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) June 30, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 555,277 $ 1,102,007 Trade accounts receivable, less allowance for doubtful accounts (2024 – $ 59,179 ; 2023 – $ 56,608 ) 2,526,060 2,223,431 Merchandise inventories, net 5,103,644 4,676,686 Prepaid expenses and other current assets 1,611,717 1,603,728 Total current assets 9,796,698 9,605,852 Goodwill 2,858,668 2,734,681 Other intangible assets, less accumulated amortization 1,818,954 1,792,913 Property, plant and equipment, less accumulated depreciation (2024 – $ 1,695,974 ; 2023 – $ 1,592,658 ) 1,787,822 1,616,785 Operating lease assets 1,604,559 1,268,742 Other assets 1,002,692 949,481 Total assets $ 18,869,393 $ 17,968,454 Liabilities and equity Current liabilities: Trade accounts payable $ 5,931,993 $ 5,499,536 Current portion of debt 853,236 355,298 Dividends payable 139,375 132,635 Other current liabilities 1,841,809 1,839,640 Total current liabilities 8,766,413 7,827,109 Long-term debt 3,027,491 3,550,930 Operating lease liabilities 1,318,307 979,938 Pension and other post–retirement benefit liabilities 222,378 219,644 Deferred tax liabilities 473,125 437,674 Other long-term liabilities 505,556 536,174 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 – 2024 – 139,346,018 shares; 2023 – 139,567,071 shares 139,346 139,567 Additional paid-in capital 180,527 173,025 Accumulated other comprehensive loss ( 1,035,739 ) ( 976,872 ) Retained earnings 5,256,514 5,065,327 Total parent equity 4,540,648 4,401,047 Noncontrolling interests in subsidiaries 15,475 15,938 Total equity 4,556,123 4,416,985 Total liabilities and equity $ 18,869,393 $ 17,968,454 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 June 30, Six Months Ended June 30, (in thousands, except per share data) 2024 2023 2024 2023 Net sales $ 5,962,567 $ 5,915,006 $ 11,746,198 $ 11,680,124 Cost of goods sold 3,782,264 3,780,263 7,491,240 7,531,980 Gross profit 2,180,303 2,134,743 4,254,958 4,148,144 Operating expenses: Selling, administrative and other expenses 1,647,456 1,581,653 3,222,383 3,092,897 Depreciation and amortization 99,202 90,873 189,812 178,088 Provision for doubtful accounts 5,678 8,322 11,889 13,961 Restructuring and other costs 29,760 — 112,802 — Total operating expenses 1,782,096 1,680,848 3,536,886 3,284,946 Non-operating (income) expense: Interest expense, net 21,921 16,455 39,611 33,319 Other ( 9,915 ) ( 16,649 ) ( 32,921 ) ( 28,616 ) Total non-operating (income) expense 12,006 ( 194 ) 6,690 4,703 Income before income taxes 386,201 454,089 711,382 858,495 Income taxes 90,657 109,595 166,944 210,044 Net income $ 295,544 $ 344,494 $ 544,438 $ 648,451 Dividends declared per common share $ 1.00 $ 0.95 $ 2.00 $ 1.90 Basic earnings per share $ 2.12 $ 2.45 $ 3.91 $ 4.61 Diluted earnings per share $ 2.11 $ 2.44 $ 3.89 $ 4.58 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 June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Net income $ 295,544 $ 344,494 $ 544,438 $ 648,451 Other comprehensive income (loss), net of income taxes: Foreign currency translation adjustments 15,278 ( 9,540 ) ( 64,642 ) 14,287 Cash flow hedge, net of income taxes in 2023 — $ 951 and $ 951 respectively — 2,572 — 2,572 Pension and postretirement benefit adjustments, net of income taxes in 2024 — $ 1,063 and $ 2,126 ; 2023 — $ 702 and $ 1,405 respectively 2,887 1,912 5,775 3,826 Other comprehensive income (loss), net of income taxes 18,165 ( 5,056 ) ( 58,867 ) 20,685 Comprehensive income $ 313,709 $ 339,438 $ 485,571 $ 669,136 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 June 30, 2024 (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 April 1, 2024 139,335,342 $ 139,335 $ 179,349 $ ( 1,053,904 ) $ 5,137,597 $ 4,402,377 $ 14,799 $ 4,417,176 Net income — — — — 295,544 295,544 — 295,544 Other comprehensive income, net of tax — — — 18,165 — 18,165 — 18,165 Cash dividend declared, $ 1.0000 per share — — — — ( 139,376 ) ( 139,376 ) — ( 139,376 ) Shares issued from employee incentive plans 259,702 259 ( 16,828 ) — — ( 16,569 ) — ( 16,569 ) Share-based compensation — — 18,006 — — 18,006 — 18,006 Purchase of stock ( 249,026 ) ( 248 ) — — ( 37,251 ) ( 37,499 ) — ( 37,499 ) Noncontrolling interest activities — — — — — — 676 676 June 30, 2024 139,346,018 $ 139,346 $ 180,527 $ ( 1,035,739 ) $ 5,256,514 $ 4,540,648 $ 15,475 $ 4,556,123 Six Months Ended June 30, 2024 (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, 2024 139,567,071 $ 139,567 $ 173,025 $ ( 976,872 ) $ 5,065,327 $ 4,401,047 $ 15,938 $ 