Company Quick10K Filing
Quick10K
Genuine Parts
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$98.52 146 $14,390
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-18 Earnings, Exhibits
8-K 2019-04-23 Shareholder Vote, Exhibits
8-K 2019-04-22 Officers, Other Events, Exhibits
8-K 2019-04-18 Earnings, Exhibits
8-K 2019-02-19 Other Events, Exhibits
8-K 2019-02-19 Earnings, Exhibits
8-K 2019-02-01 Officers, Exhibits
8-K 2019-01-22 Regulation FD, Exhibits
8-K 2019-01-08 M&A, Exhibits
8-K 2018-12-13 Exhibits
8-K 2018-11-19 Amend Bylaw, Other Events, Exhibits
8-K 2018-10-18 Earnings, Exhibits
8-K 2018-10-05 Enter Agreement, Other Events, Exhibits
8-K 2018-09-27 Regulation FD, Exhibits
8-K 2018-09-19 Enter Agreement, Other Events, Exhibits
8-K 2018-09-10 Leave Agreement, Exhibits
8-K 2018-08-20 Other Events, Exhibits
8-K 2018-08-20 Officers, Exhibits
8-K 2018-07-19 Earnings, Exhibits
8-K 2018-06-29 Regulation FD, Exhibits
8-K 2018-06-07 Enter Agreement, Other Events, Exhibits
8-K 2018-04-23 Shareholder Vote, Exhibits
8-K 2018-04-19 Earnings, Exhibits
8-K 2018-04-12 Enter Agreement
8-K 2018-03-29 Regulation FD, Exhibits
8-K 2018-02-20 Earnings, Exhibits
8-K 2018-01-24 Regulation FD, Exhibits
VICI Vici Properties 9,070
MRTX Mirati Therapeutics 2,430
HAIN Hain Celestial Group 2,390
GSVC GSV Capital 141
WKHS Workhorse Group 134
AINC Ashford 132
NLS Nautilus 124
MARA Marathon Patent Group 18
HLIX Helix TCS 0
MGHL Morgan Group Holding 0
GPC 2019-06-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 gpc06302019311.htm
EX-31.2 gpc06302019312.htm
EX-32 gpc0630201932.htm

Genuine Parts Earnings 2019-06-30

GPC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 1-5690
  __________________________________________ 
GENUINE PARTS COMPANY
(Exact name of registrant as specified in its charter)
   __________________________________________ 
GA
 
58-0254510
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
2999 WILDWOOD PARKWAY,
 
30339
ATLANTA,
GA
 
 
(Address of principal executive offices)
 
(Zip Code)
678-934-5000
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $1.00 par value per share
 
GPC
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
  
Accelerated filer
 
 
 
 
 
 
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
 
 
 
Emerging growth company
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
There were 146,078,369 shares of common stock outstanding as of the June 30, 2019.
 

1


Table of Contents
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 (in thousands, except share and per share data)
 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
562,551

 
$
333,547

Trade accounts receivable, less allowance for doubtful accounts (2019 – $31,280; 2018 – $21,888)
 
2,836,875

 
2,493,636

Merchandise inventories, net
 
3,750,778

 
3,609,389

Prepaid expenses and other current assets
 
1,034,466

 
1,139,118

Total current assets
 
8,184,670

 
7,575,690

Goodwill
 
2,329,325

 
2,128,776

Other intangible assets, less accumulated amortization
 
1,517,842

 
1,411,642

Deferred tax assets
 
27,698

 
29,509

Property, plant and equipment, less accumulated depreciation (2019 – $1,341,918; 2018 – $1,208,694)
 
1,089,763

 
1,027,231

Operating lease assets
 
961,975

 

Other assets
 
528,199

 
510,192

Total assets
 
$
14,639,472

 
$
12,683,040

 
 
 
 
 
Liabilities and equity
 
 
 
 
Current liabilities:
 
 
 
 
Trade accounts payable
 
$
4,064,547

 
$
3,995,789

Current portion of debt
 
1,011,334

 
711,147

Dividends payable
 
111,380

 
105,369

Other current liabilities
 
1,310,967

 
1,088,428

Total current liabilities
 
6,498,228

 
5,900,733

Long-term debt
 
2,871,106

 
2,432,133

Operating lease liabilities
 
724,682

 

Pension and other post–retirement benefit liabilities
 
208,008

 
235,228

Deferred tax liabilities
 
212,308

 
196,843

Other long-term liabilities
 
437,165

 
446,112

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 – 2019 – 146,078,369 shares; 2018 – 145,936,613 shares
 
146,078

 
145,937

Additional paid-in capital
 
83,949

 
78,380

Retained earnings
 
4,630,480

 
4,341,212

Accumulated other comprehensive loss
 
(1,195,179
)
 
(1,115,078
)
Total parent equity
 
3,665,328

 
3,450,451

Noncontrolling interests in subsidiaries
 
22,647

 
21,540

Total equity
 
3,687,975

 
3,471,991

Total liabilities and equity
 
$
14,639,472

 
$
12,683,040

See accompanying notes to condensed consolidated financial statements.

