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Item 2. Management’s Discussion and Analysis

2022-04-21 compared with 2021-10-21 · 102 added, 165 removed, 78 unchanged (77% of the section changed)

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The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes contained herein and with the audited consolidated financial statements, accompanying notes, related information and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021.

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

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.

Forward-Looking Statements

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All statements in the future tense and all statements accompanied by words such as “expect,” “likely,” “outlook,” “forecast,” “preliminary,” “would,” “could,” “should,” “position,” “will,” “project,” “intend,” “plan,” “on track,” “anticipate,” “to come,” “may,” “possible,” “assume,” or similar expressions are intended to identify such forward-looking statements.

These forward-looking statements include our expected ability to operate and protect our workforce during the COVID-19 pandemic, our strategies for growing our automotive and industrial businesses, the execution and effect of our cost savings initiatives, our efforts and initiatives to help us emerge from the pandemic well-positioned to execute our strategy, our ongoing efforts to maintain compliance and flexibility under our debt covenants, our liquidity position and actions to maximize cash flow to continue to operate during these highly uncertain times and plans for future cost savings.

These forward-looking statements include our view of business and economic trends for the remainder of the year and our expectations regarding our ability to capitalize on these business and economic trends and to execute our strategic

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

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changes in national and international legislation or government regulations or policies, including changes to import tariffs, environmental and social policy, infrastructure programs and privacy legislation, and their impact to us and our suppliers and customers;

changes in general economic conditions, including unemployment, inflation (including the impact of tariffs) or deflation and the United Kingdom's (“U.K.”) exit from the European Union and the unpredictability of the impact following such exit;

changes in general economic conditions, including unemployment, inflation (including the impact of tariffs) or deflation and geopolitical conflicts, such as the conflict between Russia and Ukraine;

changes in tax policies;

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the uncertainties and costs of litigation;

disruptions caused by a failure or breach of our information systems, as well as other risks and uncertainties discussed in our 2020 Annual Report on Form 10-K (all of which risks may be amplified by the COVID-19 pandemic) and from time to time in our subsequent filings with the SEC.

disruptions caused by a failure or breach of our information systems, as well as other risks and uncertainties discussed in our 2021 Annual Report on Form 10-K and Item 1A, Risk Factors, in this report on Form 10-Q (all of which may be amplified by the COVID-19 pandemic and geopolitical conflicts, such as the current conflict between Russia and Ukraine) and from time to time in our subsequent filings with the SEC.

Forward-looking statements speak only as of the date they are made, and we undertake no duty to update any forward-looking statements except as required by law.

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We conduct business in North America, Europe and Australasia from a network of more than 10,300 locations.

The Company's Automotive Parts Group operated in the U.S., Canada, Mexico, France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Australia and New Zealand as of September 30, 2021, and accounted for 66% of total revenue for the nine months ended September 30, 2021.

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

The Industrial Parts Group accounted for 34% of the Company's total revenue for the nine months ended September 30, 2021.

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

Our Automotive Parts Group operated in the U.S., Canada, Mexico, France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Australia and New Zealand as of March 31, 2022, and accounted for 62% of total revenues for the three months ended March 31, 2022.

Our Industrial Parts Group operated in the U.S., Canada, Mexico,

Australia, New Zealand, Indonesia and Singapore.

The Industrial Parts Group accounted for 38% of the our total revenues for the three months ended March 31, 2022.

At Genuine Parts Company, our mission is to be a world-class service organization and the employer of choice, supplier of choice, valued customer of choice and investment of choice - we keep the world moving!

This is our purpose and the foundation of how we do business.

Additionally, we strive to be a respected business community member and a good corporate citizen.

Our strategic financial objectives are intended to align with our mission and drive value for all our stakeholders.

Our strategic financial objectives include:

(1) top line revenue growth;

(1) top line revenue growth in excess of market growth;

(2) improved operating margin;

(3) a strong balance sheet and cash flows;

(3) strong balance sheet and cash flows;

and (4) effective capital allocation.

