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, 2023. 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. 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, the conflict in the Gaza strip and other unrest in the Middle East; 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 2023 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 10,700 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 approximately 62% of total revenues for the six months ended June 30, 2024. Our Industrial Parts Group ("Industrial") operates in the U.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore, and accounted for approximately 38% of our total revenues for the six months ended June 30, 2024. 16 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, and 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, 2023. Results of Operations Our second quarter year-over-year net sales growth of 0.8% was driven by growth in Automotive, partially offset by a modest decline at Industrial. The macroeconomic environment remained challenging, with lagging industrial production driving soft demand and difficult trading conditions in Industrial. Performance in our U.S. and European automotive businesses also reflected moderating demand and a softer pricing environment from lower inflation. Despite this, Automotive sales continued to benefit from the prior year European acquisitions and current quarter acquisitions in the U.S. On April 30, we completed the acquisition of MPEC, our largest independent owner of NAPA Auto Parts stores in the U.S., operating 181 locations. Second quarter gross margin improved 50 basis points year-over-year, however net income declined $49 million primarily due to restructuring costs, investments in technology, and increased personnel costs resulting from acquisitions and inflation. Our results of operations are summarized below for the three and six months ending June 30, 2024 and 2023. Three Months Ended June 30, 2024 2023 (in thousands) $ % of Sales $ % of Sales $ Change % Change Net sales $ 5,962,567 100.0 % $ 5,915,006 100.0 % $ 47,561 0.8 % Cost of goods sold 3,782,264 63.4 % 3,780,263 63.9 % 2,001 0.1 % Gross profit 2,180,303 36.6 % 2,134,743 36.1 % 45,560 2.1 % Operating expense: Selling, administrative and other expenses 1,647,456 27.6 % 1,581,653 26.7 % 65,803 4.2 % Depreciation and amortization 99,202 1.7 % 90,873 1.5 % 8,329 9.2 % Provision for doubtful accounts 5,678 0.1 % 8,322 0.1 % (2,644) (31.8) % Restructuring and other costs 29,760 0.5 % — — % 29,760 — % Total operating expense 1,782,096 29.9 % 1,680,848 28.4 % 101,248 6.0 % Non-operating (income) expense: Interest expense, net 21,921 0.4 % 16,455 0.3 % 5,466 33.2 % Other (9,915) (0.2) % (16,649) (0.3) % 6,734 (40.4) % Total non-operating (income) expense 12,006 0.2 % (194) — % 12,200 (6288.7) % Income before income taxes 386,201 6.5 % 454,089 7.7 % (67,888) (15.0) % Income taxes 90,657 1.5 % 109,595 1.9 % (18,938) (17.3) % Net income $ 295,544 5.0 % $ 344,494 5.8 % $ (48,950) (14.2) % 17 Table of Contents Three Months Ended June 30, (in thousands, except per share data) 2024 2023 $ Change % Change Diluted EPS $ 2.11 $ 2.44 $ (0.33) (13.5) % Adjusted diluted EPS $ 2.44 $ 2.44 $ — — % Total adjusted EBITDA $ 569,349 $ 561,417 $ 7,932 1.4 % Automotive segment profit $ 313,975 $ 329,347 $ (15,372) (4.7) % Industrial segment profit $ 276,841 $ 283,372 $ (6,531) (2.3) % Total segment profit $ 590,816 $ 612,719 $ (21,903) (3.6) % Automotive segment margin 8.4 % 9.0 % Industrial segment margin 12.4 % 12.5 % Total segment margin 9.9 % 10.4 % Six Months Ended June 30, 2024 2023 (in thousands) $ % of Sales $ % of Sales $ Change % Change Net sales $ 11,746,198 100.0 % $ 11,680,124 100.0 % $ 66,074 0.6 % Cost of goods sold 7,491,240 63.8 % 7,531,980 64.5 % (40,740) (0.5) % Gross profit 4,254,958 36.2 % 4,148,144 35.5 % 106,814 2.6 % Operating expense: Selling, administrative and other expenses 3,222,383 27.4 % 3,092,897 26.5 % 129,486 4.2 % Depreciation and amortization 189,812 1.6 % 178,088 1.5 % 11,724 6.6 % Provision for doubtful accounts 11,889 0.1 % 13,961 0.1 % (2,072) (14.8) % Restructuring and other costs 112,802 1.0 % — — % 112,802 — % Total operating expense 3,536,886 30.1 % 3,284,946 28.1 % 251,940 7.7 % Non-operating (income) expense: Interest expense, net 39,611 0.3 % 33,319 0.3 % 6,292 18.9 % Other (32,921) (0.3) % (28,616) (0.2) % (4,305) 15.0 % Total non-operating (income) expense 6,690 0.1 % 4,703 — % 1,987 42.2 % Income before income taxes 711,382 6.1 % 858,495 7.4 % (147,113) (17.1) % Income taxes 166,944 1.4 % 210,044 1.8 % (43,100) (20.5) % Net income $ 544,438 4.6 % $ 648,451 5.6 % $ (104,013) (16.0) % Six Months Ended June 30, (in thousands, except per share data) 2024 2023 $ Change % Change Diluted EPS $ 3.89 $ 4.58 $ (0.69) (15.1) % Adjusted diluted EPS $ 4.66 $ 4.58 $ 0.08 1.7 % Total adjusted EBITDA $ 1,085,872 $ 1,069,902 $ 15,970 1.5 % Automotive segment profit $ 586,911 $ 593,767 $ (6,856) (1.2) % Industrial segment profit $ 547,680 $ 545,359 $ 2,321 0.4 % Total segment profit $ 1,134,591 $ 1,139,126 $ (4,535) (0.4) % Automotive segment margin 8.0 % 8.3 % Industrial segment margin 12.3 % 12.1 % Total segment margin 9.7 % 9.8 % 18 Table of Contents Net Sales For the three months ended June 30, 2024 our net sales increased slightly compared to 2023. We experienced a 2.2% benefit from acquisitions, partially offset by a 0.9% decrease in comparable sales and a net unfavorable impact of foreign currency and other of 0.5%. For the six months ended June 30, 2024 our net sales increased slightly compared to 2023. We experienced a 2.1% benefit from acquisitions, partially offset by a 0.9% decrease in comparable sales and a net unfavorable impact of foreign currency and other of 0.6%. The decrease in comparable sales is primarily driven by a sales decline in our industrial business due to the impact of weaker macro-economic conditions on our customers in 2024 as discussed below. Automotive Automotive sales for the three months ended June 30, 2024 were $3.7 billion, an increase of 2.0% from 2023. The increase consisted of a 3.1% benefit from acquisitions which was primarily driven by our European acquisitions and the MPEC acquisition, partially offset by a 0.6% decrease in comparable sales and a 0.5% unfavorable impact of foreign currency and other. The slight decrease in comparable sales reflects softened demand in our U.S. and European businesses and the negative impact of moderating inflation. Automotive sales for the six months ended June 30, 2024 were $7.3 billion, an increase of 2.0% from 2023. The increase consisted of a 3.0% benefit from acquisitions, partially offset by a 0.2% decrease in comparable sales and a 0.8% unfavorable impact of foreign currency and other. Industrial Net sales for the three months ended June 30, 2024 were $2.2 billion, a decrease of 1.1% compared to 2023. The decrease reflects a 1.6% decrease in comparable sales and a 0.2% unfavorable impact of foreign currency, slightly offset by a 0.7% benefit from acquisitions. Net sales for six months ended June 30, 2024 were $4.4 billion, a decrease of 1.6% compared to 2023. The decrease reflects a 2.1% decrease in comparable sales and a 0.1% unfavorable impact of foreign currency, slightly offset by a 0.6% benefit from acquisitions. The decrease in comparable sales reflects moderation in demand in certain customer sectors and continued softness in industrial production. We continue to experience an adverse macro-economic environment when compared to 2023, which caused slowing global industrial demand. Gross Profit and Gross Margin Gross profit for the three months ended June 30, 2024 increased $46 million, or 2.1%, compared to last year, and gross margin increased 50 basis points to 36.6% compared to the same period of the previous year. Gross profit for the six months ended June 30, 2024 increased $107 million, or 2.6% compared to the same period in the prior year. Gross margin increased 70 basis points to 36.2% compared to that same period of the previous year. These increases reflect the positive contributions of our strategic category management and sourcing initiatives. We continue to invest in enhancing technology to generate better pricing data and analytics, which allows us to shift pricing dynamics across each market we