GENUINE PARTS CO 10-Q

Item 1. Financial Statements GENUINE PARTS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share and per share data) March 31, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 610,776 $ 714,701 Trade accounts receivable, less allowance for doubtful accounts (2022 – $ 49,644 ; 2021 – $ 44,425 ) 2,137,806 1,797,955 Merchandise inventories, net 4,211,496 3,889,919 Prepaid expenses and other current assets 1,467,356 1,353,847 Total current assets 8,427,434 7,756,422 Goodwill 2,534,521 1,915,307 Other intangible assets, less accumulated amortization 1,935,153 1,406,401 Property, plant and equipment, less accumulated depreciation (2022 – $ 1,386,714 ; 2021 – $ 1,339,706 ) 1,239,046 1,234,399 Operating lease assets 1,125,803 1,053,689 Other assets 1,011,354 985,884 Total assets $ 16,273,311 $ 14,352,102 Liabilities and equity Current liabilities: Trade accounts payable $ 5,214,540 $ 4,804,939 Current portion of debt 120,000 — Dividends payable 126,891 115,876 Other current liabilities 1,788,101 1,660,768 Total current liabilities 7,249,532 6,581,583 Long-term debt 3,387,851 2,409,363 Operating lease liabilities 847,342 789,175 Pension and other post–retirement benefit liabilities 263,257 265,134 Deferred tax liabilities 400,980 280,778 Other long-term liabilities 516,473 522,779 Equity: Preferred stock, par value – $ 1 per share; authorized – 10,000,000 shares; none issued — — Common stock, par value – $ 1 per share; authorized – 450,000,000 shares; issued and outstanding – 2022 – 141,627,749 shares; 2021 – 142,180,683 shares 141,628 142,181 Additional paid-in capital 126,064 119,975 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 Noncontrolling interests in subsidiaries 12,136 12,548 Total equity 3,607,876 3,503,290 Total liabilities and equity $ 16,273,311 $ 14,352,102 See accompanying notes to condensed consolidated financial statements. 2 Table of Contents GENUINE PARTS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended March 31, (in thousands, except per share data) 2022 2021 Net sales $ 5,294,635 $ 4,464,714 Cost of goods sold 3,468,688 2,923,899 Gross profit 1,825,947 1,540,815 Operating expenses: Selling, administrative and other expenses 1,403,979 1,195,164 Depreciation and amortization 87,369 72,296 Provision for doubtful accounts 4,494 4,909 Total operating expenses 1,495,842 1,272,369 Non-operating expense (income): Interest expense, net 19,850 18,324 Other ( 15,461 ) ( 35,737 ) 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 $ 245,838 $ 217,710 Dividends declared per common share $ 0.8950 $ 0.8150 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 Dilutive effect of stock options and non-vested restricted stock awards 926 887 Weighted average common shares outstanding – assuming dilution 142,842 145,300 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents GENUINE PARTS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended March 31, (in thousands) 2022 2021 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 42,132 ( 295 ) Cash flow hedge adjustments, net of income taxes in 2022 — $ 1,384 ; 2021 — $ 1,384 3,741 3,741 Pension and postretirement benefit adjustments, net of income taxes in 2022 — $ 2,580 ; 2021 — $ 3,421 6,989 9,296 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. 4 Table of Contents GENUINE PARTS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) Three Months Ended March 31, 2022 (in thousands, except share and per share data) Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Parent Equity Non-controlling Interests in Subsidiaries Total Equity January 1, 2022 142,180,683 $ 142,181 $ 119,975 $ ( 857,739 ) $ 4,086,325 $ 3,490,742 $ 12,548 $ 3,503,290 Net income — — — — 245,838 245,838 — 245,838 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, 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 ) Noncontrolling interest activities — — — — — — ( 412 ) ( 412 ) 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 (in thousands, except share and per share data) Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Parent Equity Non-controlling Interests in Subsidiaries Total Equity January 1, 2021 144,354,335 $ 144,354 $ 117,165 $ ( 1,036,502 ) $ 3,979,779 $ 3,204,796 $ 13,207 $ 3,218,003 Net income — — — — 217,710 217,710 — 217,710 Other comprehensive income, net of tax — — — 12,742 — 12,742 — 12,742 Cash dividend declared, $ 0.8150 per share — — — — ( 117,714 ) ( 117,714 ) — ( 117,714 ) Share-based awards exercised, including tax benefit of $ 1,764 103,722 104 ( 5,533 ) — — ( 5,429 ) — ( 5,429 ) Share-based compensation — — 6,235 — — 6,235 — 6,235 Cumulative effect from adoption of ASU 2019-12 (1) — — — — 6,223 6,223 — 6,223 Noncontrolling interest activities — — — — — — ( 1,661 ) ( 1,661 ) 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. 