COVID-19 Pandemic

During the nine months ended September 30, 2021, our business and results of operations continued to improve relative to the same period of 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, all regions in which we operate continue to experience periodic surges in infection rates.

As a result, our business segments continue to face many uncertainties and our operations remain vulnerable to continuing negative effects caused by the pandemic.

However, we are encouraged to see the impact of the pandemic subsiding as evidenced by the improving industrial economy, increase in miles driven and overall consumer activity.

As of September 30, 2021, all our operations are open for business.

Our supply chain partners have been very supportive and accommodating, despite strains on the supply chain caused by labor shortages, inventory shortages, delays in order fulfillment and increased backlogs.

This has allowed us to continue to provide quality customer service.

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

Based on the length and severity of the pandemic, we may experience continued volatility in customer demand and supply chain disruption.

We will continue to evaluate the nature and extent of these potential impacts to our business, consolidated results of operations, segment results, liquidity and capital resources.

For further information regarding the impact of COVID-19 on our business, please see “Results of Operations,” and Item 1A, “Risk Factors,” in this report, which are incorporated herein by reference.

Key Business Metrics

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Results of Operations

As a result of the COVID-19 vaccine distribution and its positive impact on consumer mobility and demand, we are encouraged by the increase in consumer activity during the three and nine months ended September 30, 2021 as

our key markets continue to reopen.

In addition, we continue to realize the benefits of our cost savings initiatives to more effectively leverage our cost structure in both our Automotive and Industrial Parts Groups.

Both our segments reported improved sales during the three and nine months ended September 30, 2021 when compared to the same prior year periods.

The Automotive Parts Group benefited from the broad economic recovery, an increase in customer mobility and miles driven, as well as favorable weather trends.

The Industrial Parts Group benefited from the strengthening industrial economy, as evidenced by economic indicators such as the Manufacturing Industrial Production and the Purchasing Managers Index, among others.

Additionally, the Industrial Parts Group executed on key operational initiatives, including improved omni-channel capabilities and the expansion of our services and solutions business.

Sales for the three months ended September 30, 2021 were $4.8 billion, a 10.3% increase as compared to $4.4 billion in the same period of the prior year.

The increase in sales is attributable to a 7.6% increase in comparable sales, a 1.8% benefit from acquisitions and a net favorable impact of foreign currency and other of 0.9%.

Sales for the nine months ended September 30, 2021 were $14.1 billion, a 14.5% increase as compared to $12.3 billion in the same period of the prior year.

The increase in sales is due to a 10.0% comparable sales increase, a 3.2% net favorable impact of foreign currency and other and a 1.3% benefit from acquisitions.

The increases in comparable sales is driven primarily by the increased consumer activity as our key markets continue to reopen when compared to the three and nine months ended September 30, 2020.

Sales were positively impacted by price inflation of approximately 3% and 2% for the three and nine months ended September 30, 2021, respectively.

Sales for the Automotive Parts Group increased 8.2% for the three months ended September 30, 2021, as compared to the same period in the prior year.

This group's revenue increase for the three months ended September 30, 2021 consisted of an approximate 4.8% increase in comparable sales, a 2.4% benefit from acquisitions and a 1.0% net favorable impact of foreign currency and other.

This group's 16.4% revenue increase for the nine months ended September 30, 2021 consisted of an approximate 10.7% increase in comparable sales, a 3.9% net favorable impact from foreign currency and other and a 1.8% benefit from acquisitions.

Sales for the Industrial Parts Group increased 14.5% for the three months ended September 30, 2021, as compared to the same period in 2020.

The increase in this group's revenue reflects an approximate 13.4% increase in comparable sales, a 0.8% favorable foreign currency impact and a 0.3% benefit from acquisitions.

