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 nine months ended September 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 and the conflict in the Gaza strip; volatility in oil prices; significant cost increases, such as rising fuel and freight expenses; public health emergencies, 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 62% of total revenues for the nine months ended September 30, 2023. Our Industrial Parts Group ("Industrial") operates in the U.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore, and accounted for 38% of our total revenues for the nine months ended September 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 results for the third quarter of 2023 reflect a 2.6% increase in sales driven by our international automotive businesses and continued growth in our Industrial segment. Our year-over-year sales growth was negatively impacted by one less selling day in the U.S., the moderating benefit of inflation on the pricing environment in our global automotive segment and declines in sales in our U.S. Automotive business. The combination of continued revenue growth and gross margin expansion led to earnings growth of 12.4% and further expansion of total segment margin. For the nine months ended September 30, 2023, our revenue grew 5.6%, helping drive earnings growth of 7.4%, which reflects the ongoing benefits of our diverse business mix and geographic footprint. Our results for the nine months ended September 30, 2022 include costs of $47 million resulting from a gain on the June 2022 sale of real estate and KDG acquisition costs incurred throughout 2022. Our results of operations are summarized below for the three months ended September 30, 2023 and 2022. Three Months Ended September 30, 2023 2022 (in thousands) $ % of Sales $ % of Sales $ Change % Change Net sales $ 5,824,602 100.0 % $ 5,675,274 100.0 % $ 149,328 2.6 % Cost of goods sold 3,715,361 63.8 % 3,695,607 65.1 % 19,754 0.5 % Gross profit 2,109,241 36.2 % 1,979,667 34.9 % 129,574 6.5 % Operating expenses: Selling, administrative and other expenses 1,551,799 26.6 % 1,458,418 25.7 % 93,381 6.4 % Depreciation and amortization 83,860 1.4 % 86,563 1.5 % (2,703) (3.1) % Provision for doubtful accounts 8,417 0.1 % 6,146 0.1 % 2,271 37.0 % Total operating expenses 1,644,076 28.2 % 1,551,127 27.3 % 92,949 6.0 % Non-operating expense (income): Interest expense, net 15,827 0.3 % 18,220 0.3 % (2,393) (13.1) % Other (15,722) (0.3) % (7,616) (0.1) % (8,106) 106.4 % Total non-operating expense (income) 105 — % 10,604 0.2 % (10,499) (99.0) % Income before income taxes 465,060 8.0 % 417,936 7.4 % 47,124 11.3 % Income taxes 113,862 2.0 % 105,578 1.9 % 8,284 7.8 % Net income $ 351,198 6.0 % $ 312,358 5.5 % $ 38,840 12.4 % 16 Table of Contents Three Months Ended September 30, (in thousands, except per share data) 2023 2022 $ Change % Change Diluted EPS $ 2.49 $ 2.20 $ 0.29 13.2 % Total adjusted EBITDA $ 564,747 $ 526,181 $ 38,566 7.3 % Automotive segment profit $ 322,004 $ 309,349 $ 12,655 4.1 % Industrial segment profit $ 282,807 $ 242,505 $ 40,302 16.6 % Total segment profit $ 604,811 $ 551,854 $ 52,957 9.6 % Automotive segment margin 8.9 % 8.9 % Industrial segment margin 12.9 % 11.1 % Total segment margin 10.4 % 9.7 % Our results of operations are summarized below for the nine months ended September 30, 2023 and 2022. Nine Months Ended September 30, 2023 2022 (in thousands) $ % of Sales $ % of Sales $ Change % Change Net sales $ 17,504,726 100.0 % $ 16,572,323 100.0 % $ 932,403 5.6 % Cost of goods sold 11,247,341 64.3 % 10,805,910 65.2 % 441,431 4.1 % Gross profit 6,257,385 35.7 % 5,766,413 34.8 % 490,972 8.5 % Operating expenses: Selling, administrative and other expenses 4,644,696 26.5 % 4,226,412 25.5 % 418,284 9.9 % Depreciation and amortization 261,948 1.5 % 259,822 1.6 % 2,126 0.8 % Provision for doubtful accounts 22,378 0.1 % 13,539 0.1 % 8,839 65.3 % Total operating expenses 4,929,022 28.2 % 4,499,773 27.2 % 429,249 9.5 % Non-operating expense (income): Interest expense, net 49,146 0.3 % 58,318 0.4 % (9,172) (15.7) % Other (44,338) (0.3) % (26,897) (0.2) % (17,441) 64.8 % Total non-operating expense (income) 4,808 — % 31,421 0.2 % (26,613) (84.7) % Income before income