2

Table of Contents

GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except per share data)
 
2019
 
2018
 
2019
 
2018
Net sales
 
$
4,934,260

 
$
4,822,065

 
$
9,671,093

 
$
9,408,359

Cost of goods sold
 
3,335,679

 
3,300,479

 
6,564,344

 
6,450,966

Gross profit
 
1,598,581

 
1,521,586

 
3,106,749

 
2,957,393

Operating expenses:
 
 
 
 
 
 
 
 
Selling, administrative and other expenses
 
1,216,913

 
1,148,217

 
2,414,133

 
2,281,988

Depreciation and amortization
 
66,154

 
58,451

 
128,131

 
116,814

Provision for doubtful accounts
 
5,962

 
3,666

 
9,931

 
6,367

Total operating expenses
 
1,289,029

 
1,210,334

 
2,552,195

 
2,405,169

Non-operating expenses (income):
 
 
 
 
 
 
 
 
Interest expense
 
23,296

 
26,476

 
47,179

 
50,585

Other
 
(15,873
)
 
(15,495
)
 
(6,266
)
 
(27,951
)
Total non-operating expenses
 
7,423

 
10,981

 
40,913

 
22,634

Income before income taxes
 
302,129

 
300,271

 
513,641

 
529,590

Income taxes
 
77,699

 
73,299

 
128,961

 
126,042

Net income
 
$
224,430

 
$
226,972

 
$
384,680

 
$
403,548

Basic net income per common share
 
$
1.54

 
$
1.55

 
$
2.63

 
$
2.75

Diluted net income per common share
 
$
1.53

 
$
1.54

 
$
2.62

 
$
2.74

Dividends declared per common share
 
$
.7625

 
$
.7200

 
$
1.5250

 
$
1.4400

Weighted average common shares outstanding
 
146,075

 
146,748

 
146,029

 
146,738

Dilutive effect of stock options and non-vested restricted stock awards
 
661

 
512

 
684

 
548

Weighted average common shares outstanding – assuming dilution
 
146,736

 
147,260

 
146,713

 
147,286

 
 
 
 
 
 
 
 
 
Net income
 
$
224,430

 
$
226,972

 
$
384,680

 
$
403,548

Other comprehensive (loss) income, net of income taxes:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
10,864

 
(163,993
)
 
37,981

 
(121,113
)
Cash flow and net investment hedge adjustments, net of income taxes in 2019 — $7,726 and $1,931; 2018 — $12,115 and $5,935 respectively
 
(20,889
)
 
32,755

 
(5,221
)
 
16,045

Pension and postretirement benefit adjustments, net of income taxes in 2019 — $1,786 and $3,574; 2018 — $2,642 and $5,290 respectively
 
4,833

 
7,145

 
9,665

 
14,309

Other comprehensive (loss) income, net of income taxes
 
(5,192
)
 
(124,093
)
 
42,425

 
(90,759
)
Comprehensive income
 
$
219,238

 
$
102,879

 
$
427,105

 
$
312,789

See accompanying notes to condensed consolidated financial statements.

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GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
 
 
Three months ended June 30, 2019
(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, 2019
 
146,063,911

 
$
146,064

 
$
77,424

 
$
(1,189,987
)
 
$
4,517,430

 
3,550,931

 
$
21,901

 
3,572,832

Net income
 

 

 

 

 
224,430

 
224,430

 

 
224,430

Other comprehensive loss, net of tax
 

 

 

 
(5,192
)
 

 
(5,192
)
 

 
(5,192
)
Cash dividends declared, $0.7625 per share
 

 

 

 

 
(111,380
)
 
(111,380
)
 

 
(111,380
)
Share-based awards exercised, including tax benefit of $174
 
14,458

 
14

 
(546
)
 

 

 
(532
)
 

 
(532
)
Share-based compensation
 

 

 
7,071

 

 

 
7,071

 

 
7,071

Noncontrolling interest activities
 

 

 

 

 

 

 
746

 
746

June 30, 2019
 
146,078,369

 
$
146,078

 
$
83,949

 
$
(1,195,179
)
 
$
4,630,480

 
$
3,665,328

 
$
22,647

 
$
3,687,975

 
 
Six months ended June 30, 2019
(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, 2019
 
145,936,613

 
$
145,937

 
$
78,380

 
$
(1,115,078
)
 
$
4,341,212

 
$
3,450,451

 
$
21,540

 
$
3,471,991

Net income
 

 