This group's 11.0% sales increase for the nine months ended September 30, 2021 reflects an 8.9% increase in comparable sales, a 1.5% favorable impact from foreign currency and a 0.6% benefit from acquisitions.

Our Automotive Parts Group and Industrial Parts Group both experienced continued recovery and expansion in their operations, reporting strong sales and segment profit margin growth during the three months ended March 31, 2022 when compared to the same prior year period.

Our Industrial Parts Group benefited from the January 2022 acquisition of Kaman Distribution Group.

We expect this strategic and highly synergistic combination to significantly enhance our scale and to strengthen our market leading position, creating a premier leader in industrial solutions.

Additionally both businesses were resilient in managing through ongoing supply chain challenges and inflationary pressures.

Sales for the three months ended March 31, 2022 were $5.3 billion, an 18.6% increase compared to $4.5 billion for the same period of the prior year.

The increase in sales is attributable to a 12.3% increase in comparable sales and an 8.1% benefit from acquisitions, slightly offset by a net unfavorable impact of foreign currency and other of 1.8%.

The 12.3% increase in comparable sales was primarily driven by the continued increase in consumer activity and pricing increases to offset product cost and other inflationary pressures.

Sales for the Automotive Parts Group increased 10.9% for the three months ended March 31, 2022 compared to the same period in the prior year.

This group's revenue increase for the three months ended March 31, 2022 consisted of an approximate 10.3% increase in comparable sales driven by strong demand in all geographical regions and pricing increases to offset product costs and other inflationary pressures.

The overall sales increase also included a 3.1% benefit from acquisitions and was slightly offset by a 2.5% net unfavorable impact of foreign currency and other.

Sales for the Industrial Parts Group increased 33.6% for the three months ended March 31, 2022 compared to the same period in 2021.

The increase reflects a 17.9% benefit from the acquisition of Kaman Distribution Group and a 16.1% increase in comparable sales, slightly offset by a 0.4% unfavorable impact of foreign currency as compared to the same period in 2021.

Our Industrial Parts Group continues to benefit from continued expansion in the industrial economy, which is evident in indicators such as the Purchasing Managers Index and Industrial Production Index.

Cost of Goods Sold and Operating Expenses

Cost of goods sold for the three months ended September 30, 2021 was $3.1 billion, a 9.4% increase from $2.8 billion for the same period in 2020.

As a percentage of net sales, cost of goods sold was 64.5% for the three months ended September 30, 2021, as compared to 65.0% in the same three month period of 2020.

Cost of goods sold for the nine months ended September 30, 2021 was $9.1 billion, a 13.0% increase from $8.1 billion for the same period in 2020.

As a percentage of net sales, cost of goods sold was 64.9% for the nine months ended September 30, 2021, as compared to 65.8% in the same period of 2020.

The increase in cost of goods sold for the three and nine months ended September 30, 2021 primarily relates to the overall increase in sales volume due to the increased consumer activity as compared to the same three and nine month periods of the prior year.

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

Gross margin improved to 35.5% for the three months ended September 30, 2021 compared to 35.0% in the same period of 2020.

Gross margin for the nine months ended September 30, 2021 improved to 35.1% from 34.2% for the same nine month period of 2020.

The gross margin improvements primarily reflect the impact of higher levels of supplier incentives on stronger sales and strategic category management initiatives including pricing and global sourcing strategies.

We have reported improved year over year gross margin for 16 consecutive quarters.

Total operating expenses increased to $1.4 billion for the three months ended September 30, 2021 as compared to $1.2 billion for the same three month period in 2020.

As a percentage of net sales, operating expenses increased to 29.4% as compared to 28.1% in the respective periods.

This increase as a percentage of net sales is primarily due to the benefit of temporary COVID-19 related savings initiatives in 2020 and a $61.1 million loss on a software disposal in 2021.

For the nine months ended September 30, 2021, operating expenses totaled $4.1 billion as

compared to $4.0 billion for the same nine month period in 2020.

