liquidated, or otherwise disposed.

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:

September 30, 2021 December 31, 2020

All other changes in value for the net investment hedges are included in accumulated other comprehensive loss (“AOCL”) within foreign currency translation and would only be reclassified to earnings if the European subsidiary were liquidated, or otherwise disposed.

March 31, 2022 December 31, 2021

Instrument Balance Sheet Location Notional Balance Notional Balance

3 unchanged sentences

Foreign currency debt Long-term debt € 700,000 $ 781,060 € 700,000 $ 792,820

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

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

2021 2020 2021 2020

Three Months Ended September 30,

Cash flow hedges:

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

Net investment hedges:

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

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

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

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

2021 2020 2021 2020

Nine Months Ended September 30,

Cash flow hedges:

Interest rate contracts $ — $ ( 29,107 ) $ — $ —

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

Gain Recognized in AOCL before Reclassifications Gain Recognized in Interest Expense for Excluded Components

(in thousands) 2022 2021 2022 2021

Three Months Ended March 31,

Net investment hedges:

2 unchanged sentences

Total $ 31,153 $ 78,465 $ 7,565 $ 6,574

Fair Value of Financial Instruments

As of March 31, 2022 the fair value of our senior unsecured notes was approximately $ 3.3 billion, which are designated as Level 2 in the fair value hierarchy.

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

Employee Benefit Plans

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

Pension Benefits

(in thousands) 2022 2021

Service cost $ 2,616 $ 3,041

Interest cost 18,867 17,906

Expected return on plan assets ( 37,672 ) ( 38,732 )

Amortization of prior service cost 172 172

Amortization of actuarial loss 9,279 12,456

Net periodic benefit income $ ( 6,738 ) $ ( 5,157 )

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

Pension benefits also include amounts related to supplemental retirement plans.

We acquired several businesses for approximately $ 1.4 billion and $ 20.3 million, net of cash acquired, during the three months ended March 31, 2022 and March 31, 2021, respectively.

For each acquisition, we allocate the purchase price to the assets acquired and the liabilities assumed based on their fair values as of their respective acquisition dates.

The results of operations for acquired businesses are included in our condensed consolidated statements of income beginning on their respective acquisition dates.

KDG Acquisition

On January 3, 2022, we, through our wholly-owned subsidiary, Motion Industries, Inc., acquired all of the equity interests in KDG for a purchase price of approximately $ 1.3 billion in cash.

KDG, which is headquartered in Bloomfield, Connecticut, is a power transmission, automation and fluid power industrial distributor and solutions provider with operations throughout the United States, providing electro-mechanical products, bearings, power transmission, motion control and electrical and fluid power components to MRO and OEM customers.

KDG has approximately 1,700 employees with approximately 220 locations across the United States and Puerto Rico.

As of January 3, 2022, KDG had estimated annual revenues of approximately $ 1.1 billion.

The net cash consideration transferred of approximately $ 1.3 billion is net of the estimated cash acquired of approximately $ 30.0 million.

The KDG acquisition was financed using a combination of borrowings under the existing unsecured revolving credit facility, proceeds of $ 200.0 million from the selling of additional receivables under our amended A/R Sales Agreement and $ 109.0 million of cash.

The following table summarizes the preliminary, estimated fair values of the assets acquired and liabilities assumed at the acquisition date.

The fair value of the acquired identifiable intangible assets is provisional pending completion of the final valuations for these assets.

We are in the process of analyzing the estimated values of all assets acquired and liabilities assumed as of the acquisition date, including, among other things, obtaining valuations of certain tangible and intangible assets, as well as the fair value of certain contracts and the determination of certain tax balances.

Additional adjustments may be made to the acquisition accounting during the measurement period primarily related to intangible asset revaluations, tax accounting and leases.

(in thousands) As of January 3, 2022

Trade accounts receivable $ 156,000

Merchandise inventories 166,000

Prepaid expenses and other current assets 39,000

Property, plant and equipment 26,000

Operating lease assets 49,000

Other assets 1,000

Total identifiable assets acquired (excluding other intangible assets and goodwill) 437,000

Trade accounts payable 85,000

Other current liabilities 32,000

Operating lease liabilities 17,000

Deferred tax liabilities 121,000

Other long-term liabilities 39,000

Total liabilities assumed 294,000

Net identifiable assets acquired (excluding other intangible assets and goodwill) 143,000

Other intangible assets and goodwill 1,166,000

Net assets acquired $ 1,309,000

The goodwill was assigned to the Industrial segment and is attributable primarily to expected synergies and the assembled workforce.

Approximately $ 261 million of the estimated goodwill recognized as part of the KDG acquisition is expected to be tax deductible.