serve. Operating Expenses SG&A expenses represent 27.6% and 27.4% of sales for the three and six months ended June 30, 2024, respectively, compared to 26.7% and 26.5% in the prior year. We experienced increased personnel and rent costs primarily related to acquisitions, annual merit wage increases and inflation. In addition, we incurred $37 million of costs related to the global restructuring initiative and $25 million primarily related to the acquisition and integration of MPEC, which closed on April 30, 2024. Refer to the Restructuring Footnote in the Notes to Condensed Consolidated Financial Statements for more information on our global restructuring initiative. Segment Profit Automotive For the three months ended June 30, 2024, Automotive segment profit decreased 4.7% compared to the same period in 2023, and Automotive segment profit margin decreased to 8.4% compared to 9.0% in the same 19 Table of Contents period last year. For six months ended June 30, 2024, Automotive segment profit decreased 1.2% compared to the same period in 2023, and Automotive segment profit margin decreased to 8.0% compared to 8.3% for the same period last year. These decreases are primarily due to increased freight costs as well as personnel costs resulting from acquisitions and inflation. Industrial For the three months ended June 30, 2024, Industrial segment profit decreased 2.3% compared to the same period in 2023 and Industrial segment profit margin was 12.4%, down 10 basis points from the prior year. For the six months ended June 30, 2024, Industrial segment profit increased 0.4% compared to the same period last year and Industrial segment profit margin increased to 12.3% compared to 12.1% in the same period in the previous year. The decrease in segment profit for the three months ended June 30, 2024 resulted from deleveraging expenses driven by lower sales. The improvements in the six months ended June 30, 2024 occurred, despite a year-over-year sales decline of 1.6%, primarily due to expense management and ongoing execution of our supply chain initiatives and strategic category management. Income Taxes Our effective income tax rate for the three and six month periods ended June 30, 2024 was 23.5% compared to 24.1% and 24.5% for the same periods in 2023, respectively. The rate decrease is primarily due to expanded investment benefits and earnings mix shift across our global businesses. Net Income For the three months ended June 30, 2024, net income was $296 million, a decrease of 14.2% compared to net income of $344 million for the same three month period of the prior year. On a per share diluted basis, net income was $2.11, a decrease of 13.5% compared to $2.44 in 2023. These decreases are primarily due to $37 million of costs related to the global restructuring initiative and $25 million primarily related to the acquisition of MPEC. Adjusted net income for the three months ended June 30, 2024 was $342 million, a decrease of 0.9% compared to net income of $344 million for the same period of 2023. On a per share diluted basis, adjusted net income was $2.44, remaining flat compared to diluted earnings per share of $2.44 last year. Second quarter 2024 adjusted EBITDA was $569 million, an increase of 1.4% from $561 million in 2023. For the six months ended June 30, 2024, net income was $544 million, a decrease of 16.0% compared to net income of $648 million for the same three month period of the prior year. On a per share diluted basis, net income was $3.89, a decrease of 15.1% compared to $4.58 in 2023. These decreases are primarily due to $120 million of costs related to the global restructuring initiative and $25 million primarily related to the acquisition of MPEC. Adjusted net income for the six months ended June 30, 2024 was $652 million an increase of 0.6% compared to net income of $648 million in 2023. On a per share diluted basis, adjusted net income was $4.66, an increase of 1.7% compared to diluted earnings per share of $4.58 last year. Second quarter 2024 adjusted EBITDA was $1.09 billion, an increase of 1.5% from EBITDA of $1.07 billion from 2023. The increases in these adjusted measures reflect the positive