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Item 1. Financial Statements

2023-04-20 compared with 2022-10-20 · 103 added, 174 removed, 241 unchanged (53% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(in thousands, except share and per share data) March 31, 2023 December 31, 2022

Current assets:

43 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

Three Months Ended March 31,

(in thousands, except per share data) 2023 2022

17 unchanged sentences

Diluted earnings per share $ 2.14 $ 1.72

Weighted average common shares outstanding 141,336 142,871 141,609 143,826

Dilutive effect of stock options and non-vested restricted stock awards 773 718 819 796

Weighted average common shares outstanding – assuming dilution 142,109 143,589 142,428 144,622

See accompanying Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

Three Months Ended March 31,

(in thousands) 2023 2022

Net income $ 303,957 $ 245,838

Other comprehensive loss, net of income taxes:

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

2021 — $ 11,328 and $ 25,494 , respectively

Other comprehensive income, net of income taxes:

Foreign currency translation adjustments, net of income taxes in 2023 — $ 5,255 ;

2022 — $ 8,411

Cash flow hedge adjustments, net of income taxes in 2022 — $ 1,384 and $ 4,151 ;

2021 — $ 1,384 and $ 4,151 , respectively

23,827 42,132

Pension and postretirement benefit adjustments, net of income taxes in 2022 — $ 2,576 and $ 7,736 ;

2021 — $ 3,425 and $ 10,280 , respectively

Cash flow hedge adjustments, net of income taxes in 2023 — $ 0 ;

2022 — $ 1,384

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

Pension and postretirement benefit adjustments, net of income taxes in 2023 — $ 703 ;

2022 — $ 2,580

Other comprehensive income, net of income taxes 25,741 52,862

Comprehensive income $ 329,698 $ 298,700

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

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

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

Cash dividend declared, $ 0.895 per share

— — — — ( 126,434 ) ( 126,434 ) — ( 126,434 )

Share-based awards exercised, including tax benefit of $ 731

14,619 15 ( 1,039 ) — — ( 1,024 ) — ( 1,024 )

Share-based compensation — — 9,891 — — 9,891 — 9,891

Purchase of stock ( 333,451 ) ( 334 ) — — ( 49,474 ) ( 49,808 ) — ( 49,808 )

Noncontrolling interest activities — — — — — — 734 734

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

Three Months Ended March 31, 2023

1 unchanged sentence

Net income — — — — 303,957 303,957 — 303,957

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

Cash dividend declared, $ 2.685 per share

— — — — ( 380,041 ) ( 380,041 ) — ( 380,041 )

Share-based awards exercised, including tax benefit of $ 3,868

63,877 64 ( 15,508 ) — — ( 15,444 ) — ( 15,444 )

Share-based compensation — — 27,773 — — 27,773 — 27,773

Purchase of stock ( 1,282,551 ) ( 1,283 ) — — ( 171,444 ) ( 172,727 ) — ( 172,727 )

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

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

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

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

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

Other comprehensive income, net of tax — — — 25,741 — 25,741 — 25,741

Cash dividend declared, $ 0.9500 per share

— — — — ( 133,737 ) ( 133,737 ) — ( 133,737 )

Share-based awards exercised, including tax benefit of $ 40

2,256 1 ( 69 ) — — ( 68 ) — ( 68 )

Shares issued from employee incentive plans 14,832 15 ( 1,280 ) — — ( 1,265 ) — ( 1,265 )

Share-based compensation — — 8,646 — — 8,646 — 8,646

1 unchanged sentence

Noncontrolling interest activities — — — — — — ( 652 ) ( 652 )

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

March 31, 2023 140,545,475 $ 140,545 $ 147,690 $ ( 1,006,801 ) $ 4,644,770 $ 3,926,204 $ 13,432 $ 3,939,636