For the three months ended March 31, 2022, approximately $ 5.0 million of inventory amortization step-up costs related to this acquisition were included in cost of goods sold and approximately $ 21.5 million of transaction and other costs were included in selling, administrative and other expenses in the condensed consolidated statement of income.

Accumulated Other Comprehensive Loss

The following tables present the changes in AOCL by component for the three months ended March 31:

Changes in Accumulated Other

Comprehensive Loss by Component

(in thousands) Pension and Other Post-Retirement Benefits Cash Flow Hedges Foreign Currency Translation Total

Beginning balance, January 1, 2022 $ ( 463,227 ) $ ( 15,042 ) $ ( 379,470 ) $ ( 857,739 )

Other comprehensive income before reclassifications — — 42,132 42,132

Amounts reclassified from accumulated other comprehensive loss 6,989 3,741 — 10,730

Other comprehensive income, net of income taxes 6,989 3,741 42,132 52,862

Ending balance, March 31, 2022 $ ( 456,238 ) $ ( 11,301 ) $ ( 337,338 ) $ ( 804,877 )

Changes in Accumulated Other

Comprehensive Loss by Component

(in thousands) Pension and Other Post-Retirement Benefits Cash Flow Hedges Foreign Currency Translation Total

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

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

Amounts reclassified from accumulated other comprehensive loss 9,296 3,741 — 13,037

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 )

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.

We guarantee the borrowings of certain independently controlled automotive parts stores and businesses (“independents”) and certain other affiliates in which we have a noncontrolling equity ownership interest (“affiliates”).

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

At March 31, 2022, we were in compliance with all such covenants.

As of March 31, 2022, the total borrowings of the independents and affiliates subject to guarantee by us were approximately $ 949.7 million.

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

We regularly monitor the performance of these loans and the ongoing operating results, financial condition and ratings from credit rating agencies of the independents and affiliates that participate in the guarantee programs.

In the event that we are required to make payments in connection with these guarantees, we would obtain and liquidate certain collateral pledged by the independents or affiliates (e.g., accounts receivable and inventory) to recover all or a substantial portion of the amounts paid under the guarantees.

We recognize a liability equal to current expected credit losses over the lives of the loans in the guaranteed loan portfolio, based on a consideration of historical experience, current conditions, the nature and expected value of any collateral, and reasonable and supportable forecasts.

To date, we have not had significant losses in connection with guarantees of independents’ and affiliates’ borrowings and the current expected credit loss reserve is not material.

As of March 31, 2022, there are no material guaranteed loans for which the borrower is experiencing financial difficulty and recovery is expected to be provided substantially through the operation or sale of the collateral.

As of March 31, 2022, we have recognized certain assets and liabilities amounting to $ 80.0 million each for the guarantees related to the independents’ and affiliates’ borrowings.

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

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

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 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.

The plaintiffs subsequently appealed this order to the Washington Supreme Court.

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.

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 (loss) for the nine months ended September 30, 2021.

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

From time to time, we are involved in various claims and legal actions that arise in the ordinary course of business.

Although the results of litigation and claims cannot be predicted with certainty, we do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity and capital resources.

There have been no significant developments to the information presented in our 2021 Annual Report on Form 10-K with respect to litigation or commitments and contingencies.

Environmental Liabilities

Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that the Company reasonably believes will exceed an applied threshold not to exceed $1,000.

Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believe will exceed an applied threshold not to exceed $1.0 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 $ 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

Business Products Group

During 2020, the Company completed the divestiture of its Business Products Group as part of its long-term strategic initiative to streamline its operations and optimize its portfolio so that it can drive shareholder value by focusing on its global Automotive and Industrial Parts Groups.

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 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 $ 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 .

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

The Company has concluded that SPR is a variable interest entity, but the Company is not the primary beneficiary and therefore the entity is not consolidated.

Among other things, the Company does not have any voting rights and does not have the power to direct the activities that most significantly affect SPR's economic performance.

For a limited period of time as SPR completes its transition away from the Company’s shared services platform, the Company continues to pay certain payables on SPR’s behalf and at SPR’s direction with full reimbursement from SPR under the terms of a transition services agreement.

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

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

Net sales $ — $ 846,944

Cost of goods sold — 632,007

Gross profit — 214,937

Operating expenses — 179,461

Loss on disposal 3,165 223,483

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

Income tax expense 2,222 4,062

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

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.

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.

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

As more fully discussed in the share-based compensation footnote of our notes to the consolidated financial statements in our 2021 Annual Report on Form 10-K, we maintain various long-term incentive plans, which provide for the granting of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance awards, dividend equivalents and other share-based awards.

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

The following table summarizes anti-dilutive shares outstanding:

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

2021 2020 2021 2020

Three Months Ended March 31,

Anti-dilutive shares outstanding 1,341 —

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