What changed in this filing

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Item 1. Financial Statements

2022-10-20 compared with 2022-07-27 · 77 added, 62 removed, 338 unchanged (29% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data) June 30, 2022 December 31, 2021

(in thousands, except share and per share data) September 30, 2022 December 31, 2021

Current assets:

43 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

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

(in thousands, except per share data) 2022 2021 2022 2021

23 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

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

(in thousands) 2022 2021 2022 2021

Net income $ 312,358 $ 228,585 $ 930,725 $ 642,791

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

Other comprehensive loss, net of income taxes:

Foreign currency translation adjustments, net of income taxes in 2022 — $ 33,843 and $ 73,892 ;

7 unchanged sentences

6,982 9,301 20,957 27,931

Other comprehensive (loss) income, net of income taxes ( 148,351 ) 20,206 ( 95,489 ) 32,948

Other comprehensive loss, net of income taxes ( 121,088 ) ( 69,532 ) ( 216,577 ) ( 36,584 )

Comprehensive income $ 191,270 $ 159,053 $ 714,148 $ 606,207

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended June 30, 2022

Three Months Ended September 30, 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

April 1, 2022 141,627,749 $ 141,628 $ 126,064 $ ( 804,877 ) $ 4,132,925 $ 3,595,740 $ 12,136 $ 3,607,876

July 1, 2022 141,280,841 $ 141,281 $ 123,388 $ ( 953,228 ) $ 4,329,115 $ 3,640,556 $ 13,007 $ 3,653,563

Net income — — — — 312,358 312,358 — 312,358

Other comprehensive income, net of tax — — — ( 148,351 ) — ( 148,351 ) — ( 148,351 )

Other comprehensive loss, net of tax — — — ( 121,088 ) — ( 121,088 ) — ( 121,088 )

Cash dividend declared, $ 0.895 per share

5 unchanged sentences

Noncontrolling interest activities — — — — — — 734 734

June 30, 2022 141,280,841 $ 141,281 $ 123,388 $ ( 953,228 ) $ 4,329,115 $ 3,640,556 $ 13,007 $ 3,653,563

Six Months Ended June 30, 2022

September 30, 2022 140,962,009 $ 140,962 $ 132,240 $ ( 1,074,316 ) $ 4,465,565 $ 3,664,451 $ 13,741 $ 3,678,192

Nine Months Ended September 30, 2022

1 unchanged sentence

Net income — — — — 930,725 930,725 — 930,725

Other comprehensive income, net of tax — — — ( 95,489 ) — ( 95,489 ) — ( 95,489 )

Other comprehensive loss, net of tax — — — ( 216,577 ) — ( 216,577 ) — ( 216,577 )

Cash dividend declared, $ 2.685 per share

5 unchanged sentences

Noncontrolling interest activities — — — — — — 1,193 1,193

June 30, 2022 141,280,841 $ 141,281 $ 123,388 $ ( 953,228 ) $ 4,329,115 $ 3,640,556 $ 13,007 $ 3,653,563

Three Months Ended June 30, 2021

September 30, 2022 140,962,009 $ 140,962 $ 132,240 $ ( 1,074,316 ) $ 4,465,565 $ 3,664,451 $ 13,741 $ 3,678,192

Three Months Ended September 30, 2021

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

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

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

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

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

Cash dividend declared, $ 0.815 per share

5 unchanged sentences

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

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

Six Months Ended June 30, 2021

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

Nine Months Ended September 30, 2021

1 unchanged sentence

Net income — — — — 642,791 642,791 — 642,791

Other comprehensive income, net of tax — — — 32,948 — 32,948 — 32,948

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

Cash dividend declared, $ 2.445 per share

6 unchanged sentences

Noncontrolling interest activities — — — — — — 174 174

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

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

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2022 2021

3 unchanged sentences

Depreciation and amortization 259,822 218,377

Loss on software disposal — 61,063

Share-based compensation 27,773 20,841

29 unchanged sentences

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.

Significant accounting policies and other disclosures normally provided have been omitted since they are disclosed in our Annual Report and have not changed.

Significant accounting policies and other items disclosed in our Annual Report have been omitted from this report because they have not changed.

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.

6 unchanged sentences

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

The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of results for the year ended December 31, 2022.

The results of operations for the three and nine months ended September 30, 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 unchanged sentences

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.

In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs.