Three Months Ended March 31, 2022

1 unchanged sentence

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

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

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

Cash dividend declared, $ 0.8950 per share

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

Share-based awards exercised, including tax benefit of $ 6,667

385,419 385 ( 19,783 ) — — ( 19,398 ) — ( 19,398 )

Shares issued from employee incentive plans 18,670 19 ( 1,082 ) — — ( 1,063 ) — ( 1,063 )

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

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

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

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

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

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

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

See accompanying Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2023 2022

3 unchanged sentences

Depreciation and amortization 87,215 87,369

Loss on software disposal — 61,063

Share-based compensation 8,646 7,171

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

Intangible asset impairment 17,461 —

Excess tax benefits from share-based compensation ( 584 ) ( 714 )

4 unchanged sentences

Proceeds from sale of property, plant and equipment 1,971 5,895

Proceeds from divestitures of businesses 32,620 16,687

Acquisitions of businesses and other investing activities ( 1,586,812 ) ( 142,567 )

Proceeds from sale of investments 80,482 —

Acquisitions and other investing activities ( 39,589 ) ( 1,348,795 )

Net cash used in investing activities ( 45,236 ) ( 1,420,945 )

2 unchanged sentences

Payments on debt ( 652,138 ) ( 1,784,585 )

Share-based awards exercised ( 15,444 ) ( 19,398 )

Shares issued from employee incentive plans ( 1,265 ) ( 1,063 )

Dividends paid ( 126,191 ) ( 115,876 )

1 unchanged sentence

Other financing activities ( 4,118 ) ( 1,593 )

Net cash provided by (used in) financing activities 386,034 ( 818,724 )

Net cash (used in) provided by financing activities ( 157,813 ) 913,964

Effect of exchange rate changes on cash and cash equivalents 3,262 4,248

9 unchanged sentences

Accordingly, the unaudited Condensed Consolidated Financial Statements and related disclosures herein should be read in conjunction with our 2022 Annual Report on Form 10-K.

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

There were no significant changes to our accounting policies from those disclosed in the Summary of Significant Accounting Policies Footnote in the Notes to Consolidated Financial Statements in our 2022 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.

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

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.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of results for the year ended December 31, 2023.

We have evaluated subsequent events through the date the unaudited Condensed Consolidated Financial Statements covered by this quarterly report were issued.

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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.

We consider the applicability and impact of all ASUs and any not listed below were assessed and determined to not be 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 .

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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

On January 6, 2022, we issued $ 500 million of unsecured 1.750 % Senior Notes due 2025.

Simultaneously, we issued $ 500 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 borrowings under our Revolving Credit Facility, which were incurred to finance a significant portion of the Kaman Distribution Group ("KDG") acquisition.

For additional information, please refer to the supply chain finance programs section herein.

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.

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

We use derivative and non-derivative instruments as risk management tools to mitigate the potential impact of 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.

1 unchanged sentence

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):

September 30, 2022 December 31, 2021

Instrument Balance Sheet Classification Notional Balance Notional Balance

The following table summarizes the classification 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, 2023 December 31, 2022

Instrument Balance Sheet Location Notional Balance Notional Balance

Net investment hedges:

2 unchanged sentences

Foreign currency debt Long-term debt € 700,000 $ 763,420 € 700,000 $ 749,280

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 September 30,

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

Foreign currency debt 43,890 21,000 — —

Total $ 125,344 $ 41,958 $ 7,965 $ 6,574

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

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

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

(in thousands) 2023 2022 2023 2022

Nine months ended September 30,

Three Months Ended March 31,

Net investment hedges:

Forward contracts $ ( 5,324 ) $ 19,393 $ 3,158 $ 7,565

2 unchanged sentences

Fair Value of Financial Instruments

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.

As of March 31, 2023 the fair value of our senior unsecured notes was approximately $ 3.0 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.

1 unchanged sentence

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

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.

At March 31, 2023, we were in compliance with all such covenants.

As of March 31, 2023, the total borrowings of the independents and affiliates subject to guarantee by us were approximately $ 940 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 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.