 

 

 
384,680

 
384,680

 

 
384,680

Other comprehensive loss, net of tax (1)
 

 

 

 
42,425

 

 
42,425

 

 
42,425

Cash dividends declared, $1.5250 per share
 

 

 

 

 
(222,735
)
 
(222,735
)
 

 
(222,735
)
Share-based awards exercised, including tax benefit of $3,986
 
141,756

 
141

 
(7,512
)
 

 

 
(7,371
)
 

 
(7,371
)
Share-based compensation
 

 

 
13,081

 

 

 
13,081

 

 
13,081

Cumulative effect from adoption of ASU 2018-02 (2)
 

 

 

 
(122,526
)
 
122,526

 

 

 

Cumulative effect from adoption of ASU 2016-02, net of tax (2)
 

 

 

 

 
4,797

 
4,797

 

 
4,797

Noncontrolling interest activities
 

 

 

 

 

 

 
1,107

 
1,107

June 30, 2019
 
146,078,369

 
$
146,078

 
$
83,949

 
$
(1,195,179
)
 
$
4,630,480

 
$
3,665,328

 
$
22,647

 
$
3,687,975


(1)
Includes the effects of reclassifying realized currency losses of $27,037 out of accumulated other comprehensive loss into earnings in connection with the March 7, 2019 sale of Grupo Auto Todo. Refer to the accumulated other comprehensive loss footnote for further details.
(2)
The Company adopted Accounting Standards Update ("ASU") 2016-02, Leases, and ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, during the first quarter of 2019. Refer to the recent accounting pronouncements footnote for further details.
See accompanying notes to condensed consolidated financial statements.



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GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
 
 
Three months ended June 30, 2018
(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, 2018
 
146,737,803

 
$
146,738

 
$
67,550

 
$
(819,258
)
 
$
4,115,049

 
$
3,510,079

 
$
51,302

 
$
3,561,381

Net income
 

 

 

 

 
226,972

 
226,972

 

 
226,972

Other comprehensive loss, net of tax
 

 

 

 
(124,093
)
 

 
(124,093
)
 

 
(124,093
)
Cash dividends declared, $0.7200 per share
 

 

 

 

 
(105,662
)
 
(105,662
)
 

 
(105,662
)
Share-based awards exercised, including tax benefit of $82
 
14,929

 
15

 
(688
)
 

 

 
(673
)
 

 
(673
)
Share-based compensation
 

 

 
5,349

 

 

 
5,349

 

 
5,349

Noncontrolling interest activities
 

 

 

 

 

 

 
(947
)
 
(947
)
June 30, 2018
 
146,752,732

 
$
146,753

 
$
72,211

 
$
(943,351
)
 
$
4,236,359

 
$
3,511,972

 
$
50,355

 
$
3,562,327

 
 
Six months ended June 30, 2018
(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, 2018
 
146,652,615

 
$
146,653

 
$
68,126

 
$
(852,592
)
 
$
4,049,965

 
$
3,412,152

 
$
52,004

 
$
3,464,156

Net income
 

 

 

 

 
403,548

 
403,548

 

 
403,548

Other comprehensive loss, net of tax
 

 

 

 
(90,759
)
 

 
(90,759
)
 

 
(90,759
)
Cash dividends declared, $1.4400 per share
 

 

 

 

 
(211,311
)
 
(211,311
)
 

 
(211,311
)
Share-based awards exercised, including tax benefit of $2,599
 
100,117

 
100

 
(4,950
)
 

 

 
(4,850
)
 

 
(4,850
)
Share-based compensation
 

 

 
9,035

 

 

 
9,035

 

 
9,035

Cumulative effect from adoption of ASU 2014-09, net of tax
 

 

 

 

 
(5,843
)
 
(5,843
)
 

 
(5,843
)
Noncontrolling interest activities
 

 

 

 

 

 

 
(1,649
)
 
(1,649
)
June 30, 2018
 
146,752,732

 
$
146,753

 
$
72,211

 
$
(943,351
)
 
$
4,236,359

 
$
3,511,972

 
$
50,355


$
3,562,327



See accompanying notes to condensed consolidated financial statements.

