GENUINE PARTS CO 10-Q

Item 1. Financial Statements GENUINE PARTS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share and per share data) September 30, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 654,637 $ 653,463 Trade accounts receivable, less allowance for doubtful accounts (2023 – $ 61,499 ; 2022 – $ 53,872 ) 2,394,787 2,188,868 Merchandise inventories, net 4,482,773 4,441,649 Prepaid expenses and other current assets 1,497,677 1,532,759 Total current assets 9,029,874 8,816,739 Goodwill 2,637,150 2,588,113 Other intangible assets, less accumulated amortization 1,754,977 1,812,510 Property, plant and equipment, less accumulated depreciation (2023 – $ 1,532,480 ; 2022 – $ 1,435,677 ) 1,513,822 1,326,014 Operating lease assets 1,197,244 1,104,678 Other assets 888,831 847,325 Total assets $ 17,021,898 $ 16,495,379 Liabilities and equity Current liabilities: Trade accounts payable $ 5,486,379 $ 5,456,550 Current portion of debt 354,017 252,029 Dividends payable 133,254 126,191 Other current liabilities 1,826,709 1,851,340 Total current liabilities 7,800,359 7,686,110 Long-term debt 2,963,448 3,076,794 Operating lease liabilities 919,470 836,019 Pension and other post–retirement benefit liabilities 198,180 197,879 Deferred tax liabilities 411,350 391,163 Other long-term liabilities 527,816 502,967 Equity: Preferred stock, par value – $ 1 per share; authorized – 10,000,000 shares; none issued — — Common stock, par value – $ 1 per share; authorized – 450,000,000 shares; issued and outstanding – 2023 – 140,234,786 shares; 2022 – 140,941,649 shares 140,235 140,941 Additional paid-in capital 163,602 140,324 Accumulated other comprehensive loss ( 1,087,262 ) ( 1,032,542 ) Retained earnings 4,969,538 4,541,640 Total parent equity 4,186,113 3,790,363 Noncontrolling interests in subsidiaries 15,162 14,084 Total equity 4,201,275 3,804,447 Total liabilities and equity $ 17,021,898 $ 16,495,379 See accompanying Notes to Condensed Consolidated Financial Statements. 2 Table of Contents GENUINE PARTS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except per share data) 2023 2022 2023 2022 Net sales $ 5,824,602 $ 5,675,274 $ 17,504,726 $ 16,572,323 Cost of goods sold 3,715,361 3,695,607 11,247,341 10,805,910 Gross profit 2,109,241 1,979,667 6,257,385 5,766,413 Operating expenses: Selling, administrative and other expenses 1,551,799 1,458,418 4,644,696 4,226,412 Depreciation and amortization 83,860 86,563 261,948 259,822 Provision for doubtful accounts 8,417 6,146 22,378 13,539 Total operating expenses 1,644,076 1,551,127 4,929,022 4,499,773 Non-operating expense (income): Interest expense, net 15,827 18,220 49,146 58,318 Other ( 15,722 ) ( 7,616 ) ( 44,338 ) ( 26,897 ) Total non-operating expense (income) 105 10,604 4,808 31,421 Income before income taxes 465,060 417,936 1,323,555 1,235,219 Income taxes 113,862 105,578 323,906 304,494 Net income $ 351,198 $ 312,358 $ 999,649 $ 930,725 Dividends declared per common share $ 0.950 $ 0.895 $ 2.850 $ 2.685 Basic earnings per share $ 2.50 $ 2.21 $ 7.11 $ 6.57 Diluted earnings per share $ 2.49 $ 2.20 $ 7.08 $ 6.53 See accompanying Notes to Condensed Consolidated Financial Statements. 3 Table of Contents GENUINE PARTS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Net income $ 351,198 $ 312,358 $ 999,649 $ 930,725 Other comprehensive income (loss), net of income taxes: Foreign currency translation adjustments ( 77,314 ) ( 131,811 ) ( 63,027 ) ( 248,757 ) Cash flow hedge adjustments, net of income taxes in 2023 — $ 0 and $ 951 ; 2022 — $ 1,384 and $ 4,151 , respectively — 3,741 2,572 11,223 Pension and postretirement benefit adjustments, net of income taxes in 2023 — $ 703 and $ 2,108 ; 2022 — $ 2,576 and $ 7,736 , respectively 1,909 6,982 5,735 20,957 Other comprehensive income (loss), net of income taxes ( 75,405 ) ( 121,088 ) ( 54,720 ) ( 216,577 ) Comprehensive income $ 275,793 $ 191,270 $ 944,929 $ 714,148 See accompanying Notes to Condensed Consolidated Financial Statements. 