taxes 1,323,555 7.6 % 1,235,219 7.5 % 88,336 7.2 % Income taxes 323,906 1.9 % 304,494 1.8 % 19,412 6.4 % Net income $ 999,649 5.7 % $ 930,725 5.6 % $ 68,924 7.4 % Nine Months Ended September 30, (in thousands, except per share data) 2023 2022 $ Change % Change Diluted EPS $ 7.08 $ 6.53 $ 0.55 8.4 % Total adjusted EBITDA $ 1,634,649 $ 1,506,004 $ 128,645 8.5 % Automotive segment profit $ 915,771 $ 896,475 $ 19,296 2.2 % Industrial segment profit $ 828,166 $ 656,330 $ 171,836 26.2 % Total segment profit $ 1,743,937 $ 1,552,805 $ 191,132 12.3 % Automotive segment margin 8.5 % 8.8 % Industrial segment margin 12.3 % 10.4 % Total segment margin 10.0 % 9.4 % 17 Table of Contents Net Sales Our net sales for the three months ended September 30, 2023 increased 2.6% compared to the same period of the prior year. The increase in sales is attributable to a 0.5% increase in comparable sales, a 1.7% benefit from acquisitions and 0.4% favorable impact of foreign currency and other. Our net sales for the nine months ended September 30, 2023 increased 5.6% compared to the same period of the prior year. The increase in sales is attributable to a 4.6% increase in comparable sales and a 2.0% benefit from acquisitions, partially offset by a net unfavorable impact of foreign currency and other of 1.0%. Our comparable sales growth was driven by Industrial and our international automotive businesses for the three and nine months ended September 30, 2023. Both segments also experienced the ongoing benefits of strategic pricing initiatives and acquisitions completed in prior periods. For the three months ended September 30, 2023, sales growth was negatively impacted by one less sales day compared to the same prior year period and declines in our U.S. Automotive sales. Automotive Net sales for Automotive were $3.6 billion for the third quarter of 2023, an increase of 3.9%, compared to the same period in the prior year. The increase for the third quarter of 2023 consisted of a 2.4% benefit from acquisitions, 0.9% favorable impact of foreign currency and other and 0.6% increase in comparable sales. Comparable sales was impacted by one less sales day and lower sales in our U.S. Automotive business. While our sales growth was impacted by the prior year benefit from price increases to offset higher product costs and other inflationary pressures, we continued to benefit from the positive effects of our strategic sales initiatives in our European and Australasia businesses. The benefit from acquisitions includes our recent acquisition of Recambios y Accesorios Gaudí, S.L. ("Gaudi") in Spain, and the favorable impact from foreign currency primarily reflects the appreciation of the Euro against the U.S. dollar during the period. Net sales for Automotive were $10.8 billion for the nine months ended September 30, 2023, an increase of 5.4%, compared to the same period in the prior year. The increase for the nine months ended September 30, 2023 consisted of a 3.7% increase in comparable sales and a 2.8% benefit from acquisitions, offset by a 1.1% unfavorable impact of foreign currency and other. The increase in comparable sales is due to higher sales in our international businesses. The benefit from acquisitions includes the effects of our entry into new markets in Spain and Portugal. The unfavorable impact of foreign currency primarily results from the weakening of the Australian and Canadian dollars compared to the U.S. dollar throughout the period. Industrial Net sales for Industrial were $2.2 billion, an increase of 0.6% for the three months ended September 30, 2023 compared to the same period in 2022. The increase reflects a 0.3% increase in comparable sales and a 0.6% benefit from acquisitions, slightly offset by a 0.3% unfavorable impact of foreign currency compared to the same period in 2022. Net sales for Industrial were $6.7 billion, an increase of 6.0% for the nine months ended September 30, 2023 compared to the same period in 2022. The increase reflects a 6.0% increase in comparable sales and a 0.6% from acquisitions, slightly offset by a 0.6% unfavorable impact of foreign currency compared to the same period in 2022. For the three months ended September 30, 2023, our results reflect