4,416,985 Net income — — — — 544,438 544,438 — 544,438 Other comprehensive loss, net of tax — — — ( 58,867 ) — ( 58,867 ) — ( 58,867 ) Cash dividend declared, $ 2.0000 per share — — — — ( 278,761 ) ( 278,761 ) — ( 278,761 ) Shares issued from employee incentive plans 288,513 288 ( 19,068 ) — — ( 18,780 ) — ( 18,780 ) Share-based compensation — — 26,570 — — 26,570 — 26,570 Purchase of stock ( 509,566 ) ( 509 ) — — ( 74,490 ) ( 74,999 ) — ( 74,999 ) Noncontrolling interest activities — — — — — — ( 463 ) ( 463 ) June 30, 2024 139,346,018 $ 139,346 $ 180,527 $ ( 1,035,739 ) $ 5,256,514 $ 4,540,648 $ 15,475 $ 4,556,123 5 Table of Contents Three Months Ended June 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 April 1, 2023 140,545,475 $ 140,545 $ 147,690 $ ( 1,006,801 ) $ 4,644,770 $ 3,926,204 $ 13,432 $ 3,939,636 Net income — — — — 344,494 344,494 — 344,494 Other comprehensive loss, net of tax — — — ( 5,056 ) — ( 5,056 ) — ( 5,056 ) Cash dividend declared, $ 0.9500 per share — — — — ( 133,492 ) ( 133,492 ) — ( 133,492 ) Shares issued from employee incentive plans 351,648 351 ( 22,241 ) — — ( 21,890 ) — ( 21,890 ) Share-based compensation — — 28,299 — — 28,299 — 28,299 Purchase of stock ( 429,573 ) ( 428 ) — — ( 66,920 ) ( 67,348 ) — ( 67,348 ) Noncontrolling interest activities — — — — — — 1,151 1,151 June 30, 2023 140,467,550 $ 140,468 $ 153,748 $ ( 1,011,857 ) $ 4,788,852 $ 4,071,211 $ 14,583 $ 4,085,794 Six Months Ended June 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 — — — — 648,451 648,451 — 648,451 Other comprehensive income, net of tax — — — 20,685 — 20,685 — 20,685 Cash dividend declared, $ 1.9000 per share — — — — ( 267,229 ) ( 267,229 ) — ( 267,229 ) Shares issued from employee incentive plans 366,480 366 ( 23,521 ) — — ( 23,155 ) — ( 23,155 ) Share-based compensation — — 36,945 — — 36,945 — 36,945 Purchase of stock ( 840,579 ) ( 839 ) — — ( 134,010 ) ( 134,849 ) — ( 134,849 ) Noncontrolling interest activities — — — — — — 499 499 June 30, 2023 140,467,550 $ 140,468 $ 153,748 $ ( 1,011,857 ) $ 4,788,852 $ 4,071,211 $ 14,583 $ 4,085,794 See accompanying Notes to Condensed Consolidated Financial Statements. 6 Table of Contents GENUINE PARTS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, (in thousands) 2024 2023 Operating activities: Net income $ 544,438 $ 648,451 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 189,812 178,088 Share-based compensation 26,570 36,945 Excess tax benefits from share-based compensation ( 8,233 ) ( 6,431 ) Other operating activities, including changes in operating assets and liabilities ( 140,672 ) ( 400,050 ) Net cash provided by operating activities 611,915 457,003 Investing activities: Purchases of property, plant and equipment ( 259,245 ) ( 205,336 ) Proceeds from sale of property, plant and equipment 73,645 4,762 Proceeds from divestitures of businesses 3,715 — Proceeds from sale of investments — 80,482 Acquisitions and other investing activities ( 580,141 ) ( 106,028 ) Net cash used in investing activities ( 762,026 ) ( 226,120 ) Financing activities: Proceeds from debt 539,722 1,668,757 Payments on debt ( 544,355 ) ( 1,602,138 ) Shares issued from employee incentive plans ( 18,780 ) ( 23,155 ) Dividends paid ( 272,021 ) ( 259,929 ) Purchases of stock ( 74,999 ) ( 134,849 ) Other financing activities ( 11,893 ) ( 6,436 ) Net cash used in financing activities ( 382,326 ) ( 357,750 ) Effect of exchange rate changes on cash and cash equivalents ( 14,293 ) 3,509 Net decrease in cash and cash equivalents ( 546,730 ) ( 123,358 ) Cash and cash equivalents at beginning of period 1,102,007 653,463 Cash and cash equivalents at end of period $ 555,277 $ 530,105 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, 2023. Accordingly, the unaudited Condensed Consolidated Financial Statements and related disclosures herein should be read in conjunction with our 2023 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. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of results for the year ended December 31, 2024. 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. Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This standard requires disclosures of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss, an amount and description of other segment items by reportable segment, and all annual disclosures currently required by Topic 280 to be included in interim periods. The guidance is effective for our Annual Report on Form 10-K for the year ended December 31, 2024, and subsequent interim periods, with early adoption permitted. We are currently evaluating the impact of adopting this standard on our financial statements and disclosures. Income Taxes (Topic 740): Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The standard requires disclosure of specific categories in the rate reconciliation and additional information for reconciling items, income before tax expense disaggregated between domestic and foreign, income tax expense disaggregated by federal, state and foreign, as well as further information on income taxes paid. The guidance is effective for our Annual Report on Form 10-K for the year ended December 31, 2025, with early adoption permitted. The guidance should be applied on a prospective basis, with retrospective application permitted. We are currently evaluating the impact of adopting this standard on our financial statements and disclosures. 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: 8 Table of Contents (in thousands) June 30, 2024 December 31, 2023 Prepaid expenses $ 151,407 $ 110,863 Consideration receivable from vendors 891,864 928,499 Other current assets 568,446 564,366 Total prepaid expenses and other current assets $ 1,611,717 $ 1,603,728 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): June 30, 2024 December 31, 2023 Instrument Balance Sheet Location Notional Balance Notional Balance Net investment hedges: Forward contracts Prepaid expenses and other current assets $ 1,053,110 $ 63,056 $ 606,950 $ 37,676 Forward contract Other current liabilities $ 106,800 $ 487 $ 106,800 $ 4,383 Foreign currency debt Long-term debt € 700,000 $ 749,910 € 700,000 $ 772,660 The tables below presents gains and losses related to designated net investment hedges: Gain (Loss) Recognized in AOCL before Reclassifications Gain Recognized in Interest Expense for Excluded Components (in thousands) 2024 2023 2024 2023 Three Months Ended June 30, Net investment hedges: Forward contracts $ 6,994 $ ( 9,212 ) $ 4,651 $ 3,158 Foreign currency debt 5,670 2,940 — — Total $ 12,664 $ ( 6,272 ) $ 4,651 $ 3,158 Gain (Loss) Recognized in AOCL before Reclassifications Gain Recognized in Interest Expense for Excluded Components (in thousands) 2024 2023 2024 2023 Six Months Ended June 30, Net investment hedges: Forward contracts $ 20,256 $ ( 14,536 ) $ 9,020 $ 6,317 Foreign currency debt 22,750 ( 11,200 ) — — Total $ 43,006 $ ( 25,736 ) $ 9,020 $ 6,317 Fair Value of Financial Instruments As of June 30, 2024, the fair value of our senior unsecured notes was approximately $ 3.6 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. 9 Table of Contents 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. As of June 30, 2024, we were in compliance with all such covenants. As of June 30, 2024, the total borrowings of the independents and affiliates subject to guarantee by us were approximately $ 757 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 the 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 June 30, 2024, 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 June 30, 2024, we have recognized $ 52 million of certain assets and liabilities 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 Condensed Consolidated Statement of Cash Flows. As of June 30, 2024 and December 31, 2023, the outstanding payment obligations to the financial institutions are $ 3.1 billion and $ 3.0 billion, respectively. (in thousands) June 30, 2024 Obligations outstanding at the beginning of the year $ 3,041,187 Invoices confirmed during the year 2,058,584 Confirmed invoices paid during the year ( 1,967,840 ) Confirmed obligations outstanding at the end of period $ 3,131,931 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 June 30, Six Months Ended June 30, (in thousands, except per share data) 2024 2023 2024 2023 Net income $ 295,544 $ 344,494 $ 544,438 $ 648,451 Weighted average common shares outstanding 139,358 140,574 139,394 140,688 Dilutive effect of non-vested restricted stock awards 471 673 567 808 Weighted average common shares outstanding – assuming dilution 139,829 141,247 139,961 141,496 Basic earnings per share $ 2.12 $ 2.45 $ 3.91 $ 4.61 Diluted earnings per share $ 2.11 $ 2.44 $ 3.89 $ 4.58 2. Segment Information The following table presents a summary of our reportable segment financial information: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Net sales: Automotive $ 3,726,991 $ 3,654,999 $ 7,301,011 $ 7,160,826 Industrial 2,235,576 2,260,007 4,445,187 4,519,298 Total net sales $ 5,962,567 $ 5,915,006 $ 11,746,198 $ 11,680,124 Segment profit: Automotive $ 313,975 $ 329,347 $ 586,911 $ 593,767 