4 Table of Contents GENUINE PARTS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) Three Months Ended September 30, 2023 (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, 2023 140,467,550 $ 140,468 $ 153,748 $ ( 1,011,857 ) $ 4,788,852 $ 4,071,211 $ 14,583 $ 4,085,794 Net income — — — — 351,198 351,198 — 351,198 Other comprehensive loss, net of tax — — — ( 75,405 ) — ( 75,405 ) — ( 75,405 ) Cash dividend declared, $ 0.9500 per share — — — — ( 133,254 ) ( 133,254 ) — ( 133,254 ) Shares issued from employee incentive plans 5,991 6 ( 541 ) — — ( 535 ) — ( 535 ) Share-based compensation — — 10,395 — — 10,395 — 10,395 Purchase of stock ( 238,755 ) ( 239 ) — — ( 37,258 ) ( 37,497 ) — ( 37,497 ) Noncontrolling interest activities — — — — — — 579 579 September 30, 2023 140,234,786 $ 140,235 $ 163,602 $ ( 1,087,262 ) $ 4,969,538 $ 4,186,113 $ 15,162 $ 4,201,275 Nine Months Ended September 30, 2023 (in thousands, except share and per share data) Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Parent Equity Non-controlling Interests in Subsidiaries Total Equity January 1, 2023 140,941,649 $ 140,941 $ 140,324 $ ( 1,032,542 ) $ 4,541,640 $ 3,790,363 $ 14,084 $ 3,804,447 Net income — — — — 999,649 999,649 — 999,649 Other comprehensive loss, net of tax — — — ( 54,720 ) — ( 54,720 ) — ( 54,720 ) Cash dividend declared, $ 2.8500 per share — — — — ( 400,483 ) ( 400,483 ) — ( 400,483 ) Shares issued from employee incentive plans 372,471 373 ( 24,062 ) — — ( 23,689 ) — ( 23,689 ) Share-based compensation — — 47,340 — — 47,340 — 47,340 Purchase of stock ( 1,079,334 ) ( 1,079 ) — — ( 171,268 ) ( 172,347 ) — ( 172,347 ) Noncontrolling interest activities — — — — — — 1,078 1,078 September 30, 2023 140,234,786 $ 140,235 $ 163,602 $ ( 1,087,262 ) $ 4,969,538 $ 4,186,113 $ 15,162 $ 4,201,275 5 Table of Contents 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, $ 0.8950 per share — — — — ( 126,434 ) ( 126,434 ) — ( 126,434 ) Shares issued from employee incentive plans 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 (in thousands, except share and per share data) Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Parent Equity Non-controlling Interests in Subsidiaries Total Equity January 1, 2022 142,180,683 $ 142,181 $ 119,975 $ ( 857,739 ) $ 4,086,325 $ 3,490,742 $ 12,548 $ 3,503,290 Net income — — — — 930,725 930,725 — 930,725 Other comprehensive loss, net of tax — — — ( 216,577 ) — ( 216,577 ) — ( 216,577 ) Cash dividend declared, $ 2.6850 per share — — — — ( 380,041 ) ( 380,041 ) — ( 380,041 ) Shares issued from employee incentive plans 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 See accompanying Notes to Condensed Consolidated Financial Statements. 6 Table of Contents GENUINE PARTS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, (in thousands) 2023 2022 Operating activities: Net income $ 999,649 $ 930,725 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 261,948 259,822 Share-based compensation 47,340 27,773 Excess tax benefits from share-based compensation ( 6,770 ) ( 3,868 ) Gain on sale of real estate — ( 102,803 ) Changes in operating assets and liabilities ( 219,721 ) 132,942 Net cash provided by operating activities 1,082,446 1,244,591 Investing activities: Purchases of property, plant and equipment ( 349,858 ) ( 243,998 ) Proceeds from sale of property, plant and equipment 7,339 141,228 Proceeds from sale of investments 80,482 — Acquisitions and other investing activities ( 211,392 ) ( 1,554,192 ) Net cash used in investing activities ( 473,429 ) ( 1,656,962 ) Financing activities: Proceeds from debt 2,543,882 4,547,511 Payments on debt ( 2,544,619 ) ( 3,586,954 ) Shares issued from employee incentive plans ( 23,689 ) ( 15,444 ) Dividends paid ( 393,420 ) ( 369,483 ) Purchases of stock ( 172,347 ) ( 172,727 ) Other financing activities ( 8,826 ) ( 16,869 ) Net cash provided by (used in) financing activities ( 599,019 ) 386,034 Effect of exchange rate changes on cash and cash equivalents ( 8,824 ) ( 59,166 ) Net increase (decrease) in cash and cash equivalents 1,174 ( 85,503 ) Cash and cash equivalents at beginning of period 653,463 714,701 Cash and cash equivalents at end of period $ 654,637 $ 629,198 See accompanying Notes to Condensed Consolidated Financial Statements. 