anticipated softer economic activity and industry demand. For the nine months ended September 30, 2023, our growth in comparable sales reflects the positive impact of our ongoing sales and pricing initiatives and continued growth in many of the industry segments we serve. We attribute part of our sales growth to the diversification of our products and service offerings, and ongoing benefits from the KDG acquisition. Gross Profit and Gross Margin Gross profit for the three months ended September 30, 2023, increased $130 million, or approximately 6.5%, compared to the same period in the prior year. Gross margin increased 130 basis points to 36.2% for the three months ended September 30, 2023. Gross profit for the nine months ended September 30, 2023 increased $491 million or 8.5% compared to the same period in prior year. Gross margin increased 90 basis points to 35.7% for the nine months ended September 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 primarily reflect the positive contributions of our strategic pricing and sourcing initiatives. 18 Table of Contents Operating Expenses SG&A expenses represent 26.6% of sales for the three months ended September 30, 2023, an increase of 90 basis points from 25.7% in the third quarter of 2022. SG&A expenses represent 26.5% for the nine months ended September 30, 2023, an increase of 100 basis points from 25.5% for the same period in 2022. SG&A expenses as a percentage of sales for the three and nine months ended September 30, 2022 include costs of $3 million and income of $47 million, respectively, which primarily related to the net benefit of a gain on the June 2022 sale of real estate and KDG acquisition costs incurred throughout 2022. The increases in both periods are primarily driven by planned increases in personnel costs due to wage inflation and global investments in information technology to support our ongoing strategic initiatives, and the timing of additional product liability expense for the three months ended September 30, 2023 due to increases in our estimated product liability claim exposure. 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 $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 profit financial information. Automotive Automotive segment profit for the three months ended September 30, 2023 increased 4.1% compared to the same period in 2022. Automotive segment margin remained at 8.9% for the three months ended September 30, 2023. For the nine months ended September 30, 2023, Automotive segment profit increased 2.2% compared to the same period in the prior year, and Automotive segment margin decreased 30 basis points to 8.5% for the same period in 2022. Automotive segment margin was negatively impacted by the loss of expense leverage primarily caused by slowing demand and the impact of lower sales in the U.S., combined with planned investments in wages and information technology. Our results in the U.S. also reflect operational execution challenges and further tightening of market conditions. Industrial Industrial segment profit increased 16.6% and 26.2% for the three and nine months ended September 30, 2023 compared to the same periods in 2022. For the three and nine months ended September 30, 2023, Industrial segment margin increased 180 basis points and 190 basis points to 12.9% and 12.3%, respectively, when compared to the same periods in the previous year. The improved Industrial segment margin is primarily due to continued sales growth and our 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 and nine months ended September 30, 2023 was 24.5%, compared to 25.3% and 24.7% for the same periods in 2022. The rate decrease is primarily due to statute-related adjustments and domestic tax credit benefits. Net Income For the three months ended September 30, 2023, net income was $351 million, an increase of 12.4% compared to net income of $312 million for the same three month period in the prior year. On a per share diluted basis, net income was $2.49, an increase of 13.2% compared to $2.20 for the same period in 2022. Our results for the three months ended September 30, 2022 include costs of $3 million, which primarily related to KDG acquisition costs. Excluding these amounts, on