This standard requires disclosure of the key terms of outstanding supply chain finance programs and a rollforward of the related amounts due to vendors participating in these programs.

The new standard does not affect the recognition, measurement or financial statement presentation of any amounts due.

The guidance is effective in the first quarter of 2023, except for the rollforward, which is effective in the first quarter of 2024.

Early adoption is permitted.

We are evaluating the adoption of this new guidance.

1.750 % and 2.750 % Senior Notes Offering

4 unchanged sentences

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 instruments are recognized in the condensed 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.

The following table summarizes the classification and carrying amounts of 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):

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Instrument Balance Sheet Classification Notional Balance Notional Balance

3 unchanged sentences

Foreign currency debt Long-term debt € 700,000 $ 686,980 € 700,000 $ 792,820

The tables below present gains and losses related to designated net investment hedges:

Gain (Loss) Recognized in AOCL before Reclassifications Gain Recognized in Interest Expense for Excluded Components

The tables below present 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 June 30,

Three months ended September 30,

Forward contracts $ 81,454 $ 20,958 $ 7,965 $ 6,574

3 unchanged sentences

(in thousands) 2022 2021 2022 2021

Six Months Ended June 30,

Nine months ended September 30,

Forward contracts $ 167,834 $ 45,143 $ 23,095 $ 19,722

2 unchanged sentences

Fair Value of Financial Instruments

As of June 30, 2022 the fair value of our senior unsecured notes was approximately $ 3 billion, which are designated as Level 2 in the fair value hierarchy.

As of September 30, 2022 the fair value of our senior unsecured notes was approximately $ 2.8 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.

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 June 30, 2022, we were in compliance with all such covenants.

As of June 30, 2022, the total borrowings of the independents and affiliates subject to guarantee by us were approximately $ 902 million.

At September 30, 2022, we were in compliance with all such covenants.

As of September 30, 2022, the total borrowings of the independents and affiliates subject to guarantee by us were approximately $ 908 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.

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.

1 unchanged sentence

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 June 30, 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 June 30, 2022, we have recognized certain assets and liabilities amounting to $ 71 million each for the guarantees related to the independents’ and affiliates’ borrowings.

As of September 30, 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 September 30, 2022, we have recognized certain assets and liabilities amounting to $ 74 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.

4 unchanged sentences

The following table summarizes anti-dilutive shares outstanding:

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

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

2022 2021 2022 2021

2 unchanged sentences

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

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

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

(in thousands) 2022 2021 2022 2021

9 unchanged sentences

Corporate expense ( 72,820 ) ( 47,389 ) ( 187,883 ) ( 130,029 )

Other unallocated income (expenses) (1) 76,732 ( 77,421 ) 50,817 ( 77,421 )

Other unallocated (expenses) income (1) ( 3,462 ) ( 61,063 ) 47,355 ( 138,484 )

Income before income taxes $ 417,936 $ 298,974 $ 1,235,219 $ 854,440

(1) The following table presents a summary of the other unallocated income and expenses:

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

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

(in thousands) 2022 2021 2022 2021

Other unallocated costs:

Other unallocated (expenses) income:

Gain on sale of real estate (2) $ — $ — $ 102,803 $ —

1 unchanged sentence

Product liability damages award (4) — — — ( 77,421 )

Loss on software disposal (5) — ( 61,063 ) — ( 61,063 )

Transaction and other costs (6) ( 3,462 ) — ( 56,955 ) —

Total other unallocated costs $ 76,732 $ ( 77,421 ) $ 50,817 $ ( 77,421 )

(2) Adjustment reflects a gain on the sale of real estate that had been leased to S.P.

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

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

(5) Adjustment primarily reflects legal and professional, restructuring, lease termination and other costs associated with the January 3, 2022 acquisition and subsequent integration of KDG.

Total other unallocated (expenses) income $ ( 3,462 ) $ ( 61,063 ) $ 47,355 $ ( 138,484 )

(2) Amount reflects a gain on the sale of real estate that had been leased to S.P.

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

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

(5) Amount 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.

(6) Amount primarily reflects costs associated with the January 3, 2022 acquisition and integration of KDG.

These costs also include a $ 17 million impairment charge driven by a decision to retire certain legacy trade names, classified as other intangible assets, prior to the end of their estimated useful lives as part of executing our KDG integration and rebranding strategy.

2 unchanged sentences

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

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

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

(in thousands) 2022 2021 2022 2021

14 unchanged sentences

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 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 billion and $ 800 million as of June 30, 2022 and December 31, 2021, respectively.