As of March 31, 2023, there are no material guaranteed loans for which the borrower is experiencing financial difficulty and recovery is expected to be provided substantially through the operation or sale of the collateral.

As of March 31, 2023, we have recognized certain assets and liabilities amounting to $ 69 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.

Supply Chain Finance Programs

Several global financial institutions offer voluntary supply chain finance (“SCF”) programs which enable our suppliers (generally those that grant extended terms), 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.

We 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.

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

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 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.

Accordingly, amounts due to our suppliers that elected to participate in the SCF program are included in the line item accounts payable in our consolidated balance sheets.

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 consolidated statement of cash flows.

As of March 31, 2023 and December 31, 2022, the outstanding payment obligations to the financial institutions are $ 3.0 billion and $ 3.1 billion, respectively.

The amount settled through the SCF program was $ 1.0 billion and $ 855 million for the three months ended March 31, 2023 and March 31, 2022, respectively.

Earnings Per Share

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.

We calculate basic earnings per share by dividing net income by the weighted average number of common shares outstanding.

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

The following table summarizes anti-dilutive shares outstanding:

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

2022 2021 2022 2021

Anti-dilutive shares outstanding 360 — 1,142 158

Antidilutive common stock equivalents excluded from the diluted earnings per share calculation are not material.

The following table summarizes basic and diluted shares outstanding:

Three Months Ended March 31,

(in thousands, except per share data) 2023 2022

Net income $ 303,957 $ 245,838

Weighted average common shares outstanding 140,804 141,916

Dilutive effect of stock options and non-vested restricted stock awards 921 926

Weighted average common shares outstanding – assuming dilution 141,725 142,842

Basic earnings per share $ 2.16 $ 1.73

Diluted earnings per share $ 2.14 $ 1.72

Segment Information

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

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

Three Months Ended March 31,

(in thousands) 2023 2022

9 unchanged sentences

Corporate expense ( 66,015 ) ( 41,751 )

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

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

Income before income taxes $ 404,406 $ 325,716

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

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

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

Three Months Ended March 31,

(in thousands) 2023 2022

Other unallocated (expenses) income:

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

Other unallocated costs:

Gain on insurance proceeds (2) $ — $ 634

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

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

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

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.

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

(2) 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.

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

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

Beginning in 2023, certain functions, including cybersecurity and the management of our product liability litigation, were transferred to corporate to be streamlined and centrally managed.

These costs totaled $ 15 million for the three months ended March 31, 2022, of which $ 9 million were allocated to Automotive and $ 6 million were allocated to Industrial based on several factors, including sales volumes and headcount.

Beginning in 2023, these costs, which totaled $ 11 million for the three months ended March 31, 2023, are no longer allocated to our segments when measuring their operating performance.

We have not restated the 2022 comparative segment financial information.

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

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

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

Three Months Ended March 31,

(in thousands) 2023 2022

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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 billion at any point in time (which is the maximum amount allowed under the agreement as amended on January 3, 2022).

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.

We continue to be involved with the receivables transferred by the SPE to the unaffiliated financial institutions 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 institutions 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).

The total principal amount outstanding of receivables sold is approximately $ 1.0 billion as of both March 31, 2023 and December 31, 2022.

The amount of receivables pledged as collateral as of March 31, 2023 and December 31, 2022 is approximately $ 1.3 billion and $ 1.1 billion, respectively.

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

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

Three Months Ended March 31,

(in thousands) 2023 2022

2 unchanged sentences

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 September 30, 2022 and December 31, 2021 is not material.

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

Those fees, which totaled $ 14 million and $ 2 million for the three months ended March 31, 2023 and 2022, respectively, 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 institutions 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, 2023 and December 31, 2022 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.

Employee Benefit Plans

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

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

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

Pension Benefits

(in thousands) 2023 2022

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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 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.

