8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

October 23, 2020

Date of Report (date of earliest event reported)

GENUINE PARTS COMPANY

(Exact name of registrant as specified in its charter)

GA		001-05690		58-0254510
(State or other jurisdiction of incorporation or organization)		(Commission File Number)		(I.R.S. Employer Identification No.)
2999 WILDWOOD PARKWAY,
ATLANTA,	GA		30339
(Address of principal executive offices)				(Zip Code)

(678) 934-5000

Registrant's telephone number, including area code

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CF.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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. ☐

Item 8.01 Other Events

Effective June 30, 2020, Genuine Parts Company (the “Company”) completed the previously announced divestiture of its Business Products Group by selling Supply Source Enterprises, Inc. (“SSE”) and S.P. Richards Company (“SPR”) in separate transactions (collectively, the “Transactions”). The Business Products Group was previously a reportable segment of the Company. As a result of the divestiture of this segment, beginning in its Quarterly Report on Form 10-Q for the second quarter of 2020, the Company presented the Business Products Group as discontinued operations in its condensed consolidated financial statements for all periods presented. In accordance with accounting principles generally accepted in the United States, the Business Products segment must be retrospectively reclassified to discontinued operations for all prior periods subsequently presented. The Company is filing this Current Report on Form 8-K solely to update the presentation of certain financial information and related disclosures contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“the 2019 Form 10-K”) to reflect: (i) the revised presentation of the Company’s segments into two segments: Automotive and Industrial, as previously reported on Form 10-Q filed on July 30, 2020, and (ii) the reclassification of the historical financial results of the Company’s Business Products Group as discontinued operations as a result of the Transactions.

The results of operations and cash flows for the Business Products Group are reported as discontinued operations for all periods presented and the assets and liabilities being sold as part of the Transactions have been presented in the Company’s consolidated financial statements as assets and liabilities held for sale for all periods presented.

Attached as Exhibits 99.1, 99.2, 99.3 and 99.4 to this Current Report on Form 8-K are the updated “Item 1. Business”, “Item 6. Selected Financial Data”, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data”, respectively, from the 2019 Form 10-K, to reflect the revised segment presentation and the reclassification of the historical financial results of the Business Products Group as discontinued operations.

The information included in Exhibits 99.1, 99.2, 99.3 and 99.4 attached to this Current Report on Form 8-K is presented in connection with the reporting changes described above for the Business Products Group. All other information in our 2019 Form 10-K has not been updated for events or developments that occurred subsequent to the filing of the 2019 Form 10-K with the U.S. Securities and Exchange Commission. For developments since the filing of the 2019 Form 10-K, please refer to the Company's subsequent Current Reports on Form 8-K and Quarterly Reports on From 10-Q. The information in this Form 8-K, including the exhibits, should be read in conjunction with the 2019 Form 10-K and subsequent SEC filings.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

Exhibit Number	Description
23	Consent of Independent Registered Public Accounting Firm
99.1	Item 1. Business
99.2	Item 6. Selected Financial Data
99.3	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
99.4	Item 8. Financial Statements and Supplementary Data
Exhibit 101.INS	XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
104	The cover page from this Current Report on Form 8-K, formatted in inline XBRL

Forward-Looking Statements

Some statements in this report, as well as in other materials we file with the Securities and Exchange Commission (SEC) or otherwise release to the public and in materials that we 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,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Senior officers may also make verbal statements to analysts, investors, the media and others that are forward-looking. These forward-looking statements include, without limitation, our expected ability to operate and protect our workforce during the COVID-19 pandemic, our strategies for growing our automotive and industrial businesses, the execution and effect of our cost savings initiatives, our efforts and initiatives to help us emerge from the pandemic well-positioned, our ongoing efforts to maintain compliance and flexibility under our debt covenants, our liquidity position and actions to maximize cash flow to continue to operate during these highly uncertain times and plans for future cost savings.

The Company cautions that its 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, the extent and duration of the disruption to our business operations caused by the global health crisis associated with the COVID-19 outbreak, 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; the Company’s ability to maintain compliance with its debt covenants; the Company's ability to successfully integrate acquired businesses into the Company and to realize the anticipated synergies and benefits; the Company's ability to successfully divest businesses; the Company's ability to successfully implement its business initiatives in its two business segments; slowing demand for the Company's products; the ability to maintain favorable supplier arrangements and relationships; disruptions in our suppliers' operations, including the impact of COVID-19 on our suppliers as well as our supply chain; changes in national and international legislation or government regulations or policies, including changes to import tariffs, short-term government subsidies, and the unpredictability of such changes and their impact to the Company and its suppliers and customers, data security policies and requirements as well as privacy legislation; changes in general economic conditions, including unemployment, inflation (including the impact of tariffs) or deflation and the United Kingdom's exit from the European Union, commonly known as Brexit, and the unpredictability of the impact following such exit from the European Union; changes in tax policies; volatile exchange rates; volatility in oil prices; significant cost increases, such as rising fuel and freight expenses; the Company's 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 the Company's information systems, as well as other risks and uncertainties discussed in the Company's Annual Report on Form 10-K for 2019, the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020 and from time to time in the Company's subsequent filings with the SEC.

Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its 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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Genuine Parts Company
October 23, 2020	By:	/s/ Carol B. Yancey
		Name: Carol B. Yancey
		Title: Executive Vice President and CFO

Document

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

(1)     Registration Statement (Form S-8 No. 333-21969) pertaining to the Directors’ Deferred Compensation Plan of Genuine Parts Company and Subsidiaries,

(2)    Registration Statement (Form S-8 No. 333-133362) pertaining to the 2006 Long-Term Incentive Plan of Genuine Parts Company and Subsidiaries, and

(3)    Registration Statement (Form S-8 No. 333-204390) pertaining to the 2015 Incentive Plan of Genuine Parts Company and Subsidiaries;

of our report dated February 21, 2020, except for the effects of discontinued operations as discussed in Note 1 and Note 12, as to which the date is October 23, 2020, with respect to the consolidated financial statements of Genuine Parts Company and Subsidiaries, included in this Current Report on Form 8-K.

/s/ Ernst & Young LLP

Atlanta, Georgia

October 23, 2020

Document

Exhibit 99.1

ITEM 1.    BUSINESS.

Genuine Parts Company, a Georgia corporation incorporated on May 7, 1928, is a leading service organization engaged in the distribution of automotive replacement parts and industrial parts, each described in more detail below. In 2019, business was conducted from approximately 3,600 locations throughout North America, Europe, Australia and New Zealand ("Australasia") via an offering of best in class operating and distribution efficiencies, industry leading coverage of consumable/replacement parts, outstanding just-in-time service and enhanced technology solutions. At December 31, 2019, the Company employed approximately 50,000 people worldwide.

As used in this report, the “Company” refers to Genuine Parts Company and its subsidiaries, except as otherwise indicated by the context; and the terms “automotive parts” and “industrial parts” refer to replacement parts in each respective category.

For financial information regarding segments as well as our geographic areas of operation, refer to the segment data footnote in the Notes to Consolidated Financial Statements attached as Exhibit 99.4 to this Current Report on Form 8-K.

AUTOMOTIVE PARTS GROUP

The Automotive Parts Group, the largest segment of the Company, distributes automotive parts and accessory items in North America, Europe and Australasia. The Automotive Parts Group offers complete inventory, cataloging, marketing, training and other programs to the automotive aftermarket in each of these regions to distinguish itself from the competition.

During 2019, the Company’s Automotive Parts Group included National Automotive Parts Association ("NAPA") automotive parts distribution centers and automotive parts stores (“auto parts stores” or “NAPA AUTO PARTS stores”) owned and operated in the United States ("U.S.") by the Company; NAPA and Traction automotive parts distribution centers and auto parts stores in the U.S. and Canada owned and operated by the Company and NAPA Canada/UAP Inc. (“NAPA Canada/UAP”), a wholly-owned subsidiary of the Company; auto parts stores and distribution centers in the U.S. operated by corporations in which the Company owned either a noncontrolling or controlling interest; auto parts stores in Canada operated by corporations in which NAPA Canada/UAP owns a 50% interest; Repco and other automotive parts distribution centers, branches and auto parts stores in Australasia owned and operated by GPC Asia Pacific, a wholly-owned subsidiary of the Company; automotive parts distribution centers and auto parts stores in Europe, owned and operated by Alliance Automotive Group (“AAG”), a wholly-owned subsidiary of the Company; an import automotive parts distribution center in the U.S. owned by the Company and operated by its Altrom America division; an import automotive parts distribution center and branches in Canada owned and operated by Altrom Canada Corporation (“Altrom Canada”), a wholly-owned subsidiary of the Company; distribution centers in the U.S. owned by Balkamp, Inc. (“Balkamp”), a wholly-owned subsidiary of the Company; distribution facilities in the U.S. owned by the Company and operated by its Rayloc division; and an automotive parts distribution center and auto parts stores in Mexico, owned and operated by Autopartes NAPA Mexico ("NAPA Mexico"), a wholly-owned subsidiary of the Company.

The Company’s automotive parts distribution centers distribute replacement parts (other than body parts) for substantially all motor vehicle makes and models in service in the U.S., including imported vehicles, hybrid and electric vehicles, trucks, SUVs, buses, motorcycles, recreational vehicles and farm vehicles. In addition, the Company distributes replacement parts for small engines, farm equipment, marine equipment and heavy duty equipment. The Company’s inventories also include accessory items for such vehicles and equipment, and supply items used by a wide variety of customers in the automotive aftermarket, such as repair shops, service stations, fleet operators, automobile and truck dealers, leasing companies, bus and truck lines, mass merchandisers, farms, industrial concerns and individuals who perform their own maintenance and parts installation.

The Company's automotive parts network was expanded in 2019 via the acquisition of various store groups and automotive operations in North America, Europe and Australasia.

AAG made a number of acquisitions to further expand their automotive operations in 2019, consisting of several small tuck-in businesses and three larger ones. Hennig Fahrzeugteile ("Hennig"), acquired on January 1, 2019, is headquartered in Essen, North Rhine-Westphalia, and is one of Germany's leading suppliers of vehicle parts. Hennig serves more than 9,000 customers, predominantly independent workshops and retailers. In addition, AAG expanded its footprint into the Netherlands and Belgium via the June 1, 2019 acquisition of PartsPoint Group ("PartsPoint"), headquartered in Ede, Netherlands. PartsPoint is a leading distributor of automotive and aftermarket parts and accessories in the Benelux. Finally, AAG reinforced its market share in the heavy duty market in France via the acquisition of Todd Group ("Todd") on October 1, 2019. Todd, based in Normandy, France, is a leading distributor of truck parts and accessories for the heavy-duty aftermarket.

The Company has a 15% interest in Mitchell Repair Information Corporation (“MRIC”), a subsidiary of Snap-on Incorporated. MRIC is a leading automotive diagnostic and repair information company that links North American subscribers to its services and information databases. MRIC’s core product, “Mitchell ON-DEMAND,” is a premier electronic repair information source in the automotive aftermarket.

Distribution System.    In 2019, the Company operated 56 domestic NAPA automotive parts distribution centers located in 39 states and approximately 1,130 domestic company-owned NAPA AUTO PARTS stores located in 44 states. At December 31, 2019, the Company had either a noncontrolling, controlling or other interest in 8 corporations, which operated approximately 256 auto parts stores in 15 states. The Company’s domestic automotive operations have access to approximately 530,000 different parts and related supply items. These items are purchased from more than 100 different suppliers, with approximately 49% of 2019 automotive parts inventories purchased from 10 major suppliers. Since 1931, the Company's domestic operations have had return privileges with most of its suppliers, which have protected the Company from inventory obsolescence.

The Company’s domestic distribution centers serve the company-owned NAPA AUTO PARTS stores and approximately 4,800 independently-owned NAPA AUTO PARTS stores located throughout the U.S. NAPA AUTO PARTS stores, in turn, sell to a wide variety of customers in the automotive aftermarket. Collectively, sales to these independent automotive parts stores account for approximately 61% of the Company’s total U.S. Automotive sales and 22% of the Company’s total sales.

NAPA Canada/UAP, founded in 1926, is a leader in the distribution and marketing of replacement parts and accessories for automobiles and trucks and is also a significant supplier to the mining and forestry industries in Canada. NAPA Canada/UAP operates a network of nine NAPA automotive parts distribution centers, three heavy duty parts distribution centers and one fabrication/remanufacturing facility supplying 592 NAPA stores and 120 Traction wholesalers. The NAPA stores and Traction wholesalers in Canada include 207 company-owned stores, 11 joint ventures and 24 progressive owners in which NAPA Canada/UAP owns a 50% interest and 470 independently owned stores. NAPA and Traction operations supply bannered installers and independent installers in all provinces of Canada, as well as networks of service stations and repair shops operating under the banners of national accounts. NAPA Canada/UAP is a licensee of the NAPA^®^ name in Canada. Additionally, Altrom Canada operates one import automotive parts distribution center and 23 branches, which distribute OE branded products for import vehicles through the NAPA Canada/UAP network.

In Australia and New Zealand, GPC Asia Pacific, originally established in 1922, is a leading distributor of automotive replacement parts and accessories. GPC Asia Pacific operates 12 distribution centers, 406 auto parts stores under the Repco banner, 130 auto parts stores under NAPA, Ashdown Ingram and other banners, and 17 locations associated with AMX/McLeod.

In Mexico, NAPA Mexico owns and operates one distribution center and serves 25 company-owned and 18 independently-owned auto parts stores. NAPA Mexico is a licensee of the NAPA^®^ name in Mexico.

AAG, founded in 1989, is a leading European distributor of vehicle parts, tools, and workshop equipment with its primary operations in six countries in Europe. In France, AAG operates 16 distribution centers and serves 1,057 stores, of which 266 are company-owned, under the banners GROUPAUTO France, Precisium Group, Partner's, and GEF Auto. In the United Kingdom ("U.K."), AAG operates 36 distribution centers and serves 842 stores, of which 226 are company-owned, under the banners GROUPAUTO UK & Ireland and UAN. In Germany, AAG operates nine distribution centers and 29 company-owned stores under the banner Alliance Automotive Group Germany as well as 31 company owned stores under the banner Hennig Fahrzeugteile. In Poland, AAG serves 210 affiliated outlets under the banner GROUPAUTO Polska. In the Netherlands and Belgium, AAG operates through a network of one national distribution center, seven regional warehouses and 195 stores, of which 133 are company owned.

The Company's North American automotive business is supported by several operations that form its Automotive Supply Group. Balkamp, a wholly-owned subsidiary of the Company, distributes a wide variety of replacement parts and accessory items for passenger cars, heavy-duty vehicles, motorcycles and farm equipment. In addition, Balkamp distributes service items such as testing equipment, lubricating equipment, gauges, cleaning supplies, chemicals and supply items used by repair shops, fleets, farms and institutions. Balkamp packages many of the 42,000 products, which constitute the “Balkamp” line of products that are distributed through the NAPA system. These products are categorized into over 238 different product categories purchased from approximately 500 domestic suppliers and over 100 foreign manufacturers. Balkamp provides the NAPA system with over 1,300 SKUs of oils and chemicals. BALKAMP^®^, a federally registered trademark, is important to the sales and marketing promotions of the Balkamp organization.

The Company's Rayloc division operates four facilities focused on providing cost effective, quality service in engineering, cataloging, global sourcing, and distribution. Rayloc delivers over 10,000 part numbers, including brake pads, brake drums, chassis, and bearings through a nationwide distribution network. Products are distributed through the NAPA system under the NAPA^®^ brand name. Rayloc^®^ is a mark licensed to the Company by NAPA.

Additionally, Altrom America distributes OE branded products for import vehicles through the NAPA system.

Finally, the Company operates domestically two TW Distribution heavy duty parts distribution centers which serve 22 company-owned Traction Heavy Duty parts stores located in eight states. This group distributes heavy vehicle parts through the NAPA system and direct to small and large fleet owners and operators.

Products.    The Company’s automotive distribution network provides access to hundreds of thousands of different parts and related supply items. Each item is cataloged and numbered for identification and accessibility. Significant inventories are carried to provide for fast and frequent deliveries to customers. The majority of orders are filled and shipped the same day they are received. The Company does not manufacture any of the products it distributes. The majority of products are distributed in North America under the NAPA^®^ name, a mark licensed to the Company by NAPA, which is important to the sales and marketing of these products. Traction sales also include products distributed under the HD Plus name, a proprietary line of automotive parts for the heavy duty truck market. In Australasia and Europe, products are distributed under several brand names, including many of the national brands.

Service to NAPA AUTO PARTS Stores.    The Company believes that the quality and the range of services provided to its North American automotive parts customers constitute a significant advantage for its automotive parts distribution system. Such services include fast and frequent delivery, parts cataloging (including the use of electronic NAPA AUTO PARTS catalogs) and stock adjustment through a continuing parts classification system which, as initiated by the Company from time to time, allows independent retailers (“jobbers”) to return certain merchandise on a scheduled basis. The Company offers its NAPA AUTO PARTS store customers various management aids, marketing aids and service on topics such as inventory control, cost analysis, accounting procedures, group insurance and retirement benefit plans, as well as marketing conferences and seminars, sales and advertising manuals and training programs.

The Company has developed and refined an inventory classification system to determine optimum distribution center and auto parts store inventory levels for automotive parts stocking based on automotive registrations, usage rates, production statistics, technological advances, including predictive analytics, and other similar factors. This system, which undergoes continuous analytical review, is an integral part of the Company’s inventory control procedures and comprises an important feature of the inventory management services that the Company makes available to its NAPA AUTO PARTS store customers. Over the last 25 years, losses to the Company from obsolescence have been insignificant and the Company attributes this to the successful operation of its classification system, which involves product return privileges with most of its suppliers.

NAPA.    The Company is the sole member of the National Automotive Parts Association, LLC a voluntary association formed in 1925 to promote the distribution of automotive parts for its members. NAPA, which neither buys nor sells automotive parts, functions as a trade association whose sole member in 2019 owned and operated 56 distribution centers located throughout the U.S. NAPA develops marketing concepts and programs that may be used by its members which, at December 31, 2019, includes only the Company. It is not involved in the chain of distribution.

Among the automotive products purchased by the Company from various manufacturers for distribution are certain lines designated, cataloged, advertised and promoted as “NAPA” lines. Generally, the Company is not required to purchase any specific quantity of parts so designated and it may, and does, purchase competitive lines from the same as well as other supply sources.

The Company uses the federally registered trademark NAPA^®^ as part of the trade name of its distribution centers and parts stores. The Company funds NAPA’s national advertising program, which is designed to increase public recognition of the NAPA name and to promote NAPA product lines.

The Company is a party, together with the former members of NAPA, to a consent decree entered by the Federal District Court in Detroit, Michigan, on May 4, 1954. The consent decree enjoins certain practices under the federal antitrust laws, including the use of exclusive agreements with manufacturers of automotive parts, allocation or division of territories among the Company and former NAPA members, fixing of prices or terms of sale for such parts among such members, and agreements to adhere to any uniform policy in selecting parts customers or determining the number and location of, or arrangements with, auto parts customers.

Competition.    The automotive parts distribution business is highly competitive. The Company competes with automobile manufacturers (some of which sell replacement parts for vehicles built by other manufacturers as well as those that they build themselves), automobile dealers, warehouse clubs and large automotive parts retail chains. In addition, the Company competes with the distributing outlets of parts manufacturers, oil companies, mass merchandisers (including national retail chains), and with other parts distributors and retailers, including online retailers. The Automotive Parts Group competes primarily on product offering, service, brand recognition and price. Further information regarding competition in the industry is set forth in “Item 1A. Risk Factors — We face substantial competition in the industries in which we do business” of the Form 10-K filed with the Securities Exchange Commission on February 21, 2020 and the other reports we file with the Securities and Exchange Commission.

INDUSTRIAL PARTS GROUP

The Industrial Parts Group operates in both North America and Australasia. Motion Industries, Inc. (“Motion”), a wholly-owned subsidiary of the Company headquartered in Birmingham, Alabama, operates in North America. Inenco Group ("Inenco"), also a wholly-owned subsidiary of the Company headquartered in Sydney, Australia, operates across Australasia.

Motion distributes industrial replacement parts and related supplies such as bearings, mechanical and electrical power transmission products, industrial automation and robotics, hose, hydraulic and pneumatic components, industrial and safety supplies and material handling products to MRO (maintenance, repair and operation) and OEM (original equipment manufacturer) customers throughout the U.S., Canada and Mexico.

In Canada, industrial parts are distributed by Motion Industries (Canada), Inc. (“Motion Canada”). The Mexican market is served by Motion Mexico S de RL de CV (“Motion Mexico”).

In 2019, Motion served approximately 200,000 customers in all types of industries located throughout North America, including the equipment and machinery, food and beverage, forest products, primary metals, pulp and paper, mining, automotive, oil and gas, petrochemical and pharmaceutical industries; as well as strategically targeted specialty industries such as power generation, alternative energy, government, transportation, ports, and others. Motion services all manufacturing and processing industries with access to a database of 8.7 million parts. Additionally, Motion provides U.S. government agencies access to approximately 72,000 products and replacement parts through a Government Services Administration (GSA) schedule.

The Company's Industrial Parts Group network expanded in 2019 via the acquisition of various tuck-in acquisitions and industrial operations in North America and Australasia. In North America, the Company expanded its industrial operations with two tuck-in acquisitions.

In Australasia, the Company purchased the remaining 65% stake in Inenco, a leading distributor of industrial replacement parts and accessories in Australasia.

The Industrial Parts Group provides customers with supply chain efficiencies achieved through the Company’s On-Site Solutions offering. This service provides inventory management, asset repair and tracking, vendor managed inventory ("VMI"), as well as radio frequency identification ("RFID") asset management of the customer’s inventory. Motion also provides a wide range of services and repairs such as: gearbox and fluid power assembly and repair, process pump assembly and repair, hydraulic drive shaft repair, electrical panel assembly and repair, hose and gasket manufacture and assembly, as well as many other value-added services. A highly developed supply chain with vendor partnerships and connectivity are enhanced by Motion’s leading e-business capabilities, such as MiSupplierConnect, which provides integration between the Company’s information technology network and suppliers’ systems, creating numerous benefits for both the supplier and customer. These services and supply chain efficiencies assist Motion in providing the cost savings that many of its customers require and expect.

Distribution System.    In North America, the Industrial Parts Group stocks and distributes more than 195,000 different items purchased from more than 880 different suppliers. Its service centers provide hydraulic, hose and mechanical repairs for customers. Approximately 40% of total industrial product purchases in 2019 were made from 10 major suppliers. Sales are generated from the Industrial Parts Group’s facilities located in 49 states, Puerto Rico and nine provinces in Canada and Mexico.

In Australasia, the Industrial Parts Group operated a network of distribution centers and branches across Australia, New Zealand, Indonesia and Singapore as of December 31, 2019.

Most branches have warehouse facilities that stock significant amounts of inventory representative of the products used by customers in the respective market areas served.

Products. The Industrial Parts Group distributes a wide variety of parts and products to its customers, which are primarily industrial concerns. Products include such items as hoses, belts, bearings, pulleys, pumps, valves, chains, gears, sprockets, speed reducers, electric motors, industrial supplies, assembly tools, test equipment, adhesives and chemicals. Motion also offers systems and automation products that support sophisticated motion control and process automation for full systems integration of plant equipment. The nature of Motion's business demands the maintenance of adequate inventories and the ability to promptly meet demanding delivery requirements. Virtually all of the products distributed are installed by the customer or used in plant and facility maintenance activities. Most orders are filled immediately from existing stock and deliveries are normally made within 24 hours of receipt of order. The majority of all sales are on open account. Motion has ongoing purchase agreements with many of its national account customers which, collectively, represent approximately 45% of the annual sales volume.

Supply Agreements. Non-exclusive distributor agreements are in effect with most of the Industrial Parts Group’s suppliers. The terms of these agreements vary; however, it has been the experience of the Industrial Parts Group that the custom of the trade is to treat such agreements as continuing until breached by one party or until terminated by mutual consent.

Competition.    The industrial parts distribution business is highly competitive and fragmented. The Industrial Parts Group competes with other distributors specializing in the distribution of such items, general line distributors and others who provide similar services. To a lesser extent, the Industrial Parts Group competes with manufacturers that sell directly to the customer. The Industrial Parts Group competes primarily on the breadth of product offerings, service and price. Further information

regarding competition in the industry is set forth in “Item 1A. Risk Factors — We face substantial competition in the industries in which we do business” of the Form 10-K filed with the Securities Exchange Commission on February 21, 2020 and the other reports we file with the Securities and Exchange Commission.

RECENT UPDATE

We previously reported the results of our Business Products Group as a segment. The Business Products Group was engaged in the wholesale distribution of a broad line of office and other business-related products through a diverse customer base of resellers for use in businesses, schools, offices, and other institutions. Business products fall into the general categories of office furniture, technology products, general office, school supplies, cleaning, janitorial and breakroom supplies, safety and security items, healthcare products and disposable food service products. As further described in the acquisitions, divestitures and discontinued operations footnote in the Notes to Consolidated Financial Statements in Exhibit 99.4 attached to this Form 8-K, effective June 30, 2020, the Company completed the divestiture of its Business Products Group by selling Supply Source Enterprises, Inc. ("SSE") and S.P. Richards Company ("SPR") in separate transactions. The results of operations, financial position and cash flows for the Business Products Group are reported as discontinued operations for all periods presented. Further, as a result of the reclassification of the Business Products Group business to discontinued operations, we now have two segments: the Automotive Group and the Industrial Parts Group. Our description and discussion within this "Item 1. Business" reflect the continuing operations, unless otherwise noted. Our segments are further detailed in segment data footnote in the Notes to Consolidated Financial Statements in Exhibit 99.4 attached to this Form 8-K.

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Document

Exhibit 99.2

ITEM 6.    SELECTED FINANCIAL DATA.

The following table sets forth certain selected historical financial and operating data of the Company as of the dates and for the periods indicated. The following selected financial data are qualified by reference to, and should be read in conjunction with, "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations", as well as "Item 8. Financial Statements and Supplementary Data", attached as Exhibit 99.3 and 99.4, respectively, to this Current Report on Form 8-K. Our historical results are not necessarily indicative of the results that may be expected in the future.

	Year Ended December 31,
(In thousands, except per share data)	2019		2018		2017		2016 (1)		2015 (1)
Net sales	$	17,522,234	$	16,831,605	$	14,396,442	$	15,339,713	$	15,280,044
Cost of goods sold	$	11,662,551	$	11,311,850	$	9,964,967	$	10,740,106	$	10,724,192
Operating and non-operating expenses, net	$	5,000,400	$	4,525,117	$	3,500,828	$	3,525,267	$	3,432,171
Income before taxes	$	859,283	$	994,638	$	930,647	$	1,074,340	$	1,123,681
Income taxes	$	212,808	$	245,104	$	366,864	$	387,100	$	418,009
Net income from continuing operations	$	646,475	$	749,534	$	563,783	$	—	$	—
Net income	$	621,085	$	810,474	$	616,757	$	687,240	$	705,672
Weighted average common shares outstanding during year — assuming dilution	146,417		147,241		147,701		149,804		152,496
Per common share:
Diluted net income from continuing operations	$	4.42	$	5.09	$	3.82	$	4.59	$	4.63
Dividends declared	$	3.05	$	2.88	$	2.70	$	2.63	$	2.46
December 31 closing stock price	$	106.23	$	96.02	$	95.01	$	95.54	$	85.89
Total debt, less current maturities	$	2,802,056	$	2,432,133	$	2,550,020	$	550,000	$	250,000
Total equity	$	3,695,500	$	3,471,991	$	3,464,156	$	3,207,356	$	3,159,242
Total assets	$	14,645,629	$	12,683,040	$	12,412,381	$	8,859,400	$	8,144,771

(1) We elected not to recast the years ended December 31, 2016 and 2015 of the Company's selected financial data for the divested Business Products Group segment as a discontinued operation. As such, the above selected financial data for the years ended December 31, 2016 and 2015 include the results of the divested Business Products Group segment, which impacts the comparability of such periods to the years ended December 31, 2019, 2018 and 2017. Refer to the discontinued operations footnote in the Notes to Consolidated Financial Statements for additional information.

During the fourth quarter of 2019, we approved and began to implement the 2019 Cost Savings Plan, which resulted in recognizing $142.8 million in total restructuring costs and special termination costs primarily related to planned workforce reductions and facility closures and consolidations. Refer to the restructuring footnote in the Notes to Consolidated Financial Statements attached as Exhibit 99.4 to this Current Report on Form 8-K for additional information.

Document

Exhibit 99.3

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis contains forward-looking statements, including, without limitation, statements relating to our plans, strategies, objectives, expectations, intentions and resources. Such forward-looking statements should be read in conjunction with our disclosures under “Item 1A. Risk Factors” of the 2019 Form 10-K filed with the Securities Exchange Commission on February 21, 2020 and the other reports we file with the Securities and Exchange Commission.

RECENT DEVELOPMENTS

Effective June 30, 2020, the Company completed the divestiture of its Business Products Group by selling Supply Source Enterprises, Inc. ("SSE") and S.P. Richards Company ("SPR") in separate transactions. The Business Products Group was previously a reportable segment of the Company. The results of operations, financial position and cash flows for the Business Products Group are reported as discontinued operations for all periods presented. Further, as a result of the reclassification of the Business Products Group business to discontinued operations, the Company now has two segments: the Automotive Group and the Industrial Parts Group. Refer to the acquisitions, divestitures and discontinued operations footnote in the accompanying consolidated financial statements for more information.

OVERVIEW

Genuine Parts Company is a service organization engaged in the global distribution of automotive replacement parts and industrial parts. We have a long tradition of growth dating back to 1928, the year we were founded in Atlanta, Georgia. In 2019, the Company conducted business in North America, Europe and Australasia from approximately 3,600 locations.

The Company's Automotive Parts Group operated in the U.S., Canada, France, the UK, Germany, Poland, the Netherlands, Belgium, Australia and New Zealand in 2019, and accounted for 63% of total revenues for the year. Our Industrial Parts Group entered 2019 with operations in the U.S., Canada, Mexico, and expanded its operations into Australia, New Zealand, Indonesia and Singapore in July 2019 with the addition of the Inenco business. The Industrial Parts Group accounted for 37% of the Company's total revenues in 2019.

At Genuine Parts Company, our mission is to be a world-class service organization and the employer of choice, supplier of choice, valued customer, good corporate citizen and investment of choice. Our strategic financial objectives are intended to align with our mission and drive value for all our stakeholders. Our strategic financial objectives include: (1) top line revenue growth (2) improved operating margin, (3) strong balance sheet and cash flow and (4) effective capital allocation.

Top Line Revenue

The Company's strategy for top line revenue growth includes a combination of organic and acquisitive initiatives designed to outpace the industry, improve the market share in each of our business segments and position the Company for sustained long-term growth. In 2019, this strategy led to 2.1% comparable sales growth and a 5.1% contribution from acquisitions.

Our strategic initiatives also led us to divest of certain non-core businesses determined to be slower-growth and lower-margin operations. These divestitures and the unfavorable impact of foreign currency partially offset our total sales growth for the year.

Operating Margins

The Company targets continuous operating margin improvement each year. In 2019, the competitive dynamics across our businesses, as well as the continued cost pressures and the need to invest in a more productive and efficient cost structure led us to expand and accelerate our initiatives to improve the operating performance of the Company. These efforts produced improved gross margins in 2019 and we believe created a path for significant cost savings in the years ahead.

In October of 2019, the Company approved and began to implement certain restructuring actions across its subsidiaries primarily targeted at simplifying organizational structures and distribution networks (the "2019 Cost Savings Plan"). The Company expects the 2019 Cost Savings Plan to result in $100 million in annualized operating expense reductions by allowing it to more effectively and efficiently manage its businesses. Among other things, the 2019 Cost Savings Plan will result in workforce reductions and facility closures and consolidations. The Company executed a voluntary retirement program ("VRP") for its U.S. and Canadian subsidiaries in the fourth quarter of 2019 in connection with this plan.

Balance Sheet and Cash Flow

The Company is focused on maintaining a strong balance sheet and generating strong cash flows to support our growth initiatives. In 2019, we deployed less total working capital and improved our working capital efficiency, or working capital as a percent of total revenues, to 9%.

The Company generated $832.5 million in cash from operations and also benefited from cash proceeds associated with the sale of certain non-core businesses in 2019, as noted before. We utilized our cash for effective capital allocation.

Capital Allocation

In 2019, we used cash for key investments in the form of capital expenditures and accretive acquisitions, as well as the return of capital to our shareholders via cash dividends and opportunistic share repurchases.

KEY BUSINESS METRIC

We consider comparable sales to be a key business metric because management has evaluated its results of operations using this metric and believes that it provides additional perspective and insight when analyzing the operating performance of the Company from period to period and trends in its historical operating results. Comparable sales (also called organic sales or core sales) refer to period-over-period comparisons of our net sales excluding the impact of acquisitions, divestitures and foreign currency. The Company considers this metric useful to investors because it provides greater transparency into management’s view and assessment of the Company’s core ongoing operations. This is a metric that is widely used by analysts, investors and competitors in our industry, although our calculation of the metric may not be comparable to similar measures disclosed by other companies, because not all companies and analysts calculate this metric in the same manner. This metric should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented in this report.

RESULTS OF OPERATIONS

Our results of operations are summarized below for the years ended December 31, 2019, 2018 and 2017. Our historical results are not necessarily indicative of the results that may be expected in the future.

	Year Ended December 31,
(In thousands, except per share data)	2019		2018		2017
Net sales	$	17,522,234	$	16,831,605	$	14,396,442
Gross margin	$	5,859,683	$	5,519,755	$	4,431,475
Net income from continuing operations	$	646,475	$	749,534	$	563,783
Diluted net income from continuing operations per common share	$	4.42	$	5.09	$	3.82

Net Sales

Consolidated net sales for the year ended December 31, 2019 totaled $17.5 billion, up 4.1% from 2018. 2019 net sales included an approximate 5.1% contribution from acquisitions, net of store closures and an approximate 2.1% increase in core sales. The Company's sale of certain non-core businesses determined to be slower-growth and lower-margin operations partially offset total sales by 1.6%. Additionally, the unfavorable impact of foreign currency partially offset total sales by 1.5%. Consolidated net sales for the year ended December 31, 2018 totaled $16.8 billion, up 16.9% from 2017. Net sales for 2018 included an approximate 12.7% contribution from acquisitions, net of store closures, and an approximate 4.1% increase in core sales.

The Company's core sales growth, which represents the Company's comparable sales, included both the increase in sales volume and product inflation. The impact of product inflation varied by business segment, with prices up approximately 2.4% in the U.S. Automotive and Industrial segments in 2019, all of which was effective over the second half of the year. In 2018, the U.S. Automotive segment was up 1.8% and the Industrial segment was up approximately 3.8%.

Automotive Group

Net sales for the Automotive Group (“Automotive”) were $11.0 billion in 2019, a 4.4% increase from 2018. The increase in sales consists of an approximate 5.0% contribution from acquisitions, a 2.3% comparable sales increase and a 2.3% negative impact of currency translation associated with our automotive businesses in Canada, Australasia, Europe and Mexico. In addition, the sale of Auto Todo in 2019, the Company's legacy automotive business in Mexico, slightly offset total sales for the Automotive Group.

Automotive sales were positively impacted by product inflation of 2.4% in the U.S. operations. In 2019, total Automotive revenues were up approximately 2.3% in the first quarter, up 1.4% in the second quarter, up 5.3% in the third quarter and up 8.7% in the fourth quarter, with the higher third and fourth quarter increases due to the positive impact of various acquisitions. In particular, we expanded our European footprint in June with the acquisition of PartsPoint Group in the Netherlands and Belgium. Sound industry fundamentals and effective growth strategies drove organic growth of approximately 3% or more in the U.S., Canada and Australasia. This was offset by core sales declines in our European operations, which faced several challenges in 2019 primarily related to regional economic and geopolitical concerns. Our team in Europe worked throughout the year to navigate these challenges, resulting in improved sales trends in Europe in the last half of the year.

Net sales for the Automotive Group were $10.5 billion in 2018, a 22.6% increase from 2017. The increase in sales for the year consists of an approximate 20% contribution from acquisitions, a 2.5% comparable sales increase and a slight negative impact of currency translation associated with our automotive businesses in Canada, Australasia, Europe and Mexico. Automotive sales were positively impacted by product inflation of 1.8% in the U.S. operations, although the majority of these supplier price increases became effective in the fourth quarter of 2018 and would not be reflected in our comparable sales increase. In 2018, total Automotive revenues were up approximately 30% in the first quarter, up 28% in the second quarter, up 23% in the third quarter and up 11% in the fourth quarter, with the lower fourth quarter increase due to the impact of the Alliance Automotive Group ("AAG") acquisition, which anniversaried on November 2, 2018. In 2018, the sales environment for the automotive aftermarket was condusive to growth. Our international markets, including Europe, Australasia, Canada and Mexico, remained steady, and conditions in the U.S. aftermarket gradually improved during the year.

Industrial Parts Group

Net sales for the Industrial Parts Group (“Industrial”) were $6.5 billion in 2019, up 3.6% from 2018. The increase in sales reflects an approximate 5.2% contribution from acquisitions and a 1.7% increase in comparable sales, offset by an approximate 3.1% decrease in net sales related to the sale of EIS, a non-core component of the industrial business due to its slower-growth and lower-margin profile. Total Industrial sales were positively impacted by product inflation of 2.4%, as a portion of this increase was passed through to customers and is included in the comparable sales increase. Industrial revenues were up approximately 5.7% in the first quarter of 2019, up 4.9% in the second quarter, up 9.9% in the third quarter and down 5.9% in the fourth quarter. These quarterly results reflect the impact of several factors, including the slowing trend in the industrial economy throughout the course of the year, as evidenced by weakening economic indicators such as Manufacturing Industrial Production and the Purchasing Managers Index, among others. In addition, the July acquisition of Inenco, one of Australasia's leading industrial distributors, and the sale of EIS on September 30, 2019, impacted the quarterly sales comparisons for the Industrial Group in 2019.

Net sales for the Industrial Parts Group, were $6.3 billion in 2018, up 8.5% from 2017. The increase in sales for the year reflects an approximate 6.5% comparable sales increase and an approximate 2% contribution from acquisitions. Total Industrial sales were also positively impacted by product inflation of 3.8%, as a portion of this increase, depending on its effective date, is passed through to customers and is included in the comparable sales increase. Industrial revenues were up approximately 8% in the first quarter of 2018, up 9% in the second quarter, up 8% in the third quarter and up 9% in the fourth quarter. These strong quarterly increases correlate to the ongoing strength in the industrial economy throughout the year.