an adjusted basis, net income increased 10.7% compared to $317 million for the same period in the prior year. On an adjusted per share diluted basis, net income increased 11.7% compared to $2.23 for the same period in 2022. For the nine months ended September 30, 2023, net income was $1.0 billion, an increase of 7.4% compared to net income of $931 million for the same nine month period in the prior year. On a per share diluted basis, net income was $7.08, an increase of 8.4% compared to $6.53 for the same period in 2022. Our results for the nine months ended September 30, 2022 include income of $47 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 11.6% compared to $896 million for the same period in the prior year. On an adjusted per share diluted basis, net income increased 12.6% compared to $6.29 for the same period in 2022. 19 Table of Contents For the three months ended September 30, 2023, adjusted EBITDA was $565 million, an increase of 7.3% from $526 million for the same three month period in the prior year. For the nine months ended September 30, 2023, adjusted EBITDA was $1.6 billion, an increase of 8.5% from $1.5 billion for the same nine month period in the prior year. The growth in these metrics in all periods presented reflects improved segment margin, primarily in our Industrial segment, driven by higher revenue, particularly in our international business. We also benefited from 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, adjusted EBITDA, total segment profit, total segment margin, and adjusted EBITDA for each segment 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, as well as net income to adjusted EBITDA, in each case, to account for the impact of adjustments. We also include a reconciliation from net income to total segment profit and total segment margin, as well as a reconciliation from segment profit to adjusted EBITDA for each segment. We believe that the presentation these non-GAAP measures, when considered together with the corresponding GAAP financial measures and related reconciliations, 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. 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 September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 GAAP net income $ 351,198 $ 312,358 $ 999,649 $ 930,725 Adjustments: Gain on sale of real estate (1) — — — (102,803) Gain on insurance proceeds (2) — — — (1,507) Transaction and other costs (3) — 3,462 — 56,955 Total adjustments — 3,462 — (47,355) Tax impact of adjustments (4) — 1,464 — 12,651 Adjusted net income $ 351,198 $ 317,284 $ 999,649 $ 896,021 20 Table of Contents The table below represents amounts per common share assuming dilution: Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except per share data) 2023 2022 2023 2022 GAAP diluted earnings per share $ 2.49 $ 2.20 $ 7.08 $ 6.53 Adjustments: Gain on sale of real estate (1) — — — (0.72) Gain on insurance proceeds (2) — — — (0.01) Transaction and other costs (3) — 0.02 — 0.40 Total adjustments — 0.02 — (0.33) Tax impact of adjustments (4) — 0.01 — 0.09 Adjusted diluted earnings per share $ 2.49 $ 2.23 $ 7.08 $ 6.29 Weighted average common shares outstanding – assuming dilution 140,934 142,109 141,285 142,428 (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. (4) We determine the tax effect of non-GAAP adjustments by considering the tax laws and statutory income tax rates applicable in the tax jurisdictions of the underlying non-GAAP adjustments, including any related valuation allowances. For the three and nine months ended September 30, 2022, we applied the statutory income tax rates to the taxable portion of all of our adjustments, which resulted in a tax impact of $1.5 million and $12.7 million respectively. A portion of our transaction costs included in our non-GAAP adjustments for the three and nine months ended September 30, 2022 were not deductible for income tax purposes; therefore, no statutory income tax rate was applied to such costs. The table below represents a reconciliation from GAAP net income to adjusted EBITDA: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 GAAP net income $ 351,198 $ 312,358 $ 999,649 $ 930,725 Depreciation and amortization 83,860 86,563 261,948 259,822 Interest expense, net 15,827 18,220 49,146 58,318 Income taxes 113,862 105,578 323,906 304,494 EBITDA 564,747 522,719 1,634,649 1,553,359 Total adjustments (1) — 3,462 — (47,355) Adjusted EBITDA $ 564,747 $ 526,181 $ 1,634,649 $ 1,506,004 (1) Amounts are the same as adjustments included within the adjusted net income table above. 