As a percentage of net sales, operating expenses improved to 29.3% as compared to 32.8% for the respective periods primarily driven by the non-cash goodwill impairment charge that occurred in 2020.

Cost of goods sold for the three months ended March 31, 2022 was $3.5 billion, an 18.6% increase from $2.9 billion for the same period in 2021.

As a percentage of net sales, cost of goods sold was 65.5% for the three months

ended March 31, 2022 and 2021.

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

The increase in costs of goods sold for the three months ended March 31, 2022 was primarily driven by inflation and increased demand.

Total operating expenses increased 17.6% to $1.5 billion for the three months ended March 31, 2022 compared to $1.3 billion for the same three month period in 2021.

As a percentage of net sales, operating expenses decreased to 28.3% compared to 28.5% in the three months ended March 31, 2022 and 2021, respectively.

The decrease in operating expenses as a percentage of net sales for the period is primarily related to improved leverage on stronger sales and cost control initiatives.

Our operating expenses are substantially comprised of compensation and benefit-related costs for personnel.

Other major expense categories include transportation and delivery costs driven by higher sales, facility occupancy costs, technology and digital costs, insurance costs, legal and professional services, and travel and advertising.

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

Segment Profit

The Automotive Parts Group’s segment profit increased 5.6% in the three months ended September 30, 2021 as compared to the same period of 2020, and its segment profit margin was 8.8% as compared to 9.0% in the same period of the previous year.

Segment profit margin declined primarily due to the benefit of temporary COVID-related savings initiatives in 2020.

These items were partially offset by improved leverage from stronger sales, gross margin expansion and incremental cost control initiatives in 2021.

For the nine months ended September 30, 2021, the Automotive Parts Group's segment profit increased approximately 28.7% and the segment profit margin improved to 8.6% as compared to 7.8% in the same nine month period of 2020.

This improvement in segment profit margin is primarily due to sales gains as a result of the increased consumer activity as our key markets continue to reopen, gross margin improvements, and the leveraging of expenses on higher sales and ongoing cost control initiatives.

The Industrial Parts Group's segment profit increased 31.9% in the three months ended September 30, 2021 as compared to the same three month period of 2020, and the segment profit margin for this group improved to 10.3% compared to 8.9% for the same period of the previous year.

Segment profit for the Industrial Parts Group improved 26.7% in the nine months ended September 30, 2021 as compared to the same nine month period of 2020, and the segment profit margin for this group improved to 9.4% compared to 8.2% for the same period of the previous year.

The improved segment profit margins for both periods reflect the positive impact of higher sales volumes, gross margin gains and efficiencies in the operating structure of the Industrial Parts Group.

Additionally, the Industrial Parts Group benefited from the strengthening industrial economy, which is evident in indicators such as the Purchasing Managers Index and Industrial Production Index.

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, as described below.

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.

Net Income (Loss) from Continuing Operations

For the three months ended September 30, 2021, the Company recorded net income from continuing operations of $228.6 million, a decrease of 1.9% as compared to net income from continuing operations of $232.9 million in the same three month period of the prior year.

On a per share diluted basis, net income was $1.59, a decrease of 1.2% as compared to net income per diluted share of $1.61 for the same three month period of 2020.

This decrease is primarily related to a loss on a software disposal of $61.1 million during the three months ended September 30, 2021.

For the nine months ended September 30, 2021, the Company recorded net income from continuing operations of $642.8 million as compared to net loss from continuing operations of $8.2 million in the same nine month period of the prior year.

On a per share diluted basis, net income from continuing operations was $4.44 as compared to net loss per diluted share of $0.06 in the same nine month period of 2020.

The increase in income for the nine month period was primarily driven by the goodwill impairment charge of $506.7 million that occurred during the second quarter of 2020.

Additionally, we saw higher sales volume as a result of increased consumer activity as our key markets continue to reopen during the nine months ended September 30, 2021 .