7 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. General Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements. Except as disclosed herein, there have been no material changes in the information disclosed in the Notes to the Consolidated Financial Statements included in the Annual Report on Form 10-K of Genuine Parts Company (the “Company,” “we,” “our,” “us,” or “its”) for the year ended December 31, 2022. 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. The preparation of interim financial statements requires management to make estimates and assumptions that affect the amounts reported in the unaudited Condensed Consolidated Financial Statements. Specifically, we make estimates and assumptions in our unaudited Condensed Consolidated Financial Statements for inventory adjustments, the accrual of bad debts, credit losses on guaranteed loans, customer sales returns, and volume incentives earned, among others. Inventory adjustments (including adjustments for a majority of inventories that are valued under the last-in, first-out (“LIFO”) method) are accrued on an interim basis and adjusted in the fourth quarter based on the annual book to physical inventory adjustment and LIFO valuation. Reserves for bad debts, credit losses on guaranteed loans and customer sales returns are estimated and accrued on an interim basis based on a consideration of historical experience, current conditions, and reasonable and supportable forecasts. Volume incentives are estimated based upon cumulative and projected purchasing levels. In the opinion of management, all adjustments necessary for a fair presentation of our financial results for the interim periods have been made. These adjustments are of a normal recurring nature. We have reclassified certain prior period amounts to conform to the current period presentation. The results of operations for the three and nine months ended September 30, 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. Recent Accounting Pronouncements Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASU”) to the FASB Accounting Standards Codification (“ASC”). We consider the applicability and impact of all ASUs and 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 . This standard requires disclosure of the key terms of outstanding supply chain finance programs and a rollforward of the related amounts due to vendors participating in these programs. The new standard does not affect the recognition, measurement or financial statement presentation of any amounts due. The guidance was effective in the first quarter of 2023, except for the rollforward, which becomes effective in the first quarter of 2024. For additional information, please refer to the supply chain finance programs section herein. Prepaid Expenses and Other Current Assets The following table provides a detail of prepaid expenses and other current assets reported within the Condensed Consolidated Balance Sheets as of: (in thousands) September 30, 2023 December 31, 2022 Prepaid expenses $ 117,310 $ 113,522 Consideration receivable from vendors 825,347 847,341 Other current assets 555,020 571,896 Total prepaid expenses and other current assets $ 1,497,677 $ 1,532,759 8 Table of Contents Derivatives and Hedging 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. Derivative instruments are recognized in the Condensed Consolidated Balance Sheets at fair value and are designated as Level 2 in the fair value hierarchy. They are valued using inputs other than quoted prices, such as foreign exchange rates and yield curves. The following table summarizes the classification and carrying amounts of 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): September 30, 2023 December 31, 2022 Instrument Balance Sheet Location Notional Balance Notional Balance Net investment hedges: Forward contracts Prepaid expenses and other current assets $ 606,950 $ 57,968 $ 606,950 $ 46,670 Forward contract Other current liabilities $ 106,800 $ 206 $ 106,800 $ 3,064 