effects of executing our strategic category management 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, to account for the impact of adjustments. We also include reconciliations from net income to adjusted EBITDA, net income to total segment profit and total segment margin and segment profit to segment EBITDA and adjusted EBITDA for each segment. We believe that the presentation of adjusted net income, adjusted diluted EPS, total segment profit and adjusted EBITDA, which are not calculated in accordance with GAAP, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to both management and investors that is indicative of our core operations. We consider these metrics useful to investors because they provide greater transparency into management’s view and assessment of our ongoing operating performance by removing items management believes are not representative of our 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. For example, for the 20 Table of Contents three and six months ended June 30, 2024, adjusted net income, adjusted EBITDA and adjusted diluted earnings per share exclude costs relating to our global restructuring initiative and acquisition of Motor Parts and Equipment Corporation. We do not, nor do we suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 GAAP net income $ 295,544 $ 344,494 $ 544,438 $ 648,451 Adjustments: Restructuring and other costs (1) 37,247 — 120,289 — Acquisition and integration related costs and other (2) 24,778 — 24,778 — Total adjustments 62,025 — 145,067 — Tax impact of adjustments (3) (16,008) — (37,046) — Adjusted net income $ 341,561 $ 344,494 $ 652,459 $ 648,451 The table below represents amounts per common share assuming dilution: Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share data) 2024 2023 2024 2023 GAAP diluted earnings per share $ 2.11 $ 2.44 $ 3.89 $ 4.58 Adjustments: Restructuring and other costs (1) 0.27 — 0.86 — Acquisition and integration related costs and other (2) 0.17 — 0.17 — Total adjustments 0.44 — 1.03 — Tax impact of adjustments (3) (0.11) — (0.26) — Adjusted diluted earnings per share $ 2.44 $ 2.44 $ 4.66 $ 4.58 Weighted average common shares outstanding – assuming dilution 139,829 141,247 139,961 141,496 (1) 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. (2) Amount primarily reflects integration costs related to the completion of the acquisition of MPEC in April 2024, including professional services costs, personnel costs, and lease and other exit costs. (3) 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 six months ended June 30, 2024, we applied the statutory income tax rates to the taxable portion of all of our adjustments, which resulted in a tax impact of $16 million and $37 million. 21 Table of Contents The table below represents a reconciliation from GAAP net income to adjusted EBITDA: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 GAAP net income $ 295,544 $ 344,494 $ 544,438 $ 648,451 Depreciation and amortization 99,202 90,873 189,812 178,088 Interest expense, net 21,921 16,455 39,611 33,319 Income taxes 90,657 109,595 166,944 210,044 EBITDA 507,324 561,417 940,805 1,069,902 Total adjustments (1) 62,025 — 145,067 — Adjusted EBITDA $ 569,349 $ 561,417 $ 1,085,872 $ 1,069,902 (1) Amounts are the same as adjustments included within the adjusted net income table above. The table below clarifies where the adjusted items are presented in the Condensed Consolidated Statements of Income: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Line item: Cost of goods sold $ 7,487 $ — $ 7,487 $ — Selling, administrative and other expenses 24,778 — 24,778 — Restructuring and other costs 29,760 — 112,802 — Total adjustments $ 62,025 $ — $ 145,067 $ — The table below represents a reconciliation from GAAP net income to total segment profit: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 GAAP net income $ 295,544 $ 344,494 $ 544,438 $ 648,451 Income taxes 90,657 109,595 166,944 210,044 Income before income taxes 386,201 454,089 711,382 858,495 Interest expense, net 21,921 16,455 39,611 33,319 Corporate expense 85,984 101,550 169,746 167,565 Intangible asset amortization 34,685 40,625 68,785 79,747 