Further impacting net income from continuing operations during the three and nine months ended September 30, 2021, the Company incurred $61.1 million and $138.5 million of adjustments, respectively.

These adjustments include the aforementioned loss related to a software disposal of $61.1 million and $77.4 million related to damages

reinstated by the Washington Supreme Court order on July 8, 2021 in connection with a 2017 automotive product liability claim.

Refer to the property, plant and equipment and commitments and contingencies footnotes to the condensed consolidated financial statements for more information regarding these adjustments.

The Company believes these represent costs that do not arise in the ordinary course of the Company's business and therefore impact comparability with prior periods.

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

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

Transaction and other costs primarily include incremental costs associated with certain divestitures and COVID-19.

For the three months ended September 30, 2021, the Company's adjusted net income from continuing operations was $270.5 million, an increase of 14.2% as compared to adjusted net income from continuing operations of $236.8 million in the same three month period of the prior year.

On a per share basis, adjusted net income from continuing operations was $1.88 for the three months ended September 30, 2021, an increase of 15.3% as compared to $1.63 for the same period of 2020.

For the nine months ended September 30, 2021, adjusted net income from continuing operations was $740.8 million, an increase of 36.2% as compared to $544.1 million for the same period of 2020.

On a per share diluted basis, adjusted net income from continuing operations was $5.12 for the nine months ended September 30, 2021, an increase of 36.2% as compared to $3.76 for the same period of the prior year.

The increased adjusted net income from continuing operations for the three and nine months ended September 30, 2021 reflects the benefits of improved sales volume related to increased consumer activity as our key markets continue to reopen, gross margin improvements, improved expense leverage on sales growth and our ongoing cost control initiatives.

Both adjusted net income from continuing operations and adjusted diluted net income from continuing operations per common share are non-GAAP measures (see table below for reconciliations to the most directly comparable GAAP measures).

The following table sets forth a reconciliation of net income (loss) from continuing operations and diluted net income (loss) from continuing operations per common share to adjusted net income from continuing operations and adjusted diluted net income from continuing operations per common share to account for the impact of these adjustments.

The Company believes that the presentation of adjusted net income from continuing operations and adjusted diluted net income from continuing operations per common share, which are not calculated in accordance with GAAP, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to both management and investors that is indicative of the Company's core operations.

The Company considers these metrics useful to investors because they provide greater transparency into management’s view and assessment of the Company’s ongoing operating performance by removing items management believes are not representative of our continuing operations and may distort our longer-term operating trends.

We believe these measures are useful and enhance the comparability of our results from period to period and with our competitors, as well as show ongoing results from operations distinct from items that are infrequent or not associated with the Company’s core operations.

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

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

The Automotive Parts Group's segment profit increased 12.3% in the three months ended March 31, 2022 compared to the same period of 2021, and its segment profit margin increased to 8.1% compared to 8.0% for the same period of the previous year.

This slight improvement in segment profit margin, despite inflationary headwinds, reflects the strong operating results in all geographical regions, driven primarily by strong sales demand and the execution of our growth and operating initiatives.

The Industrial Parts Group's segment profit increased 50.3% in the three months ended March 31, 2022 compared to the same three month period of 2021 primarily driven by the acquisition of Kaman Distribution Group.

This groups segment profit margin increased to 9.3% compared to 8.3% for the same period of the previous year.

The improved segment profit margin is primarily due to the benefit of strong sales growth and strategic initiatives in areas such as category management and pricing.

Our effective income tax rate was 24.5% and 23.8% for the three months ended March 31, 2022 and 2021, respectively.

The increase in the rate is primarily related to prior year gains on the sale of real estate and geographic income mix shifts.

For the three months ended March 31, 2022, net income was $245.8 million, an increase of 12.9% compared to net income of $217.7 million for the same three month period of the prior year.

On a per share diluted basis, net income was $1.72, an increase of 14.7% compared to $1.50 for the same three month period of 2021.