Industrial 276,841 283,372 547,680 545,359 Total segment profit 590,816 612,719 1,134,591 1,139,126 Interest expense, net ( 21,921 ) ( 16,455 ) ( 39,611 ) ( 33,319 ) Intangible asset amortization ( 34,685 ) ( 40,625 ) ( 68,785 ) ( 79,747 ) Corporate expense ( 85,984 ) ( 101,550 ) ( 169,746 ) ( 167,565 ) Other unallocated costs (1) ( 62,025 ) — ( 145,067 ) — Income before income taxes $ 386,201 $ 454,089 $ 711,382 $ 858,495 (1) The following table presents a summary of the other unallocated costs: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Other unallocated costs: Restructuring and other costs (2) $ ( 37,247 ) $ — $ ( 120,289 ) $ — Acquisition and integration related costs and other (3) ( 24,778 ) — ( 24,778 ) — Total other unallocated costs $ ( 62,025 ) $ — $ ( 145,067 ) $ — (2) Amount reflects costs related to the global restructuring initiative which includes a voluntary retirement offer in the U.S., inventory liquidation costs, and rationalization and optimization of certain distribution centers, stores and other facilities. 11 Table of Contents (3) Amount primarily reflects integration costs related to the completion of the acquisition of Motor Parts and Equipment Corporation ("MPEC") in April 2024, including professional services costs, personnel costs, and lease and other exit costs. 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 June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 North America: Automotive $ 2,352,254 $ 2,344,701 $ 4,549,144 $ 4,550,086 Industrial 2,101,811 2,128,747 4,181,937 4,259,462 Total North America $ 4,454,065 $ 4,473,448 $ 8,731,081 $ 8,809,548 Australasia: Automotive $ 412,883 $ 407,853 $ 813,231 $ 814,615 Industrial 133,765 131,260 263,250 259,836 Total Australasia $ 546,648 $ 539,113 $ 1,076,481 $ 1,074,451 Europe – Automotive $ 961,854 $ 902,445 $ 1,938,636 $ 1,796,125 Total net sales $ 5,962,567 $ 5,915,006 $ 11,746,198 $ 11,680,124 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 expiring in January 2025, 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 June 30, 2024 and December 31, 2023. The amount of receivables pledged as collateral as of June 30, 2024 and December 31, 2023 is approximately $ 1.5 billion and $ 1.2 billion, respectively. The following table summarizes the activity and amounts outstanding under the A/R Sales Agreement as of: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Receivables sold to the financial institutions and derecognized $ 2,135,710 $ 2,139,392 $ 4,305,752 $ 4,304,799 Cash collected on sold receivables $ 2,135,626 $ 2,139,393 $ 4,305,670 $ 4,304,804 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 $ 31 million and $ 29 million for the six months ended June 30, 2024 and 2023, respectively, are recorded within other non-operating (income) expense 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 June 30, 2024 and December 31, 2023 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. 12 Table of Contents 4. Employee Benefit Plans Net periodic benefit income from our pension plans included the following components for our pension benefits: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Service cost $ 1,711 $ 1,503 $ 3,438 $ 2,997 Interest cost 25,324 26,136 50,689 52,253 Expected return on plan assets ( 44,339 ) ( 41,263 ) ( 88,743 ) ( 82,503 ) Amortization of prior service cost 281 173 562 346 Amortization of actuarial loss 3,567 2,340 7,134 4,681 Net periodic benefit income $ ( 13,456 ) $ ( 11,111 ) $ ( 26,920 ) $ ( 22,226 ) 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 (income) expense. Pension benefits also include amounts related to supplemental retirement plans. 5. Acquisitions We acquired several businesses for approximately $ 651 million, which includes certain non-cash consideration, and $ 116 million, net of cash acquired, during the six months ended June 30, 2024 and June 30, 2023, respectively. We recognized approximately $ 100 million and $ 5 million of revenue related to our current year Automotive and Industrial acquisitions, respectively. We recorded approximately $ 283 million of goodwill and other intangible assets associated with these acquisitions. Other intangible assets acquired of $ 120 million consisted of customer relationships with weighted average amortization lives of 19 years. For each acquisition, we allocate the purchase price to the assets acquired and the liabilities assumed based on their fair values as of the respective acquisition date. The fair values of the assets acquired and liabilities assumed are preliminary. Additional