Other unallocated income, net (1) 62,025 — 145,067 — Total segment profit $ 590,816 $ 612,719 $ 1,134,591 $ 1,139,126 GAAP net sales $ 5,962,567 $ 5,915,006 $ 11,746,198 $ 11,680,124 GAAP net income margin (2) 5.0 % 5.8 % 4.6 % 5.6 % Total segment profit margin (3) 9.9 % 10.4 % 9.7 % 9.8 % (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. The table below represents a reconciliation from segment profit to segment EBITDA and adjusted EBITDA: 22 Table of Contents Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Automotive: Segment Profit $ 313,975 $ 329,347 $ 586,911 $ 593,767 Depreciation 48,894 40,901 95,634 79,010 Automotive segment EBITDA 362,869 370,248 682,545 672,777 Industrial: Segment Profit 276,841 283,372 547,680 545,359 Depreciation 8,119 7,080 16,267 14,130 Industrial segment EBITDA 284,960 290,452 563,947 559,489 Corporate: Corporate expense (85,984) (101,550) (169,746) (167,565) Depreciation 7,504 2,267 9,126 5,201 Other unallocated costs (1) 62,025 — 145,067 — Corporate EBITDA (16,455) (99,283) (15,553) (162,364) Total adjustments (1) (62,025) — (145,067) — Corporate adjusted EBITDA (78,480) (99,283) (160,620) (162,364) Adjusted EBITDA $ 569,349 $ 561,417 $ 1,085,872 $ 1,069,902 (1) Amounts are the same as adjustments included within the adjusted net income table above. Financial Condition Our cash balance was $555 million as of June 30, 2024, a decrease of $547 million from December 31, 2023. For the six months ended June 30, 2024, we had net cash provided by operating activities of $612 million, net cash used in investing activities of $762 million and net cash used in financing activities of $382 million. The cash provided by operating activities increased as compared to prior year primarily driven by changes in working capital. We had $762 million in net cash used for investing activities, consisting of capital expenditures and acquisitions and other investing activities of $839 million, partially offset by proceeds from the sale of property, plant and equipment and the divestiture of businesses. The financing activities consisted primarily of $272 million for dividends paid to our shareholders and $75 million of stock repurchases. Accounts receivable increased $303 million, or 13.6%, from December 31, 2023. Inventory increased $427 million, or 9.1%. Accounts receivable and inventory were both impacted by second quarter increases in revenues and related product demand. Inventory also increased $200 million as a result of the MPEC acquisition. Accounts payable increased $432 million, or 7.9% from December 31, 2023, in line with the increase in inventory. Total debt of $3.9 billion at June 30, 2024 decreased $26 million, or 0.7%, from December 31, 2023. Liquidity and Capital Resources We ended the quarter with $2.0 billion of total liquidity. Total liquidity comprises of $555 million of cash and cash equivalents and $1.4 billion of our $1.5 billion revolving credit facility available after the effect of $100 million of commercial paper outstanding as of June 30, 2024. 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, commercial paper program, and cash generated from operations will be sufficient to fund anticipated operations for the foreseeable future. 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. 23 Table of Contents We expect to be able to continue to borrow funds at reasonable rates over the long term. At June 30, 2024, our total average cost of debt was 3.25%, and we remain in compliance with all covenants connected with our borrowings. In addition, we repaid the 155 million Australian dollar principal amount of our Series A Senior Unsecured Note, due June 30, 2024. 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 15, 2024, we announced a 5.3% increase in the regular quarterly cash dividend for 2024. Our Board of Directors increased the cash dividend payable to an annual rate of $4.00 per share compared with the prior year dividend of $3.80 per share. We have paid a cash dividend every year since going public in 1948, and 2024 marks the 68th 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 2023 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2023.