For the three months ended March 31, 2022, net income on an adjusted basis was $265.7 million, an increase of 22.0% compared to adjusted net income of $217.7 million for the same three month period of the prior year.

On a per share basis, net income on an adjusted basis was $1.86 for the three months ended March 31, 2022, an increase of 24.0% compared to $1.50 for the same three month period of 2021.

For 2021, adjusted net income and adjusted diluted net income per common share are both non-GAAP measures (see table below for reconciliations to the most directly comparable GAAP measures).

The following table sets forth a reconciliation of net income and diluted net income per common share to adjusted net income and adjusted diluted net income per common share to account for the impact of these adjustments.

We believe that the presentation of adjusted net income and adjusted diluted net income per common share, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to both management and investors that is indicative of our core operations.

We consider these metrics useful to investors because they provide greater transparency into management’s view and assessment of our ongoing operating performance by removing items management believes are not representative of our operations and may distort our longer-term operating trends.

We do not, nor do we suggest that investors should, consider such non-GAAP financial measures, as superior to, in isolation from, or as a substitute for, GAAP financial information.

Three Months Ended March 31,

(in thousands) 2022 2021

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

Loss on software disposal (1) 61,063 — 61,063 —

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

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

Restructuring costs (4) — 10,968 — 39,009

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

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

GAAP net income $ 245,838 $ 217,710

Gain on insurance proceeds (1) (634) —

Transaction and other costs (2) 26,549 —

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Tax impact of adjustments (6,103) —

Adjusted net income from continuing operations $ 270,481 $ 236,751 $ 740,786 $ 544,060

The table below represents amounts per common share assuming dilution:

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

Adjusted net income $ 265,650 $ 217,710

The table below represent amounts per common share assuming dilution:

Three Months Ended March 31,

(in thousands, except per share data) 2022 2021

GAAP net income (loss) from continuing operations $ 1.59 $ 1.61 $ 4.44 $ (0.06)

Loss on software disposal (1) 0.42 — 0.42 —

Product liability damages award (2) — — 0.54 —

Goodwill impairment charge (3) — — — 3.51

Restructuring costs (4) — 0.07 — 0.26

Realized currency loss (5) — — — 0.08

Gain on insurance proceeds related to SPR Fire (6) — — — (0.09)

GAAP net income $ 1.72 $ 1.50

Gain on insurance proceeds (1) (0.01) —

Transaction and other costs (2) 0.19 —

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Tax impact of adjustments (0.04) —

Adjusted diluted net income from continuing operations per common share $ 1.88 $ 1.63 $ 5.12 $ 3.76

Adjusted diluted net income per common share $ 1.86 $ 1.50

Weighted average common shares outstanding – assuming dilution 142,842 145,300

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

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

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

Three Months Ended March 31,

(in thousands) 2022 2021

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Selling, administrative and other expenses 21,549 —

Goodwill impairment charge — — — 506,721

Restructuring costs — 10,968 — 39,009

Non-operating (income) expenses:

Non-operating expense (income):

Other (634) —

Total adjustments $ 25,915 $ —

(1) 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.

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

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

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

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

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

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

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

Richards Headquarters and Distribution Center.

(7) Adjustment reflects $8.5 million of incremental costs associated with COVID-19 for the nine months ended September 30, 2020 and costs associated with certain divestitures.

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

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

(2) 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.

Financial Condition

The Company’s cash balance of $919.1 million at September 30, 2021 decreased $71.1 million, or 7.2%, from December 31, 2020.

For the nine months ended September 30, 2021, the Company had net cash provided by operating activities of $1,008.2 million, net cash used in investing activities of $239.9 million and net cash used in financing activities of $818.7 million.

The cash provided by operating activities of $1,008.2 million reflects strong earnings and effective working capital management.

This amount decreased $419.0 million from $1,427.2 million for the nine months ended September 30, 2020 primarily driven by the $500 million benefit to operating cash flow in 2020 as a result of the Company entering into the A/R Sales Agreement to sell receivables.