adjustments, particularly to inventory and intangible assets, may be made to the acquisition accounting during the measurement period, which may be up to one year from the respective acquisition date. The results of operations for acquired businesses are included in our Condensed Consolidated Statements of Income beginning on their respective acquisition dates. These acquisitions included MPEC, the largest independent owner of NAPA Auto Part stores in the U.S., which we acquired on April 30, 2024. We recognized approximately $ 100 million of goodwill and other intangible assets associated with MPEC. Approximate values of other assets acquired and liabilities assumed included inventory of $ 200 million, operating lease assets of $ 200 million and operating lease liabilities of $ 200 million. 6. Accumulated Other Comprehensive Loss The following tables present the changes in AOCL by component for the six months ended June 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, 2024 $ ( 517,941 ) $ — $ ( 458,931 ) $ ( 976,872 ) Other comprehensive income (loss) before reclassifications — — ( 64,642 ) ( 64,642 ) Amounts reclassified from accumulated other comprehensive loss 5,775 — — 5,775 Other comprehensive income (loss), net of income taxes 5,775 — ( 64,642 ) ( 58,867 ) Ending balance, June 30, 2024 $ ( 512,166 ) $ — $ ( 523,573 ) $ ( 1,035,739 ) 13 Table of Contents 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 14,287 17,052 Amounts reclassified from accumulated other comprehensive loss 3,826 ( 193 ) — 3,633 Other comprehensive income (loss), net of income taxes 3,826 2,572 14,287 20,685 Ending balance, June 30, 2023 $ ( 502,784 ) $ — $ ( 509,073 ) $ ( 1,011,857 ) 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 2,516 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 June 30, 2024, which represents our best estimate of the liability within our calculated range of $ 180 million to $ 255 million, discounted using a discount rate of 4.36 %. The amount accrued for pending and future claims was $ 244 million as of December 31, 2023, which represents our best estimate of the liability within our calculated range of $ 196 million to $ 277 million, discounted using a discount rate of 3.88 %. Our undiscounted product liability was $ 285 million and $ 308 million as of June 30, 2024 and December 31, 2023, respectively. There have been no significant developments to the information presented in our 2023 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 8. Restructuring and other costs In February 2024, we approved and initiated a global restructuring designed to better align our assets and further improve the efficiency of the business. This initiative includes an announced voluntary retirement offer in the U.S., along with a rationalization and optimization of certain distribution centers, stores and other facilities. For the three and six months ended June 30, 2024, we incurred $ 37 million and $ 120 million, respectively, in costs related to our global restructuring initiative. We expect to incur total costs up to $ 200 million related to the global restructuring efforts in 2024 and to substantially complete the initiative by the end of 2025. We may incur additional charges not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of these initiatives. The global restructuring was approved and funded by our corporate office and therefore these costs are not allocated to our segments. For the three months ended June 30, 2024, costs of $ 37 million include severance and other employee costs of $ 4 million, other restructuring costs of $ 26 million, and restructuring inventory liquidation costs of $ 7 million, which are reflected in cost of goods sold. The table below summarizes the activity related to these costs for the six months ended June 30, 2024. (in thousands) Severance and other employee costs Other restructuring costs (1) Total (1) Liability as of January 1, 2024 $ — $ — $ — Restructuring and other costs 65,954 46,848 112,802 Cash payments ( 41,277 ) ( 32,872 ) ( 74,149 ) Non-cash charges 3,094 ( 12,844 ) ( 9,750 ) Translation ( 90 ) 2 ( 88 ) Liability as of June 30, 2024 $ 27,681 $ 1,134 $ 28,815 (1) Amount reflects moving expenses, accelerated rent, professional fees, facility closure costs and asset impairment costs that are attributable to our restructuring. Amount excludes a $ 7 million noncash charge reflected in cost of goods sold for inventory liquidated rather than moved during facility consolidation in connection with the restructuring. 15 Table of Contents