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GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
Six Months Ended June 30,
(in thousands)
 
2019
 
2018
Operating activities:
 
 
 
 
Net income
 
$
384,680

 
$
403,548

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
128,131

 
116,814

Share-based compensation
 
13,081

 
9,035

Excess tax benefits from share-based compensation
 
(3,986
)
 
(2,599
)
Realized currency losses on divestiture
 
27,037

 

Changes in operating assets and liabilities
 
(247,568
)
 
(71,723
)
Net cash provided by operating activities
 
301,375

 
455,075

Investing activities:
 
 
 
 
Purchases of property, plant and equipment
 
(106,712
)
 
(65,146
)
Acquisitions of businesses and other investing activities
 
(357,286
)
 
(82,545
)
Net cash used in investing activities
 
(463,998
)
 
(147,691
)
Financing activities:
 
 
 
 
Proceeds from debt
 
2,973,236

 
2,320,906

Payments on debt
 
(2,359,975
)
 
(2,367,284
)
Share-based awards exercised
 
(7,371
)
 
(4,851
)
Dividends paid
 
(216,724
)
 
(204,649
)
Net cash provided by (used in) financing activities
 
389,166

 
(255,878
)
Effect of exchange rate changes on cash and cash equivalents
 
2,461

 
(11,264
)
Net increase in cash and cash equivalents
 
229,004

 
40,242

Cash and cash equivalents at beginning of period
 
333,547

 
314,899

Cash and cash equivalents at end of period
 
$
562,551

 
$
355,141

See accompanying notes to condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
1. 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 has been no material change 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, 2018. Accordingly, the unaudited interim condensed consolidated financial statements and related disclosures herein should be read in conjunction with the Company’s 2018 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 interim condensed consolidated financial statements. Specifically, the Company makes estimates and assumptions in its interim condensed consolidated financial statements for inventory adjustments, the accrual of bad debts, 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 and customer sales returns are estimated and accrued on an interim basis based upon historical experience. Volume incentives are estimated based upon cumulative and projected purchasing levels. The estimates and assumptions for interim reporting may change upon final determination at year-end, and such changes may be significant.
In the opinion of management, all adjustments necessary for a fair presentation of the Company’s financial results for the interim periods have been made. These adjustments are of a normal recurring nature. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of results for the entire year. The Company has evaluated subsequent events through the date the condensed consolidated financial statements covered by this quarterly report were issued.
2. Segment Information
The following table presents a summary of the Company's reportable segment financial information:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Net sales:
 
 
 
 
 
 
 
 
Automotive
 
$
2,774,808

 
$
2,736,201

 
$
5,397,153

 
$
5,300,460

Industrial
 
1,681,721

 
1,602,665

 
3,317,144

 
3,150,609

Business products
 
477,731

 
483,199

 
956,796

 
957,290

Total net sales
 
$
4,934,260

 
$
4,822,065

 
$
9,671,093

 
$
9,408,359

Operating profit:
 
 
 
 
 
 
 
 
Automotive
 
$
228,385

 
$
243,611

 
$
407,613

 
$
428,317

Industrial
 
136,334

 
125,191

 
257,362

 
237,382

Business products
 
20,896

 
21,422

 
42,116

 
43,023

Total operating profit
 
385,615

 
390,224

 
707,091

 
708,722

Interest expense, net
 
(22,514
)
 
(25,525
)
 
(45,543
)
 
(48,832
)
Intangible asset amortization
 
(23,917
)
 
(21,806
)
 
(46,501
)
 
(43,209
)
Corporate expense (1)
 
(37,055
)
 
(42,622
)
 
(101,406
)
 
(87,091
)
Income before income taxes
 
$
302,129

 
$
300,271

 
$
513,641

 
$
529,590


(1)
Includes $4,108 and $38,222 of expenses for the three and six months ended June 30, 2019, respectively, from realized currency losses and transaction and other costs. The realized currency losses of $27,037 for the six months ended June 30, 2019 resulted from the March 7, 2019 sale of Grupo Auto Todo. Refer to the acquisitions and divestitures footnote for more information.
Includes $9,105 and $22,114  for the three and six months ended June 30, 2018, respectively, in certain transaction and other costs related to the acquisition of Alliance Automotive Group ("AAG") and the attempted Business Products Group spin-off (the attempted spin-off was subsequently terminated in September 2018).

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Net sales are disaggregated by geographical region for each of the Company’s reportable segments, as the Company deems 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,
 
 
2019
 
2018
 
2019
 
2018
North America:
 
 
 
 
 
 
 
 
Automotive
 
$
1,963,583

 
$
1,944,980

 
$
3,777,368

 
$
3,727,294

Industrial
 
1,681,721

 
1,602,665

 
3,317,144

 
3,150,609

Business products
 
477,731

 
483,199

 
956,796

 
957,290

Total North America
 
$
4,123,035

 
$
4,030,844

 
$
8,051,308

 
$
7,835,193

Australasia – Automotive
 
286,717

 
302,799

 
571,270

 
604,803

Europe – Automotive
 
524,508

 
488,422

 
1,048,515

 
968,363

Total net sales
 
$
4,934,260

 
$
4,822,065

 
$
9,671,093

 
$
9,408,359


3. Accumulated Other Comprehensive Loss
The following tables present the changes in accumulated other comprehensive loss by component for the six months ended June 30:
 
Changes in Accumulated Other
Comprehensive Loss by Component
 
Pension and Other Post-Retirement Benefits
 
Cash Flow and Net Investment Hedges
 
Foreign Currency Translation
 
Total
Beginning balance, January 1, 2019
$
(626,322
)
 
$
10,726

 
$
(499,482
)
 
$
(1,115,078
)
Other comprehensive income before reclassifications, net of tax

 
(835
)
 
10,944

 
10,109

Amounts reclassified from accumulated other comprehensive loss, net of tax (1)
9,665

 
(4,386
)
 
27,037

 
32,316

Other comprehensive income, net of income taxes
9,665

 
(5,221
)
 
37,981

 
42,425

Cumulative effect from adoption of ASU 2018-02
(122,526
)
 

 

 
(122,526
)
Ending balance, June 30, 2019
$
(739,183
)
 
$
5,505

 
$
(461,501
)
 
$
(1,195,179
)
(1)
Realized currency losses of $27,037 were reclassified out of foreign currency translation into earnings in connection with the March 7, 2019 sale of Grupo Auto Todo. Refer to the acquisitions and divestitures footnote for further details.
 
Changes in Accumulated Other
Comprehensive Loss by Component
 
Pension and Other Post-Retirement Benefits
 
Cash Flow and Net Investment Hedges
 
Foreign Currency Translation
 
Total
Beginning balance, January 1, 2018
$
(568,957
)
 
$
(17,388
)
 
$
(266,247
)
 
$
(852,592
)
Other comprehensive loss before reclassifications, net of tax

 
16,045

 
(121,113
)
 
(105,068
)
Amounts reclassified from accumulated other comprehensive loss, net of tax
14,309

 

 

 
14,309

Other comprehensive loss, net of income taxes
14,309

 
16,045

 
(121,113
)
 
(90,759
)
Ending balance, June 30, 2018
$
(554,648
)
 
$
(1,343
)
 
$
(387,360
)
 
$
(943,351
)

The accumulated other comprehensive loss components related to the pension benefits are included in the computation of net periodic benefit income in the employee benefit plans footnote. The nature of the cash flow and net investment hedges are discussed in the derivatives and hedging footnote. Generally, tax effects in accumulated other comprehensive loss are established at the

8

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currently enacted tax rate and reclassified to net income in the same period that the related pre-tax accumulated other comprehensive loss reclassifications are recognized.
4. Recent Accounting Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of ASUs to the FASB Accounting Standards Codification ("ASC"). The Company considers the applicability and impact of all ASUs and any not listed below were assessed and determined to be not applicable or are expected to have a minimal impact on the Company's condensed consolidated financial statements.
Leases (Topic 842)
In February 2016, the FASB issued ASU 2016-02, Leases, which, among other things, requires an entity to recognize a right-of-use asset and a lease liability on the balance sheet for substantially all leases, including operating leases. Expanded disclosures with additional qualitative and quantitative information are also required. ASU 2016-02 and its amendments were effective for interim and annual reporting periods beginning after December 15, 2018 and early adoption was permitted.  The ASU's transition provisions could be applied under a modified retrospective approach to each prior reporting period presented in the financial statements or only at the beginning of the period of adoption (i.e., on the effective date).
The Company adopted ASU 2016-02 and its amendments and applied the transition provisions as of January 1, 2019, which included recognizing a cumulative-effect adjustment through opening retained earnings as of that date. Prior year amounts were not recast under this transition approach and, therefore, prior year amounts are excluded from the leased properties footnote. The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward its historical assessments of: (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company elected a policy of not recording leases on its condensed consolidated balance sheets when the leases have a term of 12 months or less and the Company is not reasonably certain to elect an option to purchase the leased asset. The Company recognizes payments on these leases within selling, administrative and other expenses on a straight-line basis over the lease term.
The Company's adoption of the standard resulted in a cumulative-effect adjustment to retained earnings of $4,797, net of taxes, as of January 1, 2019. The standard did not materially impact the Company's consolidated net income or liquidity. The standard did not have an impact on debt-covenant compliance under the Company's current debt agreements.
Income Statement - Reporting Comprehensive Income (Topic 220)
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU permits a company to make a one-time election to reclassify stranded tax effects caused by the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The ASU also requires companies to disclose their accounting policies for releasing income tax effects from accumulated other comprehensive income. ASU 2018-02 was effective for periods beginning after December 15, 2018, with an election to adopt early. The Company adopted ASU 2018-02 as of January 1, 2019 and recognized an adjustment to increase retained earnings and to adjust accumulated other comprehensive loss by approximately $122,526.
Financial Instruments - Credit Losses (Topic 220)

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. Among other things, the ASU and its amendments replace the incurred loss impairment model for receivables and certain other financial instruments with a current expected credit loss model. The new model measures impairment based on expected credit losses over the remaining contractual life of an asset, considering available information about the collectability of cash flows, past events, current conditions, and reasonable and supportable forecasts. Additional quantitative and qualitative disclosures are required. ASU 2016-13 is effective for periods beginning after December 15, 2019, with an option to adopt early. The Company plans to adopt the ASU and its amendments on January 1, 2020, and any changes to allowances for credit losses caused by the adoption will be made through a cumulative effect adjustment to retained earnings as of that date. The Company is currently evaluating the impact of ASU 2016-13 and its amendments on the Company's consolidated financial statements.

Compensation - Retirement Benefits (Topic 715)
In August 2018, the FASB issued ASU 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans. The updated accounting guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing, adding and clarifying certain disclosures. These provisions must be applied retrospectively. ASU 2018-14 is effective for periods beginning after December 15, 2020, with an option to adopt early. The adoption of ASU

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2018-14 is not expected to have a significant impact on the Company’s financial position, results of operations or disclosures. The Company does not plan to early adopt the standard.
5. Employee Benefit Plans
Net periodic benefit income from the Company's pension plans included the following components for the three months ended June 30:
 
 
Pension Benefits
 
 
2019
 
2018
Service cost
 
$
2,379

 
$
2,612

Interest cost
 
24,335

 
22,071

Expected return on plan assets
 
(38,507
)
 
(38,516
)
Amortization of prior service credit
 
(17
)
 
(37
)
Amortization of actuarial loss
 
7,746

 
9,935

Net periodic benefit income
 
$
(4,064
)
 
$
(3,935
)

Net periodic benefit income from the Company's pension plans included the following components for the six months ended June 30:
 
 
Pension Benefits
 
 
2019
 
2018
Service cost
 
$
4,769

 
$
5,266

Interest cost
 
48,683

 
44,184

Expected return on plan assets
 
(77,034
)
 
(77,104
)
Amortization of prior service credit
 
(34
)
 
(74
)
Amortization of actuarial loss
 
15,495

 
19,894

Net periodic benefit income
 
$
(8,121
)
 
$
(7,834
)

Service cost is recorded in selling, administrative and other expenses in the condensed consolidated statements of income and comprehensive income while all other components are recorded within other non-operating expenses (income). Pension benefits also include amounts related to supplemental retirement plans.
6. Guarantees
The Company guarantees the borrowings of certain independently controlled automotive parts stores and businesses (“independents”) and certain other affiliates in which the Company has a noncontrolling equity ownership interest (“affiliates”). Presently, the independents are generally consolidated by unaffiliated enterprises that have controlling financial interests through ownership of a majority voting interest in the independents. The Company has no voting interest or equity conversion rights in any of the independents. The Company does not control the independents or the affiliates, but receives a fee for the guarantees. The Company has concluded that the independents are variable interest entities, but that the Company is not the primary beneficiary. Specifically, the equity holders of the independents have the power to direct the activities that most significantly impact the entities’ economic performance including, but not limited to, decisions about hiring and terminating personnel, local marketing and promotional initiatives, pricing and selling activities, credit decisions, monitoring and maintaining appropriate inventories, and store hours. Separately, the Company concluded that the affiliates are not variable interest entities. The Company’s maximum exposure to loss as a result of its involvement with these independents and affiliates is generally equal to the total borrowings subject to the Company’s guarantees. While such borrowings of the independents and affiliates are outstanding, the Company is required to maintain compliance with certain covenants, including a maximum debt to capitalization ratio and certain limitations on additional borrowings. At June 30, 2019, the Company was in compliance with all such covenants.
As of June 30, 2019, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately $841,319. These loans generally mature over periods from one to six years. In the event that the Company is required to make payments in connection with these guarantees, the Company would obtain and liquidate certain collateral pledged by the independents or affiliates (e.g., accounts receivable and inventory) to recover all or a portion of the amounts paid under the guarantees. When it is deemed probable that the Company will incur a loss in connection with a guarantee, a liability is recorded equal to this estimated loss. To date, the Company has had no significant losses in connection with guarantees of independents’ and affiliates’ borrowings.

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As of June 30, 2019, the Company has recognized certain assets and liabilities amounting to $84,000 each for the guarantees related to the independents’ and affiliates’ borrowings. These assets and liabilities are included in other assets and other long-term liabilities in the condensed consolidated balance sheets.
7. Fair Value of Financial Instruments
The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, trade accounts receivable, trade accounts payable, and borrowings under the line of credit and term loan approximate their respective fair values based on the short-term nature of these instruments. As of June 30, 2019, the carrying amount, net of debt issuance costs, and the fair value of fixed rate debt were approximately $1,961,850 and $2,038,652, respectively. The fair value of fixed rate debt is designated as Level 2 in the fair value hierarchy (i.e., significant observable inputs) and is based primarily on the discounted value of future cash flows using current market interest rates offered for debt of similar credit risk and maturity. The carrying amount, net of debt issuance costs, of fixed rate debt of $1,961,850 is included in long-term debt in the condensed consolidated balance sheets.
8. Credit Facilities
On May 31, 2019, the Company entered into a private placement agreement of 250,000 long-term fixed rate debt. The 250,000 of long-term fixed rate debt includes 50,000, 1.55% Series A Guaranteed Senior Note maturing on May 31, 2029, 100,000, 1.74% Series B Guaranteed Senior Note maturing on May 31, 2031 and 100,000, 1.95% Series C Guaranteed Senior Note maturing on May 31, 2034.
On June 30, 2019, the Company entered into a private placement agreement of Australian dollar ("A$") denominated long-term fixed rate debt of A$310,000. The A$310,000 of long-term fixed rate debt includes A$155,000, 3.10% Series A Guaranteed Senior Note maturing on June 30, 2024 and A$155,000, 3.43% Series B Guaranteed Senior Note maturing on June 30, 2026.
All borrowings require the Company to comply with a financial covenant with respect to a maximum debt to EBITDA ratio. At June 30, 2019, the Company was in compliance with all such covenants. For information on the Company's other credit facilities please see the Company's 2018 Annual Report on Form 10-K.
9. Derivatives and Hedging
The Company is exposed to various risks arising from business operations and market conditions, including fluctuations in interest rates and certain foreign currencies. When deemed appropriate, the Company uses derivative and non-derivative instruments as risk management tools to mitigate the potential impact of interest rate and foreign exchange rate risks. The objective of using these tools is to reduce fluctuations in the Company’s earnings and cash flows associated with changes in these rates. Derivative financial instruments are not used for trading or other speculative purposes. The Company has not historically incurred, and does not expect to incur in the future, any losses as a result of counterparty default related to derivative instruments.
The Company formally documents relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking cash flow hedges to specific forecasted transactions or variability of cash flow to be paid. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the designated derivative and non-derivative instruments that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items. When a designated instrument is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, hedge accounting is discontinued prospectively.
Cash Flow Hedges
In July 2018 and February 2019, the Company entered into interest rate swaps to mitigate variability in forecasted interest payments on $500,000 and $300,000, respectively, of the Company’s U.S. dollar-denominated unsecured variable rate debt. The interest rate swaps effectively convert a portion of the floating rate interest payment into a fixed rate interest payment. The Company designated the interest rate swaps as qualifying hedging instruments and accounts for these derivatives as cash flow hedges. The fair values of the interest rate cash flow hedges were not material as of June 30, 2019. Gains or losses related to the interest rate cash flow hedges were not material during the three and six months ended June 30, 2019.

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Hedges of Net Investments in Foreign Operations
In July 2018, concurrent with the cash flow hedge described above, the Company entered into a cross-currency interest rate swap agreement to effectively convert $500,000 of the U.S. dollar-denominated unsecured variable rate debt to fixed-rate Euro-denominated debt. In February 2019, the Company terminated the cross-currency interest rate swap agreement and entered into a forward contract to effectively convert $800,000 of the U.S. dollar-denominated unsecured debt to Euro-denominated debt. No gains or losses were recognized at termination. The risk management objective of these transactions is to manage foreign currency risk relating to a European subsidiary and reduce the variability in the functional currency equivalent cash flows of the unsecured variable rate debt. The Company designated the instruments as qualifying hedging instruments and accounts for these derivatives as a hedge of the foreign currency exchange rate exposure of an equal amount of the Company's Euro-denominated net investment in a European subsidiary. The fair value of the forward currency hedge was not material as of June 30, 2019. Gains or losses related to the cross-currency interest rate swap and the forward contract were not material during the three and six months ended June 30, 2019.
As of June 30, 2019, the Company also had designated 700,000 of the face value of Euro-denominated debt, a non-derivative financial instrument, as a hedge of the foreign currency exchange rate exposure of an equal amount to the Company's Euro-denominated net investment in a European subsidiary. As of June 30, 2019, the Euro-denominated debt had a total carrying amount of $795,900, which is included in long-term debt in the Company’s condensed consolidated balance sheets. For the three months ended June 30, 2019, the Company recorded a loss, net of tax, of approximately $7,716, and for the six months ended June 30, 2019, the Company recorded a gain, net of tax, of approximately $3,730. For the three and six months ended June 30, 2018, the Company recorded a gain, net of tax, of approximately $32,755 and $16,045, respectively. These amounts are recorded in the cash flow and net investment hedges section of accumulated other comprehensive loss in the Company’s condensed consolidated statements of income and comprehensive income.
The Company did not reclassify any gains or losses related to net investment hedges from accumulated other comprehensive loss into earnings during the three or six months ended June 30, 2019. Amounts would only be reclassified into earnings if the European subsidiary were liquidated, or otherwise disposed.
10. Leased Properties
The Company primarily leases real estate for certain retail stores, distribution centers, office space and land. The Company also leases equipment (primarily vehicles).
Most real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term from one to 20 years. The exercise of lease renewal options is at the Company's discretion. The Company evaluates renewal options at lease inception and on an ongoing basis, and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.
The table below presents the operating lease assets and liabilities recognized on the condensed consolidated balance sheets as of June 30, 2019:
 
 
Balance Sheet Line Item
 
June 30, 2019
Operating lease assets
 
Operating lease assets
 
$
961,975

 
 
 
 
 
Operating lease liabilities:
 
 
 
 
Current operating lease liabilities
 
Other current liabilities
 
$
223,370

Noncurrent operating lease liabilities
 
Operating lease liabilities
 
724,682

Total operating lease liabilities
 
 
 
$
948,052


The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term.
The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. The Company used incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date.

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The Company's weighted average remaining lease term and weighted average discount rate for operating leases as of June 30, 2019 are:
Weighted average remaining lease term (in years)
 
5.47
Weighted average discount rate
 
3.49%

The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liabilities recognized on the condensed consolidated balance sheets as of June 30, 2019:
July 1, 2019 through December 31, 2019
$
144,705

2020
263,440

2021
200,553

2022
147,423

2023
101,241

Thereafter
219,101

Total undiscounted future minimum lease payments
1,076,463

Less: Difference between undiscounted lease payments and discounted operating lease liabilities
128,411

Total operating lease liabilities
$
948,052


Operating lease payments include $22,200 related to options to extend lease terms that are reasonably certain of being exercised.
Operating lease costs were $76,899 and $157,386 for the three and six months ended June 30, 2019, respectively. Operating lease costs are included within selling, administrative and other expenses on the condensed consolidated statements of income and comprehensive income. Short-term lease costs, variable lease costs and sublease income were not material for the periods presented.
Cash paid for amounts included in the measurement of operating lease liabilities were $150,882 for the six months ended June 30, 2019, and this amount is included in operating activities in the condensed consolidated statements of cash flows. Operating lease assets obtained in exchange for new operating lease liabilities were $113,771 for the six months ended June 30, 2019.
11. Legal Matters
As more fully discussed in the legal matter footnote of the Company's notes to the consolidated financial statements in its 2018 Annual Report on Form 10-K, a jury awarded damages against the Company in a litigated automotive product liability dispute. At the time of the filing of these financial statements, based upon the Company’s legal defenses, insurance coverage, and reserves, the Company does not believe this matter will have a material impact to the condensed consolidated financial statements.
12. Acquisitions and Divestitures
Acquisitions
The Company acquired several businesses for approximately $378,744, net of cash acquired, during the six months ended June 30, 2019. These included Hennig Fahrzeugteile Group, Parts Point Group and several bolt-on acquisitions in the Automotive Parts Group and Axis New England and Axis New York in the Industrial Parts Group.
The Company has recognized the preliminary, estimated fair values of the assets acquired and liabilities assumed at the acquisition dates for these businesses. Additional adjustments may be made to the acquisition accounting during the measurement period primarily related to intangible asset revaluations, tax accounting and leases.
As a subsequent event, in July 2019, the Company acquired several businesses including the remaining 65% equity investment in Inenco Group ("Inenco"). Inenco is one of Australasia's leading industrial distributors of key product categories such as bearings, power transmission and seals and it generates estimated annual revenues of approximately $400 million. Inenco is a part of the Industrial Parts Group.
Divestitures
Grupo Auto Todo
On March 7, 2019, the Company sold all of the equity of Grupo Auto Todo, a Mexican subsidiary within the Automotive Parts Group. Grupo Auto Todo contributed approximately $93,000 of revenues for the year ended December 31, 2018. The Company

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incurred realized currency losses of $27,037 from this transaction during the six months ended June 30, 2019. The realized currency losses are included in the line item "other" within non-operating expenses (income) on the condensed consolidated statements of income and comprehensive income.
13. Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentations.
14. Earnings Per Share
As more fully discussed in the share-based compensation footnote of the Company’s notes to the consolidated financial statements in its 2018 Annual Report on Form 10-K, the Company maintains various long-term incentive plans, which provide for the granting of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance awards, dividend equivalents and other share-based awards. Options to purchase approximately 247 and 135 shares of common stock were outstanding but excluded from the computations of diluted earnings per share for the three and six month periods ended June 30, 2019, respectively, as compared to approximately 2,098 and 1,445 for the three and six