The investing activities consisted primarily of $142.6 million in acquisitions and other investing activities and $138.2 million in capital expenditures, slightly offset by $40.9 million in proceeds from divestitures and the sale of property, plant and equipment.

The financing activities consisted primarily of $349.3 million for dividends paid to the Company’s shareholders, $283.9 million paid for share repurchases and $160.8 million net payments on debt.

Accounts receivable increased $331.3 million, or 21.3%, from December 31, 2020 primarily due to higher sales volumes.

Inventory increased $242.1 million, or 6.9%, due to increased economic activity and related product demand.

Accounts payable increased $691.0 million, or 16.7%, from December 31, 2020 due to increased purchasing related to sales volume and extended payment terms with certain suppliers.

Total debt of $2.4 billion at September 30, 2021 decreased $0.2 billion, or 9.1%, from December 31, 2020.

We continue to negotiate extended payment terms with our suppliers.

Our cash balance of $610.8 million at March 31, 2022 decreased $103.9 million, or 14.5%, from December 31, 2021.

For the three months ended March 31, 2022, we had net cash provided by operating activities of $398.8 million, net cash used in investing activities of $1.4 billion and net cash provided by financing activities of $914.0 million.

The cash provided by operating activities was driven by higher net income for the three months ended March 31, 2022 and the effective management of our working capital.

In addition, cash from operations included a $200 million benefit related to our A/R Sales Agreement during the quarter.

We used $1.4 billion cash for investing activities primarily in connection with the acquisition of Kaman Distribution Group, in addition to $78.0 million for capital

expenditures.

The financing activities consisted primarily of $1.1 billion of net proceeds from debt primarily from the Senior Notes offering (as discussed below).

This was partially offset by $115.9 million for dividends paid to our shareholders and $72.9 million of stock repurchases.

Each of our working capital line items were impacted by the acquisition of Kaman Distribution Group (refer to our acquisitions footnote in the notes to condensed consolidated financial statements for further information).

Accounts receivable increased $339.9 million, or 18.9%, from December 31, 2021.

Inventory increased $321.6 million, or 8.3%.

Accounts receivable and inventory were both impacted by first quarter increase in revenues and related product demand.

Accounts payable increased $409.6 million, or 8.5% from December 31, 2021, in line with the increase in inventory.

Total debt of $3.5 billion at March 31, 2022 increased $1.1 billion, or 45.6%, from December 31, 2021 driven primarily by the Senior Notes offering (as discussed below).

We continue to negotiate extended payment dates with our suppliers.

Our current payment terms with the majority of our suppliers range from 30 to 360 days.

Several global financial institutions offer voluntary supply chain finance (“SCF”) programs which enable our suppliers, at their sole discretion, to sell their receivables from the Company to these financial institutions on a non-recourse basis at a rate that takes advantage of our credit rating and may be beneficial to them.

The SCF program is primarily available to suppliers of goods and services included in cost of goods sold in our condensed consolidated statements of income (loss).

The Company and our suppliers agree on commercial terms for the goods and services we procure, including prices, quantities and payment terms, regardless of whether the supplier elects to participate in the SCF program.

The suppliers sell goods or services, as applicable, to the Company and they issue the associated invoices to the Company based on the agreed-upon contractual terms.

Several global financial institutions offer voluntary supply chain finance (“SCF”) programs which enable our suppliers, at their sole discretion, to sell their receivables from us to these financial institutions on a non-recourse basis at a rate that takes advantage of our credit rating and may be beneficial to them.

The SCF program is primarily available to suppliers of goods and services included in cost of goods sold in our condensed consolidated statements of income.

Our suppliers and us agree on commercial terms for the goods and services we procure, including prices, quantities and payment terms, regardless of whether the supplier elects to participate in the SCF program.

