What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-20 compared with 2023-04-20 · 122 added, 75 removed, 141 unchanged (58% of the section changed)

1 unchanged sentence

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

The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of results for the year ended December 31, 2023.

Forward-Looking Statements

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We conduct business in North America, Europe and Australasia from a network of more than 10,000 locations.

Our Automotive Parts Group ("Automotive") operates in the U.S., Canada, Mexico, France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Spain, Portugal, Australia and New Zealand, and accounted for 61% of total revenues for the three months ended March 31, 2023.

Our Industrial Parts Group ("Industrial") operates in the U.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore, and accounted for 39% of our total revenues for the three months ended March 31, 2023.

Key Performance Indicators

We consider a variety of performance and financial measures in assessing our business, and the key performance indicators used to measure our results are Comparable Sales, Gross Profit and Gross Margin, Selling, Administrative and Other Expenses ("SG&A"), Segment Profit and Segment Margin, and Net Income and EBITDA along with their adjusted measures.

We consider a variety of performance and financial measures in assessing our business, and the key performance indicators used to measure our results are Comparable Sales, Gross Profit and Gross Margin, Selling, Administrative and Other Expenses ("SG&A"), Segment Profit and Segment Margin, as well as Net Income and EBITDA along with their adjusted measures.

For more information regarding our key performance indicators please reference the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Results of Operations

Overall, continued strong customer demand in Industrial and growth in our automotive businesses in Europe, Australasia and Canada, allowed us to deliver 8.9% revenue growth compared to the three months ended March 31, 2022, despite slower growth in our U.S.

automotive business.

Our revenue growth and gross margin expansion, driven by execution of our strategic initiatives, drove a 50 basis point improvement in total segment margin.

These results allow us to continue investing in our businesses through strategic initiatives and capital expenditures.

Our results of operations are summarized below for the three months ended March 31, 2023 and 2022.

Three Months Ended March 31,

Our revenues grew 5.6% compared to the three months ended June 30, 2022, which reflects continued solid overall customer demand as well as the ongoing benefits of our business mix and geographic diversity.

Our revenue growth and gross margin expansion, which reflect the benefits of our strategic pricing and sourcing initiatives, helped drive a 60 basis point improvement in total segment margin, led by our Industrial segment, with sales and segment profit up 5.9% and 25.7%, respectively.

Our results for the three and six months ended June 30, 2022 includes income of $77 million and $51 million, respectively, which primarily related to the net benefit of a gain on sale of real estate and KDG acquisition costs.

Our results of operations are summarized below for the three months ended June 30, 2023 and 2022.

Three Months Ended June 30,

(in thousands) $ % of Sales $ % of Sales $ Change % Change

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Depreciation and amortization 90,873 1.5 % 85,890 1.5 % 4,983 5.8 %

Provision for doubtful accounts 8,322 0.1 % 2,899 0.1 % 5,423 NM

Total operating expenses 1,680,848 28.4 % 1,452,804 25.9 % 228,044 15.7 %

Non-operating expense (income):

Interest expense, net 16,455 0.3 % 20,248 0.4 % (3,793) (18.7) %

Other (16,649) (0.3) % (3,820) (0.1) % (12,829) NM

Total non-operating expense (income) (194) — % 16,428 0.3 % (16,622) (101.2) %

Income before income taxes 454,089 7.7 % 491,567 8.8 % (37,478) (7.6) %

Income taxes 109,595 1.9 % 119,038 2.1 % (9,443) (7.9) %

Net income $ 344,494 5.8 % $ 372,529 6.6 % $ (28,035) (7.5) %

Three Months Ended June 30,

(in thousands, except per share data) 2023 2022 $ Change % Change

Diluted EPS $ 2.44 $ 2.62 $ (0.18) (6.9) %

Total adjusted EBITDA $ 561,417 $ 520,973 $ 40,444 7.8 %

Automotive segment profit $ 329,347 $ 322,553 $ 6,794 2.1 %

Industrial segment profit $ 283,372 $ 225,472 $ 57,900 25.7 %

Total segment profit $ 612,719 $ 548,025 $ 64,694 11.8 %

Automotive segment margin 9.0 % 9.3 %

Industrial segment margin 12.5 % 10.6 %

Total segment margin 10.4 % 9.8 %

Our results of operations are summarized below for the six months ended June 30, 2023 and 2022.