The amount of receivables pledged as collateral as of June 30, 2022 and December 31, 2021 is approximately $ 1.1 billion and $ 973 million, respectively.

The total principal amount outstanding of receivables sold is approximately $ 1.0 billion and $ 800 million as of September 30, 2022 and December 31, 2021, respectively.

The amount of receivables pledged as collateral as of September 30, 2022 and December 31, 2021 is approximately $ 1.1 billion and $ 973 million, respectively.

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

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

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

(in thousands) 2022 2021 2022 2021

5 unchanged sentences

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

The reserve recognized for this recourse obligation as of June 30, 2022 and December 31, 2021 is not material.

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

Net periodic benefit income from our pension plans included the following components for our pension benefits:

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

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

(in thousands) 2022 2021 2022 2021

7 unchanged sentences

Pension benefits also include amounts related to supplemental retirement plans.

We acquired several businesses, including KDG, for approximately $ 1.6 billion, net of cash acquired, during the six months ended June 30, 2022.

For the six months ended June 30, 2021, acquisitions totaled $ 98 million, net of cash acquired.

During the six months ended June 30, 2022, we recognized approximately $ 238 million and $ 550 million of revenue, net of store closures, related to our Automotive and Industrial acquisitions, respectively.

We acquired several businesses, including KDG, for approximately $ 1.6 billion, net of cash acquired, during the nine months ended September 30, 2022.

For the nine months ended September 30, 2021, acquisitions totaled $ 143 million, net of cash acquired.

During the nine months ended September 30, 2022, we recognized approximately $ 408 million and $ 818 million of revenue, net of store closures, related to our Automotive and Industrial acquisitions, respectively.

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

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.

Excluding KDG, for the six months ended June 30, 2022 and June 30, 2021, we recorded approximately $ 185 million and $ 70 million of goodwill and other intangible assets associated with acquisitions.

Excluding KDG, for the nine months ended September 30, 2022 and September 30, 2021, we recorded approximately $ 200 million and $ 97 million of goodwill and other intangible assets associated with acquisitions.

Other intangible assets acquired consisted primarily of customer relationships with a weighted average amortization lives of 20 years.

6 unchanged sentences

The KDG acquisition was financed using a combination of borrowings under the existing unsecured revolving credit facility, proceeds of $ 200 million from the selling of additional receivables under our amended A/R Sales Agreement and $ 109 million of cash.

The following table summarizes the preliminary, estimated fair values of the assets acquired and liabilities assumed at the acquisition date as well as adjustments made to the acquisition accounting during the six months ended June

30, 2022 (referred to as the "measurement period adjustments").

The measurement period adjustments primarily resulted from revisions to the valuation of certain tangible and intangible assets.

24 unchanged sentences

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

For the six months ended June 30, 2022, approximately $ 5 million of inventory amortization step-up cost related to this acquisition was included in cost of goods sold.

Further, $ 47 million of transaction and other one-time costs, inclusive of the impairment charge described below, were included in selling, administrative, and other expenses in the condensed consolidated statements of income.

For the nine months ended September 30, 2022, approximately $ 5 million of inventory amortization step-up cost related to this acquisition was included in cost of goods sold.

Further, $ 49 million of transaction and other one-time

costs, inclusive of the impairment charge described below, were included in selling, administrative, and other expenses in the condensed consolidated statements of income.

In June 2022, we incurred a $ 17 million non-cash impairment charge related to our decision to retire certain legacy Industrial trade names, classified as other intangible assets, prior to the end of their estimated useful lives as part of the KDG integration and rebranding strategy.

1 unchanged sentence

Accumulated Other Comprehensive Loss

The following tables present the changes in AOCL by component for the six months ended June 30:

The following tables present the changes in AOCL by component for the nine months ended September 30:

Changes in Accumulated Other

5 unchanged sentences

Other comprehensive income (loss), net of income taxes 20,957 11,223 ( 248,757 ) ( 216,577 )

Ending balance, June 30, 2022 $ ( 449,252 ) $ ( 7,560 ) $ ( 496,416 ) $ ( 953,228 )

Ending balance, September 30, 2022 $ ( 442,270 ) $ ( 3,819 ) $ ( 628,227 ) $ ( 1,074,316 )

Changes in Accumulated Other

5 unchanged sentences

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

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

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

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

9 unchanged sentences

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