Foreign currency debt Long-term debt € 700,000 $ 740,180 € 700,000 $ 749,280 The tables below present gains and losses related to designated net investment hedges: Gain Recognized in AOCL before Reclassifications Gain Recognized in Interest Expense for Excluded Components (in thousands) 2023 2022 2023 2022 Three Months Ended September 30, Net investment hedges: Forward contracts $ 19,217 $ 81,454 $ 3,158 $ 7,965 Foreign currency debt 20,300 43,890 — — Total $ 39,517 $ 125,344 $ 3,158 $ 7,965 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, Net investment hedges: Forward contracts $ 4,681 $ 167,834 $ 9,475 $ 23,095 Foreign currency debt 9,100 105,840 — — Total $ 13,781 $ 273,674 $ 9,475 $ 23,095 Fair Value of Financial Instruments As of September 30, 2023 the fair value of our senior unsecured notes was approximately $ 2.9 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. Guarantees We guarantee the borrowings of certain independently controlled automotive parts stores and businesses (“independents”) and certain other affiliates in which we have a noncontrolling equity ownership interest (“affiliates”). While such borrowings of the independents and affiliates are outstanding, we are required to maintain compliance with certain covenants. At September 30, 2023, we were in compliance with all such covenants. 9 Table of Contents As of September 30, 2023, the total borrowings of the independents and affiliates subject to guarantee by us were approximately $ 991 million. These loans generally mature over periods from one to six years . We regularly monitor the performance of these loans and the ongoing operating results, financial condition and ratings from credit rating agencies of the independents and affiliates that participate in the guarantee programs. In the event that we are required to make payments in connection with these guarantees, we would obtain and liquidate certain collateral pledged by the independents or affiliates (e.g., accounts receivable and inventory) to recover all or a substantial portion of the amounts paid under the guarantees. We recognize a liability equal to current expected credit losses over the lives of the loans in the guaranteed loan portfolio, based on a consideration of historical experience, current conditions, the nature and expected value of any collateral, and reasonable and supportable forecasts. To date, we have not had significant losses in connection with guarantees of independents’ and affiliates’ borrowings and the current expected credit loss reserve is not material. As of September 30, 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 September 30, 2023, we have recognized certain assets and liabilities amounting to $ 63 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 Condensed 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 September 30, 2023 and December 31, 2022, the outstanding payment obligations to the financial institutions are $ 2.9 billion and $ 3.1 billion, respectively. The amount settled through the SCF program was $ 3.1 billion and $ 2.7 billion for the nine months ended September 30, 2023 and 2022 respectively. Earnings Per Share 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 10 Table of Contents because their inclusion would have been anti-dilutive. 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 September 30, Nine Months Ended September 30, (in thousands, except per share data) 2023 2022 2023 2022 Net income $ 351,198 $ 312,358 $ 999,649 $ 930,725 Weighted average common shares outstanding 140,335 141,336 140,569 141,609 Dilutive effect of stock options and non-vested restricted stock awards 599 773 716 819 Weighted average common shares outstanding – assuming dilution 140,934 142,109 141,285 142,428 Basic earnings per share $ 2.50 $ 2.21 $ 7.11 $ 6.57 Diluted earnings per share $ 2.49 $ 2.20 $ 7.08 $ 6.53 2. Segment Information The following table presents a summary of our reportable segment financial information: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Net sales: Automotive $ 3,626,943 $ 3,490,462 $ 10,787,769 $ 10,233,577 Industrial 2,197,659 2,184,812 6,716,957 6,338,746 Total net sales $ 5,824,602 $ 5,675,274 $ 17,504,726 $ 16,572,323 Segment profit: Automotive $ 322,004 $ 309,349 $ 915,771 $ 896,475 Industrial 282,807 242,505 828,166 656,330 Total segment profit 604,811 551,854 1,743,937 1,552,805 Interest expense, net ( 15,827 ) ( 18,220 ) ( 49,146 ) ( 58,318 ) Intangible asset amortization ( 33,667 ) ( 39,416 ) ( 113,414 ) ( 118,740 ) Corporate expense ( 90,257 ) ( 72,820 ) ( 257,822 ) ( 187,883 ) Other unallocated (loss) income, net (1) — ( 3,462 ) — 47,355 Income before income taxes $ 465,060 $ 417,936 $ 1,323,555 $ 1,235,219 (1) The following table presents a summary of the other unallocated income, net: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Other unallocated income, net: Gain on sale of real estate (2) $ — $ — $ — $ 102,803 Gain on insurance proceeds (3) — — — 1,507 Transaction and other costs (4) — ( 3,462 ) — ( 56,955 ) Total other unallocated (loss) income, net $ — $ ( 3,462 ) $ — $ 47,355 11 Table of Contents (2) Amount reflects a gain on the sale of real estate that had been leased to S.P. Richards. (3) Amount reflects insurance recoveries in excess of losses incurred on inventory, property, plant and equipment and other fire-related costs. (4) 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 and $ 44 million for the three and nine months ended September 30, 2022, of which $ 9 million and $ 27 million were allocated to Automotive and $ 6 million and $ 17 million were allocated to Industrial based on several factors, including sales volumes and headcount. Beginning in 2023, these costs, which totaled $ 30 million and $ 49 million for the three and nine months ended September 30, 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, (in thousands) 2023 2022 2023 2022 North America: Automotive $ 2,315,733 $ 2,333,390 $ 6,865,819 $ 6,766,271 Industrial 2,066,284 2,064,569 6,325,746 5,996,299 Total North America $ 4,382,017 $ 4,397,959 $ 13,191,565 $ 12,762,570 Australasia: Automotive $ 411,422 $ 404,708 $ 1,226,037 $ 1,182,557 Industrial 131,375 120,243 391,211 342,447 Total Australasia $ 542,797 $ 524,951 $ 1,617,248 $ 1,525,004 Europe – Automotive $ 899,788 $ 752,364 $ 2,695,913 $ 2,284,749 Total net sales $ 5,824,602 $ 5,675,274 $ 17,504,726 $ 16,572,323 3. Accounts Receivable Sales Agreement Under our accounts receivable sales agreement (the "A/R Sales Agreement"), we continuously sell designated pools of receivables as they are originated by us and certain U.S. subsidiaries to a separate bankruptcy-remote special purpose entity (“SPE”). The A/R Sales Agreement has a three-year term, which we intend to renew. We continue to be involved with the receivables transferred by the SPE to the unaffiliated financial 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 September 30, 2023 and December 31, 2022. The amount of receivables pledged as collateral as of September 30, 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 for the: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Receivables sold to the financial institution and derecognized $ 2,206,769 $ 2,281,934 $ 6,511,568 $ 6,760,652 Cash collected on sold receivables $ 2,206,755 $ 2,281,926 $ 6,511,559 $ 6,560,655 12 Table of Contents 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 institutions related to the accounts receivable sales transactions. Those fees, which totaled $ 15 million and $ 8 million for the three months ended and $ 44 million and $ 14 million for the nine months ended September 30, 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 September 30, 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. 4. 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, (in thousands) 2023 2022 2023 2022 Service cost $ 1,504 $ 2,532 $ 4,501 $ 7,734 Interest cost 26,141 18,804 78,394 56,520 Expected return on plan assets ( 41,270 ) ( 37,569 ) ( 123,773 ) ( 112,887 ) Amortization of prior service cost 173 172 519 516 Amortization of actuarial loss 2,340 9,264 7,021 27,818 Net periodic benefit income $ ( 11,112 ) $ ( 6,797 ) $ ( 33,338 ) $ ( 20,299 ) Service cost is recorded in selling, administrative and other expenses in the Condensed Consolidated Statements of Income while all other components are recorded within other non-operating expense (income). Pension benefits also include amounts related to supplemental retirement plans. 