Six Months Ended June 30,

(in thousands) $ % of Sales $ % of Sales $ Change % Change

Net sales $ 11,680,124 100.0 % $ 10,897,049 100.0 % $ 783,075 7.2 %

Cost of goods sold 7,531,980 64.5 % 7,110,303 65.2 % 421,677 5.9 %

Gross profit 4,148,144 35.5 % 3,786,746 34.8 % 361,398 9.5 %

Operating expenses:

Selling, administrative and other expenses 3,092,897 26.5 % 2,767,994 25.4 % 324,903 11.7 %

Depreciation and amortization 178,088 1.5 % 173,259 1.6 % 4,829 2.8 %

Provision for doubtful accounts 13,961 0.1 % 7,393 0.1 % 6,568 88.8 %

Total operating expenses 3,284,946 28.1 % 2,948,646 27.1 % 336,300 11.4 %

Non-operating expenses (income):

Non-operating expense (income):

Interest expense, net 33,319 0.3 % 40,098 0.4 % (6,779) (16.9) %

Other (28,616) (0.2) % (19,281) (0.2) % (9,335) 48.4 %

Total non-operating expenses (income) 4,897 0.1 % 4,389 0.1 % 508 11.6 %

Total non-operating expense (income) 4,703 — % 20,817 0.2 % (16,114) (77.4) %

Income before income taxes 858,495 7.4 % 817,283 7.5 % 41,212 5.0 %

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Net income $ 648,451 5.6 % $ 618,367 5.7 % $ 30,084 4.9 %

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands, except per share data) 2023 2022 $ Change % Change

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Total segment margin 9.8 % 9.2 %

Our net sales for the three months ended March 31, 2023 increased 8.9% compared to the same period of the prior year.

The increase in sales is attributable to an 8.7% increase in comparable sales and a 2.4% benefit from acquisitions, partially offset by a net unfavorable impact of foreign currency and other of 2.2%.

Strong customer demand, particularly in Industrial and in our international automotive businesses, combined with a favorable pricing environment, were the primary drivers of our comparable sales growth.

These factors were partially offset by slower growth in our U.S.

automotive business which was impacted by weather conditions as discussed below.

We continued to deploy strategic pricing increases in 2023 to offset the ongoing product cost increases we face across our businesses from elevated inflationary pressure, particularly in Automotive.

Separately, we experienced the ongoing benefits of strategic acquisitions in both segments.

Net sales for Automotive was $3.5 billion for the three months ended March 31, 2023, an increase of 7.0%, compared to the same period in the prior year.

The increase for the three months ended March 31, 2023 consisted of an approximate 6.6% increase in comparable sales and a 3.5% benefit from acquisitions, offset by a 3.1% unfavorable impact of foreign currency and other.

Net sales growth was driven by continued strong demand for automotive parts in Europe and Australasia, a continued strong pricing environment in all regions due to elevated inflation in product costs, and ongoing benefits of footprint expansion through acquisitions, such as our entry into new markets in Spain and Portugal in the second quarter of 2022.

Sales growth in the U.S.

was positive, but revenue growth was negatively impacted by adverse and unusual weather conditions in the U.S., including winter snowstorms in certain west coast regions that caused periodic facility closures, and milder winter weather in certain regions in the east that resulted in a decrease in demand for certain higher-margin products we typically sell during this period.

Net sales for Industrial was $2.3 billion, an increase of 11.9% for the three months ended March 31, 2023 compared to the same period in 2022.

The increase reflects a 12.1% increase in comparable sales and a 0.6% benefit from acquisitions, slightly offset by a 0.8% unfavorable impact of foreign currency as compared to the same period in 2022.

Our growth in comparable sales reflects the positive impact of our ongoing sales and pricing initiatives and strength in numerous industry segments in North America.

We experienced double-digit sales growth across almost all 14 customer sectors we served, with the largest percent increases in oil and gas, mining, food products, and chemical products.