21 Table of Contents The table below clarifies where the adjusted items are presented in the Condensed Consolidated Statements of Income: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Line item: Cost of goods sold $ — $ — $ — $ 5,000 Selling, administrative and other expenses — 3,462 — (50,848) Non-operating income: Other — — — (1,507) Total adjustments $ — $ 3,462 $ — $ (47,355) The table below represents a reconciliation from GAAP net income to total segment profit: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 GAAP net income $ 351,198 $ 312,358 $ 999,649 $ 930,725 Income taxes 113,862 105,578 323,906 304,494 Income before income taxes 465,060 417,936 1,323,555 1,235,219 Interest expense, net 15,827 18,220 49,146 58,318 Corporate expense 90,257 72,820 257,822 187,883 Intangible asset amortization 33,667 39,416 113,414 118,740 Other unallocated (loss) income, net (1) — 3,462 — (47,355) Total segment profit $ 604,811 $ 551,854 $ 1,743,937 $ 1,552,805 GAAP net sales $ 5,824,602 $ 5,675,274 $ 17,504,726 $ 16,572,323 GAAP net income margin (2) 6.0 % 5.5 % 5.7 % 5.6 % Total segment profit margin (3) 10.4 % 9.7 % 10.0 % 9.4 % (1) Amounts are the same as adjustments included within the adjusted net income table above. (2) Represents GAAP net income as a percentage of GAAP net sales. (3) Represents total segment profit as a percentage of GAAP net sales. 22 Table of Contents The table below represents a reconciliation from segment profit to segment EBITDA and adjusted EBITDA: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Automotive: Segment profit $ 322,004 $ 309,349 $ 915,771 $ 896,475 Depreciation 40,673 36,335 119,683 109,028 Other costs (2) — 8,927 — 26,780 Automotive segment adjusted EBITDA 362,677 354,611 1,035,454 1,032,283 Industrial: Segment profit 282,807 242,505 828,166 656,330 Depreciation 7,644 7,340 21,774 21,865 Other costs (2) — 5,587 — 16,761 Industrial segment adjusted EBITDA 290,451 255,432 849,940 694,956 Corporate: Corporate expense (90,257) (72,820) (257,822) (187,883) Depreciation 1,876 3,472 7,077 10,189 Other costs (2) — (14,514) — (43,541) Other unallocated (loss) income, net (1) — (3,462) — 47,355 Corporate EBITDA (88,381) (87,324) (250,745) (173,880) Total adjustments (1) — 3,462 — (47,355) Corporate adjusted EBITDA (88,381) (83,862) (250,745) (221,235) Adjusted EBITDA $ 564,747 $ 526,181 $ 1,634,649 $ 1,506,004 (1) Amounts are the same as adjustments included within the adjusted net income table above. (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 $655 million as of September 30, 2023, an increase of $1.2 million from December 31, 2022. For the nine months ended September 30, 2023, we had net cash provided by operating activities of $1.1 billion, net cash used in investing activities of $473 million and net cash used in financing activities of $599 million. The cash provided by operating activities decreased $162 million compared to the prior year period. The decrease is driven by a $200 million benefit in the prior year from increasing the facility limit of our A/R Sales Agreement. We had $473 million in net cash used for investing activities, primarily for capital expenditures and acquisitions, and other investing activities of $561 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 $393 million for dividends paid to our shareholders and $172 million of stock repurchases. Total debt of $3.3 billion at September 30, 2023 decreased $11 million, or 0.3%, from December 31, 2022. Liquidity and Capital Resources We ended the quarter with $2.2 billion of total liquidity (comprising $1.5 billion availability on the revolving credit facility and $655 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. 23 Table of Contents 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 September 30, 2023, our total average cost of debt was 2.33%, 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.