5. Acquisitions We acquired several businesses for approximately $ 232 million and $ 1.6 billion, net of cash acquired, during the nine months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2023, we recognized approximately $ 290 million and $ 38 million of revenue, net of store closures, related to our current year Automotive and Industrial acquisitions, respectively. We recorded approximately $ 172 million of goodwill and other intangible assets associated with these acquisitions. Other intangible assets acquired of $ 77 million consisted of customer relationships with a weighted average amortization lives of 20 years. For each acquisition, we allocate the purchase price to the assets acquired and the liabilities assumed based on their fair values as of their respective acquisition dates. The results of operations for acquired businesses are included in our Condensed Consolidated Statements of Income beginning on their respective acquisition dates. 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, net of cash acquired of approximately $ 30 million. 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 maintenance, repair, and operation and original equipment manufacturer customers. 13 Table of Contents 6. Accumulated Other Comprehensive Loss The following tables present the changes in AOCL by component for the nine months ended September 30: Changes in Accumulated Other Comprehensive Loss by Component (in thousands) Pension and Other Post-Retirement Benefits Cash Flow Hedges Foreign Currency Translation Total Beginning balance, January 1, 2023 $ ( 506,610 ) $ ( 2,572 ) $ ( 523,360 ) $ ( 1,032,542 ) Other comprehensive income (loss) before reclassifications — 2,765 ( 63,027 ) ( 60,262 ) Amounts reclassified from accumulated other comprehensive loss 5,735 ( 193 ) — 5,542 Other comprehensive income (loss), net of income taxes 5,735 2,572 ( 63,027 ) ( 54,720 ) Ending balance, September 30, 2023 $ ( 500,875 ) $ — $ ( 586,387 ) $ ( 1,087,262 ) Changes in Accumulated Other Comprehensive Loss by Component (in thousands) Pension and Other Post-Retirement Benefits Cash Flow Hedges Foreign Currency Translation Total Beginning balance, January 1, 2022 $ ( 463,227 ) $ ( 15,042 ) $ ( 379,470 ) $ ( 857,739 ) Other comprehensive loss before reclassifications — — ( 248,757 ) ( 248,757 ) Amounts reclassified from accumulated other comprehensive loss 20,957 11,223 — 32,180 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 ) The AOCL components related to the pension benefits are included in the computation of net periodic benefit income in the Employee Benefit Plans Footnote. Generally, tax effects in AOCL are established at the currently enacted tax rate and reclassified to net income in the same period that the related pre-tax AOCL reclassifications are recognized. 7. Commitments and Contingencies Legal Matters We are subject to various legal proceedings, many involving routine litigation incidental to the businesses, including approximately 2,309 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 $ 225 million as of September 30, 2023, which represented our best estimate of the liability within our calculated range of $ 199 million to $ 283 million, discounted using a discount rate of 4.59 %. The amount accrued for pending and future claims was $ 220 million as of December 31, 2022, which represented 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 $ 297 million and $ 285 million as of September 30, 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. Environmental Liabilities Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believe will exceed an applied threshold not to exceed $1 million. Applying this threshold, there are no environmental matters to disclose for this period. 14 Table of Contents