5 Table of Contents GENUINE PARTS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended March 31, (in thousands) 2022 2021 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 Share-based compensation 7,171 6,235 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 398,808 300,942 Investing activities: Purchases of property, plant and equipment ( 78,045 ) ( 48,391 ) Proceeds from sale of property, plant and equipment 5,895 16,863 Proceeds from divestitures of businesses 25,939 10,345 Acquisitions of businesses and other investing activities ( 1,374,734 ) ( 19,489 ) Net cash used in investing activities ( 1,420,945 ) ( 40,672 ) Financing activities: Proceeds from debt 2,890,000 31,599 Payments on debt ( 1,784,585 ) ( 26,767 ) Share-based awards exercised ( 1,063 ) ( 5,429 ) Dividends paid ( 115,876 ) ( 114,043 ) Purchases of stock ( 72,919 ) — Other financing activities ( 1,593 ) ( 1,354 ) 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 ) Net (decrease) increase in cash and cash equivalents ( 103,925 ) 127,822 Cash and cash equivalents at beginning of period 714,701 990,166 Cash and cash equivalents at end of period $ 610,776 $ 1,117,988 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements. 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 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, 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. Reserves for bad debts, credit losses on guaranteed loans and customer sales returns are estimated and accrued on an interim basis based on a consideration of historical experience, current conditions, and reasonable and supportable forecasts. Volume incentives are estimated based upon cumulative and projected purchasing levels. 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. 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. 2. 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. 7 Table of Contents 3. Segment Information The following table presents a summary of our reportable segment financial information: Three Months Ended March 31, (in thousands) 2022 2021 Net sales: Automotive $ 3,275,621 $ 2,953,165 Industrial 2,019,014 1,511,549 Total net sales $ 5,294,635 $ 4,464,714 Segment profit: Automotive $ 264,573 $ 235,678 Industrial 188,353 125,292 Total segment profit 452,926 360,970 Interest expense, net ( 19,850 ) ( 18,324 ) Intangible asset amortization ( 39,694 ) ( 25,544 ) Corporate expense ( 41,751 ) ( 31,243 ) Other unallocated costs (1) ( 25,915 ) — Income before income taxes $ 325,716 $ 285,859 (1) The following table presents a summary of the other unallocated costs: Three Months Ended March 31, (in thousands) 2022 2021 Other unallocated costs: Gain on insurance proceeds (2) $ 634 $ — Transaction and other costs (3) ( 26,549 ) — Total other unallocated costs $ ( 25,915 ) $ — (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. 8 Table of Contents 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 March 31, (in thousands) 2022 2021 North America: Automotive $ 2,130,873 $ 1,862,805 Industrial 1,910,433 1,399,399 Total North America $ 4,041,306 $ 3,262,204 Australasia: Automotive $ 378,909 $ 367,869 Industrial 108,581 112,150 Total Australasia $ 487,490 $ 480,019 Europe – Automotive $ 765,839 $ 722,491 Total net sales $ 5,294,635 $ 4,464,714 4. Accounts Receivable Sales Agreement 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 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 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 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 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. 9 Table of Contents 5. Debt 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. 6. Derivatives and Hedging 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. 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. Net Investment Hedges 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 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. 10 Table of Contents 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 (in thousands): March 31, 2022 December 31, 2021 Instrument Balance Sheet Location Notional Balance Notional Balance Net investment hedges: Forward contracts Prepaid expenses and other current assets $ 1,406,950 $ 97,842 $ 925,810 $ 73,819 Forward contracts Other current liabilities $ — $ — $ 235,180 $ 2,935 Foreign currency debt Long-term debt € 700,000 $ 781,060 € 700,000 $ 792,820 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: Forward contracts $ 19,393 $ 37,515 $ 7,565 $ 6,574 Foreign currency debt 11,760 40,950 — — Total $ 31,153 $ 78,465 $ 7,565 $ 6,574 7. 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. 8. 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. 9. Acquisitions 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. 11 Table of Contents 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. 12 Table of Contents 10. 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. 11. Guarantees 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. 13 Table of Contents 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. 12. Commitments and Contingencies Legal Matters 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 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. 13. Earnings Per Share 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 March 31, 2022 2021 Anti-dilutive shares outstanding 1,341 — 14 Table of Contents