We acquired several businesses for approximately $ 40 million and $ 1.4 billion, net of cash acquired, during the three months ended March 31, 2023 and March 31, 2022, 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.

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.

The results of operations for acquired businesses are included in our Condensed Consolidated Statements of Income beginning on their respective acquisition dates.

KDG Acquisition

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

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

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

As of January 3, 2022, KDG had estimated annual revenues of approximately $ 1 billion.

The net cash consideration transferred of approximately $ 1.3 billion is net of the estimated cash acquired of approximately $ 30 million.

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 nine months ended September 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.

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.

As of January 3, 2022

(in thousands) Initial Balance Measurement Period Adjustments As Adjusted

Trade accounts receivable $ 156,000 $ — $ 156,000

Merchandise inventories 166,000 ( 1,000 ) 165,000

Prepaid expenses and other current assets 39,000 ( 2,000 ) 37,000

Property, plant and equipment 26,000 ( 2,000 ) 24,000

Operating lease assets 49,000 ( 5,000 ) 44,000

Other assets 1,000 — 1,000

Other intangible assets 574,000 ( 6,000 ) 568,000

Goodwill 592,000 4,000 596,000

Total assets acquired 1,603,000 ( 12,000 ) 1,591,000

Trade accounts payable 85,000 — 85,000

Other current liabilities 32,000 — 32,000

Operating lease liabilities 17,000 ( 1,000 ) 16,000

Deferred tax liabilities 121,000 ( 10,000 ) 111,000

Other long-term liabilities 39,000 ( 4,000 ) 35,000

Total liabilities assumed 294,000 ( 15,000 ) 279,000

Net assets acquired $ 1,309,000 $ 3,000 $ 1,312,000

The other intangible assets acquired included $ 527 million of customer relationship intangibles and a $ 41 million favorable trade name licensing agreement, with amortization lives of 17 and 1.5 years, respectively.

The other intangible assets have a total weighted amortization life of 16 years.

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 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.

We evaluate other intangible assets for potential impairment indicators annually or more frequently if circumstances change.

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, net of cash acquired of approximately $ 30 million.

Accumulated Other Comprehensive Loss

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

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

Changes in Accumulated Other

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Beginning balance, January 1, 2023 $ ( 506,610 ) $ ( 2,572 ) $ ( 523,360 ) $ ( 1,032,542 )

Other comprehensive loss before reclassifications — — ( 248,757 ) ( 248,757 )

Other comprehensive income before reclassifications — — 23,827 23,827

Amounts reclassified from accumulated other comprehensive loss 1,914 — — 1,914

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

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

Other comprehensive income, net of income taxes 1,914 — 23,827 25,741

Ending balance, March 31, 2023 $ ( 504,696 ) $ ( 2,572 ) $ ( 499,533 ) $ ( 1,006,801 )

Changes in Accumulated Other

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

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

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

The AOCL components related to the pension benefits are included in the computation of net periodic benefit income in the Employee Benefit Plans Footnote.

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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.

We are subject to various legal proceedings, many involving routine litigation incidental to the businesses, including approximately 2,224 pending product liability lawsuits resulting from our national distribution of automotive parts and supplies.

Many of these involve claims of personal injury allegedly resulting from the use of automotive parts we distributed.

The amount accrued for pending and future claims was $ 216 million as of March 31, 2023, which represents our best estimate of the liability within our calculated range of $ 195 million to $ 275 million, discounted using a discount rate of 3.48 %.

The amount accrued for pending and future claims was $ 220 million as of December 31, 2022, which represents our best estimate of the liability within our calculated range of $ 190 million to $ 270 million, discounted using a discount rate of 3.83 %.

Our undiscounted product liability was $ 276 million and $ 285 million as of March 31, 2023 and December 31, 2022, respectively.

There have been no significant developments to the information presented in our 2022 Annual Report on Form 10-K with respect to litigation or commitments and contingencies.

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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