The increase in sales volume was due to the diversification of our products and service offerings, in addition to a contribution of low single-digit product cost inflation.

Further, we are benefiting from the KDG acquisition and enhanced capabilities in industrial solutions, including automation and robotic solutions, fluid power and conveyance.

Our net sales for the three months ended June 30, 2023 increased 5.6% compared to the same period of the prior year.

The increase in sales is attributable to a 4.9% increase in comparable sales and a 1.8% benefit from acquisitions, partially offset by a net unfavorable impact of foreign currency and other of 1.1%.

Our net sales for the six months ended June 30, 2023 increased 7.2% compared to the same period of the prior year.

The increase in sales is attributable to a 6.8% increase in comparable sales and a 2.1% benefit from acquisitions, partially offset by a net unfavorable impact of foreign currency and other 1.7%.

Solid customer demand in Industrial and our international automotive businesses combined with a favorable pricing environment were the primary drivers of our comparable sales growth.

Both segments also experienced the ongoing benefits of strategic pricing initiatives and acquisitions completed in prior periods.

Net sales for Automotive were $3.7 billion for the three months ended June 30, 2023, an increase of 5.4%, compared to the same period in the prior year.

The increase for the three months ended June 30, 2023 consisted of a 4.3% increase in comparable sales and a 2.6% benefit from acquisitions, offset by a 1.5% unfavorable impact of foreign currency and other.

Net sales for Automotive were $7.2 billion for the six months ended June 30, 2023, an increase of 6.2%, compared to the same period in the prior year.

The increase for the six months ended June 30, 2023 consisted of a 5.4% increase in comparable sales and a 3.0% benefit from acquisitions, offset by a 2.2% unfavorable impact of foreign currency and other.

Net sales growth was primarily driven by continued solid demand for automotive parts in Europe and Australasia and a continued favorable pricing environment in all regions due to elevated inflation in product costs.

We also continue to benefit from acquisitions, such as our entry into new markets in Spain and Portugal midway through the second quarter of 2022.

These benefits were partially offset by the unfavorable impact of foreign exchange rates, primarily related to Australia and Canada.

Net sales for Industrial were $2.3 billion, an increase of 5.9% for the three months ended June 30, 2023 compared to the same period in 2022.

The increase reflects a 6.0% increase in comparable sales and a 0.6% benefit from acquisitions, slightly offset by a 0.7% unfavorable impact of foreign currency compared to the same period in 2022.

Net sales for Industrial were $4.5 billion, an increase of 8.8% for the six months ended June 30, 2023 compared to the same period in 2022.

The increase reflects a 9.0% increase in comparable sales and a 0.6% from acquisitions, slightly offset by a 0.8% unfavorable impact of foreign currency compared to the same period in 2022.

Our growth in comparable sales reflects the positive impact of our ongoing sales and pricing initiatives and continued solid growth in many of the industry segments we serve.

All industries in North America improved over the prior year period and many experienced double-digit growth, with the largest impact in food products, iron and steel, and pulp and paper.

We attribute part of our sales growth to the diversification of our products and service offerings, and ongoing benefits from the KDG acquisition, including enhanced capabilities in industrial solutions, such as automation and robotic solutions, fluid power and conveyance.

Gross Profit and Gross Margin

Gross profit increased $187 million, or approximately 10.3% for the three months ended March 31, 2023, primarily driven by the increase in net sales, and gross margin increased 40 basis points to 34.9% for the three months ended March 31, 2023.

Gross margin reflects the positive contributions of our strategic pricing and sourcing initiatives, among others.

Gross profit for the three months ended June 30, 2023, increased $174 million, or approximately 8.9%, compared to the same period in the prior year.

Gross margin increased 110 basis points to 36.1% for the three months ended June 30, 2023.

Gross profit for the six months ended June 30, 2023 increased $361 million or 9.5% compared to the same period in prior year.

Gross margin increased 70 basis points to 35.5% for the six months ended June 30, 2023.

Gross profit increases for the quarter and for the year-to-date periods were primarily driven by the increases in net sales and expanded gross margins.

Gross margin improvements for the periods reflect the positive contributions of our strategic pricing and sourcing initiatives.

Operating Expenses

SG&A expenses represent 26.2% of sales for the three months ended March 31, 2023 compared to 26.5% in the prior year period.

The decrease in SG&A expense as a percent of net sales was primarily driven by certain transaction costs of $26.5 million related to the KDG acquisition, among other things, in the prior year period.

In addition, we were able to leverage SG&A expenses on strong sales growth in Industrial, but this was offset by increased personnel costs primarily due to wage inflation, investments in information technology to support our ongoing strategic initiatives and higher outbound freight delivery costs in our U.S.

automotive business due to higher rates from transportation providers.

SG&A expenses represent 26.7% of sales for the three months ended June 30, 2023, an increase of 240 basis points from 24.3% in the second quarter of 2022.

SG&A expenses represent 26.5% for the six months ended June 30, 2023, an increase of 110 basis points from 25.4% in the first half of 2022.

SG&A expenses as a percentage of sales for the three and six months ended June 30, 2022 include income of $77 million and $51 million, respectively, which primarily related to the net benefit of a gain on sale of real estate offset by KDG acquisition costs.

Excluding those effects, SG&A expense as a percent of sales increased 100 basis points and 60 basis points for the three and six month periods ended June 30, 2023, respectively.

The increases are primarily driven by increased personnel costs due to wage inflation, and global investments in information technology to support our ongoing strategic initiatives.

Segment Profit

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.

Automotive segment profit decreased 0.1% in the three months ended March 31, 2023 compared to the same period of 2022, and Automotive segment profit margin decreased to 7.5% compared to 8.1% for the same period of the previous year.

While we continue to execute on our global growth and productivity initiatives, these efforts were more than offset by lower sales growth in the U.S., combined with higher wage and freight delivery costs, as described above.

Industrial segment profit increased 39.1% in the three months ended March 31, 2023 compared to the same three month period of 2022.

This group's segment profit margin increased to 11.6% compared to 9.3% for the same period of the previous year.

The improved segment profit margin is primarily due to the benefit of strong sales growth and the additional margin improvement as we continue to leverage our expenses and execute on our supply chain initiatives and other strategic initiatives in areas such as category management and pricing.

Our effective income tax rate was 24.8% and 24.5% for the three months ended March 31, 2023 and 2022, respectively.

The rate increase is primarily due to international tax rate adjustments.

For the three months ended March 31, 2023, net income was $304 million, an increase of 23.6% compared to net income of $246 million for the same three month period of the prior year.

On a per share diluted basis, net income was $2.14, an increase of 24.4% compared to $1.72 for the same three month period of 2022.

For the three months ended March 31, 2023, net income increased 14.4% compared to adjusted net income of $266 million for the same three month period of the prior year.

On a per share basis, net income for the three months ended March 31, 2023, increased 15.1% compared to $1.86 on an adjusted basis for the same three month period of 2022.

For the three months ended March 31, 2023, adjusted EBITDA was $508 million, an increase of 10.8% from $459 million for the same three month period of the prior year.

The growth in these metrics in all periods presented reflects the strong operating results, primarily in our Industrial segment, driven by strong sales growth and the continued execution of our strategic pricing and other initiatives, as discussed more fully in the commentary above.

These costs totaled $15 million and $29 million for the three and six months ended June 30, 2022, of which $9 million and $18 million were allocated to Automotive and $6 million and $11 million were allocated to Industrial based on several factors, including sales volumes and headcount.

Beginning in 2023, these costs, which totaled $8 million and $18 million for the three and six months ended June 30, 2023, are no longer allocated to our segments when measuring their operating performance.

We have not restated the 2022 comparative segment profit financial information.

Automotive segment profit for the three months ended June 30, 2023, increased 2.1% compared to the same period in 2022.

Automotive segment margin decreased 30 basis points to 9.0% for the three months ended June 30, 2023.

For the six months ended June 30, 2023, Automotive segment profit increased 1.1% compared to the same period in the prior year, and Automotive segment margin decreased 40 basis points to 8.3% for the same period in 2022.

Global Automotive segment profit was negatively impacted by lower than expected sales in the U.S.

combined with higher wages and investments in information technology.

Industrial segment profit increased 25.7% and 31.8% for the three and six months ended June 30, 2023 compared to the same periods in 2022.

For the three and six months ended June 30, 2023, Industrial segment margin increased 190 basis points and 210 basis points to 12.5% and 12.1%, respectively, when compared to the same periods in the previous year.

The improved Industrial segment margin is primarily due to strong sales growth and our continued focus on leveraging expenses and executing supply chain initiatives as well as other strategic initiatives in areas such as category management and pricing.

Our effective income tax rate for the three month period ended June 30, 2023 was 24.1% compared to 24.2% for the same period in 2022.

The rate decrease is primarily due to excess tax stock compensation benefits.

Our effective income tax rate for the six months ended June 30, 2023 was 24.5% compared to 24.3% for the same period in 2022.

The rate increase for the six month period is primarily related to one-time adjustments reducing the 2022 comparative rate.

The full year estimated effective tax rate is expected to be between 24.4% and 24.8%.

For the three months ended June 30, 2023, net income was $344 million, a decrease of 7.5% compared to net income of $373 million for the same three month period in the prior year.

On a per share diluted basis, net income was $2.44, a decrease of 6.9% compared to $2.62 for the same period in 2022.

Our results for the three months ended June 30, 2022 include income of $77 million, which primarily related to the net benefit of a gain on sale of real estate and KDG acquisition costs.

Excluding these amounts, on an adjusted basis, net income increased 10.0% compared to $313 million for the same period in the prior year.

On an adjusted per share diluted basis, net income increased 10.9% compared to $2.20 for the same period in 2022.

For the six months ended June 30, 2023, net income was $648 million, an increase of 4.9% compared to net income of $618 million for the same six month period in the prior year.

On a per share diluted basis, net income was $4.58, an increase of 5.5% compared to $4.34 for the same period in 2022.

Our results for the six months ended June 30, 2022 include income of $51 million, which primarily related to the net benefit of a gain on sale of real estate and KDG acquisition costs.

Excluding these amounts, on an adjusted basis, net income increased 12.0% compared to $579 million for the same period in the prior year.

On an adjusted per share diluted basis, net income increased 12.8% compared to $4.06 for the same period in 2022.

For the three months ended June 30, 2023, adjusted EBITDA was $561 million, an increase of 7.8% from $521 million for the same three month period in the prior year.

For the six months ended June 30, 2023, adjusted EBITDA was $1.1 billion, an increase of 9.2% from $980 million for the same six month period in the prior year.

The growth in these metrics in all periods presented reflects the strong operating results, primarily in our Industrial segment, driven by solid sales growth and the continued execution of our strategic pricing and other initiatives, as discussed more fully in the commentary above.

Non-GAAP Financial Measures

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We believe that the presentation of adjusted net income, adjusted diluted EPS, and adjusted EBITDA, which are not calculated in accordance with GAAP, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to both management and investors that is indicative of our core operations.

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

We consider these metrics useful to investors because they provide greater transparency into management’s view

and assessment of our ongoing operating performance by removing items management believes are not representative of our continuing operations and may distort our longer-term operating trends.

In the case of adjusted EBITDA by Segment, we believe this additional metric is useful to investors as it provides further insight into the performance of our segments.

We believe the non-GAAP metrics included herein also enhance the comparability of our results from period to period and with our competitors, as well as to show ongoing results from operations distinct from items that are infrequent or not associated with our core operations.

We do not, nor do we suggest

investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information.