The suppliers sell goods or services, as applicable, to us and they issue the associated invoices to us based on the agreed-upon contractual terms.

Then, if they are participating in the SCF program, our suppliers, at their sole discretion, determine which invoices, if any, they want to sell to the financial institutions.

In turn, we direct payment to the financial institutions, rather than the suppliers, for the invoices sold to the financial institutions.

No guarantees are provided by the Company or any of our subsidiaries on third-party performance under the SCF program;

however, the Company guarantees the payment by our subsidiaries to the financial institutions participating in the SCF program for the applicable invoices.

No guarantees are provided by us or any of our subsidiaries on third-party performance under the SCF program;

however, we guarantee the payment by our subsidiaries to the financial institutions participating in the SCF program for the applicable invoices.

We have no economic interest in a supplier’s decision to participate in the SCF program, and we have no direct financial relationship with the financial institutions, as it relates to the SCF program.

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

As of September 30, 2021 and December 31, 2020, the outstanding payment obligations to the financial institutions are $2.6 billion and $1.8 billion, respectively.

The amount settled through the SCF program was $2.3 billion and $1.9 billion for the nine months ended September 30, 2021 and September 30, 2020, respectively.

As of March 31, 2022 and December 31, 2021, the outstanding payment obligations to the financial institutions are $2.7 billion and $2.7 billion, respectively.

The amount settled through the SCF program was $855 million and $577 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

Liquidity and Capital Resources

We ended the quarter with $2.4 billion of total liquidity (comprising $1.5 billion availability on the Unsecured Revolving Credit Facility, defined below, and $0.9 billion of cash and cash equivalents).

We ended the quarter with $2.0 billion of total liquidity (comprising $1.4 billion availability on the revolving credit facility and $610.8 million of cash and cash equivalents).

From time to time, we may enter into other credit facilities or financing arrangements to provide additional liquidity and to manage against foreign currency risk.

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

On September 30, 2021, we 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.

We have a strong cash position and solid financial strength to pursue strategic growth opportunities through disciplined, strategic capital deployment.

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We have plans for additional investments in our businesses to drive growth, improve efficiencies and productivity, and drive shareholder value.

On February 16, 2021, we announced a 3% increase in the regular quarterly cash dividend for 2021.

The Board of Directors increased the cash dividend payable to an annual rate of $3.26 per share compared with the previous dividend of $3.16 per share.

GPC has paid a cash dividend every year since going public in 1948, and 2021 marks the 65th consecutive year of increased dividends paid to shareholders.

On January 3, 2022, we amended our A/R Sales Agreement to increase the facility limit by an additional $200 million bringing the total to $1.0 billion.

The terms of the A/R Sales Agreement limit the balance of receivables sold to approximately $1.0 billion at any point in time.

Refer to the A/R Sales Agreement footnote in the notes to condensed consolidated financial statements for more information.

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 the Revolving Credit Facility which were incurred to finance a significant portion of the KDG Acquisition.

We expect to be able to continue to borrow funds at reasonable rates over the long term.

At September 30, 2021, the Company's total average cost of debt was 2.34%, and the Company remained in compliance with all covenants connected with its borrowings.

Such covenants include, among others, a financial covenant to maintain a certain leverage ratio of consolidated debt to consolidated adjusted EBITDA under our credit facility.

At March 31, 2022, our total average cost of debt was 2.31%, and we remain in compliance with all covenants connected with our borrowings.

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

The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could create cross defaults under other debt arrangements and have a material adverse effect on our business, financial condition, results of operations and cash flows.

On February 14, 2022, we announced a 10% increase in the regular quarterly cash dividend for 2022.

Our Board of Directors increased the cash dividend payable to an annual rate of $3.58 per share compared with the previous dividend of $3.26 per share.

We have paid a cash dividend every year since going public in 1948, and 2022 marks the 66th consecutive year of increased dividends paid to shareholders.

Quantitative and Qualitative Disclosures about Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis