GENUINE PARTS CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 and six months ended June 30, 2023 are not necessarily indicative of results for the year ended December 31, 2023. Forward-Looking Statements Some statements in this report, as well as in other materials we file with the Securities and Exchange Commission (“SEC”), release to the public, or make available on our website, constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements in the future tense and all statements accompanied by words such as “expect,” “likely,” “outlook,” “forecast,” “preliminary,” “would,” “could,” “should,” “position,” “will,” “project,” “intend,” “plan,” “on track,” “anticipate,” “to come,” “may,” “possible,” “assume,” or similar expressions are intended to identify such forward-looking statements. These forward-looking statements include our view of business and economic trends for the remainder of the year and our expectations regarding our ability to capitalize on these business and economic trends and to execute our strategic priorities. Senior officers may also make verbal statements to analysts, investors, the media and others that are forward-looking. We caution you that all forward-looking statements involve risks and uncertainties, and while we believe that our expectations for the future are reasonable in view of currently available information, you are cautioned not to place undue reliance on our forward-looking statements. Actual results or events may differ materially from those indicated as a result of various important factors. Such factors may include, among other things, changes in general economic conditions, including unemployment, inflation (including the impact of tariffs) or deflation, financial institution disruptions and geopolitical conflicts such as the conflict between Russia and Ukraine; volatility in oil prices; significant cost increases, such as rising fuel and freight expenses; public health emergencies such as the COVID-19 pandemic, including the effects on the financial health of our business partners and customers, on supply chains and our suppliers, on vehicle miles driven as well as other metrics that affect our business, and on access to capital and liquidity provided by the financial and capital markets; our ability to maintain compliance with our debt covenants; our ability to successfully integrate acquired businesses into our operations and to realize the anticipated synergies and benefits; our ability to successfully implement our business initiatives in our two business segments; slowing demand for our products; the ability to maintain favorable supplier arrangements and relationships; changes in national and international legislation or government regulations or policies, including changes to import tariffs, environmental and social policy, infrastructure programs and privacy legislation, and their impact to us, our suppliers and customers; changes in tax policies; volatile exchange rates; our ability to successfully attract and retain employees in the current labor market; uncertain credit markets and other macroeconomic conditions; competitive product, service and pricing pressures; failure or weakness in our disclosure controls and procedures and internal controls over financial reporting, including as a result of the work from home environment; the uncertainties and costs of litigation; disruptions caused by a failure or breach of our information systems, as well as other risks and uncertainties discussed in our 2022 Annual Report on Form 10-K and from time to time in our subsequent filings with the SEC. Forward-looking statements speak only as of the date they are made, and we undertake no duty to update any forward-looking statements except as required by law. You are advised, however, to review any further disclosures we make on related subjects in our subsequent Forms 10-K, 10-Q, 8-K and other reports filed with the SEC. Overview Genuine Parts Company is a service organization engaged in the global distribution of automotive and industrial replacement parts. We have a long tradition of growth dating back to 1928, the year we were founded in Atlanta, Georgia. 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 six months ended June 30, 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 six months ended June 30, 2023. 15 Table of Contents 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, 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 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, 2023 2022 (in thousands) $ % of Sales $ % of Sales $ Change % Change Net sales $ 5,915,006 100.0 % $ 5,602,414 100.0 % $ 312,592 5.6 % Cost of goods sold 3,780,263 63.9 % 3,641,615 65.0 % 138,648 3.8 % Gross profit 2,134,743 36.1 % 1,960,799 35.0 % 173,944 8.9 % Operating expenses: Selling, administrative and other expenses 1,581,653 26.7 % 1,364,015 24.3 % 217,638 16.0 % 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 % 16 Table of Contents Our results of operations are summarized below for the six months ended June 30, 2023 and 2022. Six Months Ended June 30, 2023 2022 (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 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 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 % Income taxes 210,044 1.8 % 198,916 1.8 % 11,128 5.6 % Net income $ 648,451 5.6 % $ 618,367 5.7 % $ 30,084 4.9 % Six Months Ended June 30, (in thousands, except per share data) 2023 2022 $ Change % Change Diluted EPS $ 4.58 $ 4.34 $ 0.24 5.5 % Total adjusted EBITDA $ 1,069,902 $ 979,823 $ 90,079 9.2 % Automotive segment profit $ 593,767 $ 587,126 $ 6,641 1.1 % Industrial segment profit $ 545,359 $ 413,825 $ 131,534 31.8 % Total segment profit $ 1,139,126 $ 1,000,951 $ 138,175 13.8 % Automotive segment margin 8.3 % 8.7 % Industrial segment margin 12.1 % 10.0 % Total segment margin 9.8 % 9.2 % Net Sales 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. Automotive 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. 17 Table of Contents 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. Industrial 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 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 26.7% 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 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. 18 Table of Contents Automotive 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 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. Income Taxes 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%. Net Income 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 Adjusted net income, adjusted diluted EPS and adjusted EBITDA are non-GAAP measures (see table below for reconciliations to the most directly comparable GAAP measures). The following tables set forth reconciliations of net income and diluted EPS to adjusted net income and adjusted diluted EPS, respectively, to account for the impact of adjustments. We also include a reconciliation from segment profit to segment EBITDA and adjusted EBITDA. 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 19 Table of Contents 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 June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 GAAP net income $ 344,494 $ 372,529 $ 648,451 $ 618,367 Adjustments: Gain on sale of real estate (1) — (102,803) — (102,803) Gain on insurance proceeds (2) — (873) — (1,507) Transaction and other costs (3) — 26,944 — 53,493 Total adjustments — (76,732) — (50,817) Tax impact of adjustments — 17,291 — 11,187 Adjusted net income $ 344,494 $ 313,088 $ 648,451 $ 578,737 The table below represent amounts per common share assuming dilution: 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 Adjustments: Gain on sale of real estate (1) — (0.72) — (0.72) Gain on insurance proceeds (2) — (0.01) — (0.02) Transaction and other costs (3) — 0.19 — 0.38 Total adjustments — (0.54) — (0.36) Tax impact of adjustments — 0.12 — 0.08 Adjusted diluted earnings per share $ 2.44 $ 2.20 $ 4.58 $ 4.06 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. Richards. (2) Adjustment reflects insurance recoveries in excess of losses incurred on inventory, property, plant and equipment and other fire-related costs. (3) Adjustment primarily reflects costs associated with the January 3, 2022 acquisition of Kaman Distribution Group. 20 Table of Contents The table below clarifies where the adjusted items are presented in the Condensed Consolidated Statements of Income: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Line item: Cost of goods sold $ — $ — $ — $ 5,000 Selling, administrative and other expenses — (75,859) — (54,310) Non-operating income: Other — (873) — (1,507) Total adjustments $ — $ (76,732) $ — $ (50,817) The table below represents a reconciliation from GAAP net income to adjusted EBITDA: 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 Depreciation and amortization 90,873 85,890 178,088 173,259 Interest expense, net 16,455 20,248 33,319 40,098 Income taxes 109,595 119,038 210,044 198,916 EBITDA 561,417 597,705 1,069,902 1,030,640 Total adjustments (1) — (76,732) — (50,817) Adjusted EBITDA $ 561,417 $ 520,973 $ 1,069,902 $ 979,823 The table below represents a reconciliation from segment profit to segment EBITDA and adjusted EBITDA: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Automotive: Segment Profit $ 329,347 $ 322,553 $ 593,767 $ 587,126 Depreciation 40,901 36,438 79,010 72,692 Other costs (2) — 8,926 — 17,853 Automotive segment EBITDA 370,248 367,917 672,777 677,671 Industrial: Segment Profit 283,372 225,472 545,359 413,825 Depreciation 7,080 6,574 14,130 14,525 Other costs (2) — 5,587 — 11,174 Industrial segment EBITDA 290,452 237,633 559,489 439,524 Corporate: Corporate expense (101,550) (73,312) (167,565) (115,063) Depreciation 2,267 3,248 5,201 6,718 Other costs (2) — (14,513) — (29,027) Other unallocated costs (1) — 76,732 — 50,817 Corporate EBITDA (99,283) (7,845) (162,364) (86,555) Total adjustments (1) — (76,732) — (50,817) Corporate adjusted EBITDA (99,283) (84,577) (162,364) (137,372) Adjusted EBITDA $ 561,417 $ 520,973 $ 1,069,902 $ 979,823 (1) Amounts are the same as adjustments included within the adjusted net income table above. 21 Table of Contents (2) These represent costs for certain functions, including cybersecurity and product liability litigation that were transferred to Corporate beginning in 2023 to be streamlined and centrally managed. We presented the 2022 comparative period to reflect how management manages these costs in 2023 and going forward. Financial Condition 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. Total debt of $3.4 billion at June 30, 2023 increased $75 million, or 2.3%, from December 31, 2022. Liquidity and Capital Resources We ended the quarter with $2.0 billion of total liquidity (comprising $1.4 billion availability on the revolving credit facility and $530 million of cash and cash equivalents). From time to time, we may enter into other credit facilities or financing arrangements to provide additional liquidity and to manage against foreign currency risk. We currently believe that the existing lines of credit and cash generated from operations will be sufficient to fund 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. Our key priorities include the reinvestment in our businesses through capital expenditures, mergers and acquisitions, the dividend and share repurchases. We have plans for additional investments in our businesses to drive growth, improve efficiencies and productivity, and drive shareholder value. We expect to be able to continue to borrow funds at reasonable rates over the long term. 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. Dollar. Any failure to comply with our debt covenants or restrictions could result in a default under our financing arrangements or could require us to obtain waivers from our lenders for failure to comply with these restrictions. The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could create cross defaults under other debt arrangements and have a material adverse effect on our business, financial condition, results of operations and cash flows. On February 21, 2023, we announced a 6% increase in the regular quarterly cash dividend for 2023. 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 marks the 67th consecutive year of increased dividends paid to shareholders. Item 3. Quantitative and Qualitative Disclosures about Market Risk For quantitative and qualitative disclosures about market risk, refer to “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II of our 2022 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2022.