Three Months Ended March 31,

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

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

(in thousands) 2023 2022 2023 2022

GAAP net income $ 344,494 $ 372,529 $ 648,451 $ 618,367

Gain on sale of real estate (1) — (102,803) — (102,803)

Gain on insurance proceeds (2) — (873) — (1,507)

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The table below represent amounts per common share assuming dilution:

Three Months Ended March 31,

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

(in thousands, except per share data) 2023 2022 2023 2022

GAAP diluted earnings per share $ 2.44 $ 2.62 $ 4.58 $ 4.34

Gain on sale of real estate (1) — (0.72) — (0.72)

Gain on insurance proceeds (2) — (0.01) — (0.02)

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Weighted average common shares outstanding – assuming dilution 141,247 142,304 141,496 142,582

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

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

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The table below clarifies where the adjusted items are presented in the Condensed Consolidated Statements of Income:

Three Months Ended March 31,

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

(in thousands) 2023 2022 2023 2022

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Selling, administrative and other expenses — (75,859) — (54,310)

Non-operating expense (income):

Non-operating income:

Other — (873) — (1,507)

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The table below represents a reconciliation from GAAP net income to adjusted EBITDA:

Three Months Ended March 31,

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

(in thousands) 2023 2022 2023 2022

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The table below represents a reconciliation from segment profit to segment EBITDA and adjusted EBITDA:

Three Months Ended March 31,

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

(in thousands) 2023 2022 2023 2022

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Financial Condition

Our cash balance was $651 million as of March 31, 2023, consistent with December 31, 2022.

For the three months ended March 31, 2023, we had net cash provided by operating activities of $198 million, net cash used in investing activities of $45 million and net cash used in financing activities of $158 million.

The cash provided by operating activities decreased as compared to prior year primarily driven by the $200 million benefit related to increasing the facility limit of our A/R Sales Agreement in the three months ended March 31, 2022.

We had $45 million in net cash used for investing activities primarily for capital expenditures and

acquisitions and other investing activities of $128 million, partially offset by $80 million in cash proceeds from the sale of our remaining investment in S.P.

Our cash balance was $530 million as of June 30, 2023, a decrease of $123 million from December 31, 2022.

For the six months ended June 30, 2023, we had net cash provided by operating activities of $457 million, net cash used in investing activities of $226 million and net cash used in financing activities of $358 million.

The cash provided by operating activities decreased $334 million compared to the prior year period.

The six months ended June 30, 2022 received a $200 million benefit because we increased the facility limit of our A/R Sales Agreement.

The remaining decrease is due to other net working capital changes primarily due to an increase of approximately 2 days in our day sales outstanding as a result of challenging economic conditions.

We had $226 million in net cash used for investing activities, primarily for capital expenditures and acquisitions, and other investing activities of $311 million, partially offset by $80 million related to cash proceeds from the sale of our remaining investment in S.P.

Richards and other investments.

The financing activities consisted primarily of $260 million for dividends paid to our shareholders and $135 million of stock repurchases.

Accounts receivable increased $232 million, or 10.6%, from December 31, 2022.

Inventory increased $138 million, or 3.1%.

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

Accounts payable increased $221 million, or 4.0% from December 31, 2022, in line with the increase in inventory.

Total debt of $3.4 billion at March 31, 2023 increased $56 million, or 1.7%, from December 31, 2022.

Total debt of $3.4 billion at June 30, 2023 increased $75 million, or 2.3%, from December 31, 2022.

Liquidity and Capital Resources

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

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

We currently believe that the existing lines of credit and cash generated from operations will be sufficient to fund our ongoing operating activities and our anticipated cash commitments for investing and financing activities, such as capital expenditures and potential acquisitions, future debt obligations, and dividends.

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

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

At March 31, 2023, our total average cost of debt was 2.36%, and we remain in compliance with all covenants connected with our borrowings.

At June 30, 2023, our total average cost of debt was 2.39%, and we remain in compliance with all covenants connected with our borrowings.

On March 14, 2023, we entered into a second amendment to our syndicated facility agreement dated October 30, 2020 to replace the benchmark rate, the 1-month London Inter Bank Offered Rate, with the 1-month Secured Overnight Financing Rate for borrowings denominated in U.S.

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Our Board of Directors increased the cash dividend payable to an annual rate of $3.80 per share compared with the prior year dividend of $3.58 per share.

We have paid a cash dividend every year since going public in 1948, and 2023 will mark the 67th consecutive year of increased dividends paid to shareholders.

We have paid a cash dividend every year since going public in 1948, and 2023 marks the 67th consecutive year of increased dividends paid to shareholders.

Quantitative and Qualitative Disclosures about Market Risk

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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 2. Management’s Discussion and Analysis