Cost of Goods Sold

The Company includes in cost of goods sold the actual cost of merchandise, which represents the vast majority of this line item. Other items in cost of goods sold include warranty costs and in-bound freight from the suppliers, net of any vendor allowances and incentives. Cost of goods sold was $11.7 billion in 2019, a 3.1% increase from $11.3 billion in 2018. The increase in cost of goods sold in 2019 compares to a 4.1% total sales increase and is a positive reflection of our global supply chain initiatives, the lower cost of goods sold models at certain acquired companies such as PartsPoint and Inenco, and the sale of the lower margin EIS business. These items were slightly offset by relatively unchanged levels of supplier incentives in 2019 compared to 2018. Cost of goods sold represented 66.6% of net sales in 2019, decreasing from 67.2% of net sales in 2018.

Cost of goods sold was $11.3 billion in 2018 and $10.0 billion in 2017. Cost of goods sold in 2018 and 2017 changed from the prior year periods in accordance with the related percentage change in sales for the same periods. The increases for these periods were partially offset by the favorable impact of the lower cost of goods sold model at AAG as well as at certain other acquired companies and the improvement in the automotive and industrial businesses. Primarily, the improvement in these businesses relates to the change in supplier incentives associated with higher purchasing volumes and product mix. Cost of goods sold represented 69.2% of net sales in 2017.

In 2019, 2018 and 2017, each of the Company's business segments experienced vendor price increases. In 2019, tariffs on certain goods sourced directly or indirectly from China were a contributing factor in the price increases for the automotive segment. Historically where we experience price increases, we have been able to work with our customers to pass most of these increases along to them.

Operating Expenses

The Company includes in selling, administrative and other expenses (“SG&A”) all personnel and personnel-related costs at its headquarters, distribution centers, stores and branches, which accounts for more than 60% of total SG&A. Additional costs in SG&A include our facilities, delivery, marketing, advertising, technology, digital, legal and professional costs.

SG&A of $4.6 billion in 2019 increased by $0.3 billion or approximately 7.9% from 2018. This represents 26.1% of net sales in 2019 compared to 25.2% of net sales in 2018. The increase in SG&A expenses from the prior year reflects a combination of factors, including the impact of increased sales for the year. In addition, our expenses reflect the impact of higher cost and higher gross margin models at certain acquired businesses, including PartsPoint and Inenco, as well as the sale

of EIS, which had a lower level of SG&A expenses relative to total sales. We also experienced rising costs in areas such as labor, freight and delivery, insurance, legal and professional and technology for the year, although our labor and freight costs trended more favorably in the fourth quarter. Further, we incurred incremental costs associated with our acquisitions during the year. The increase in SG&A expenses as a percentage of net sales in 2019 relative to the prior year reflects the cost increases described above as well as the loss of leverage associated with the 2.1% comparable sales growth for the Company.

To improve on our SG&A expense levels, we continue to execute on our growth initiatives to better leverage our expenses. Additionally, we are working towards a lower cost and highly effective infrastructure via steps to accelerate the integration of our acquisitions, investments to enhance our productivity and innovative strategies to unlock greater savings and efficiencies across our operations.

SG&A of $4.2 billion in 2018 increased by $0.9 billion or approximately 26.3% from 2017. This represents 25.2% of net sales in 2018 compared to 23.3% of net sales in 2017. The increase in SG&A expenses from the prior year reflects a combination of factors, including the impact of increased sales for the year. In addition, our expenses reflect the impact of higher cost, and higher gross margin, models at select acquisitions, including AAG. We also experienced rising costs in areas such as labor, freight and delivery, technology and warehousing. Further, we incurred incremental costs associated with our 23 acquisitions during the year and, in addition, recorded $34.9 million in transaction and other costs primarily associated with the acquisition of AAG and the attempted transaction to spin-off the Company's Business Products Group, net of the favorable impact of a termination fee received. The increase in SG&A expenses as a percentage of net sales in 2018 from the prior year reflect the increases in costs described above as well as the loss of leverage associated with the first half and full year comparable sales growth in the automotive businesses.

Depreciation and amortization expense was $257.3 million in 2019, an increase of approximately $29.7 million, or 13.0%, from 2018, due primarily to the impact of acquisitions and the increase in capital expenditures relative to the prior year. The provision for doubtful accounts was $13.9 million in 2019, a $2.1 million decrease from 2018. We believe the Company is adequately reserved for bad debts at December 31, 2019.

Depreciation and amortization expense was $227.6 million in 2018, an increase of approximately $74.8 million or 48.9% from 2017, due primarily to the impact of acquisitions and the increase in capital expenditures relative to the prior year. The provision for doubtful accounts was $15.9 million in 2018, a $5.5 million increase from 2017.

In addition, the Company approved and began to implement the 2019 Cost Savings Plan discussed above, which resulted in the recognition of $100.0 million in restructuring costs that are accounted for as a component of operating expenses. The restructuring costs are primarily associated with severance and other employee costs, including a voluntary retirement program, and facility and closure costs related to the consolidation of operations. Refer to the restructuring footnote in the Notes to Consolidated Financial Statements for additional information.

If there are sustained declines in macroeconomic or business conditions in future periods affecting the projected earnings and cash flows at our reporting units, among other things, there can be no assurance that goodwill at one or more reporting units may not be impaired. Nonetheless, as of December 31, 2019, we believe the remaining goodwill on our consolidated balance sheet is recoverable at each respective reporting unit.

Non-Operating Expenses and Income

Non-operating expenses included interest expense of $95.6 million in 2019, $101.8 million in 2018 and $41.3 million in 2017. The $6.2 million decrease in interest expense in 2019 reflects the combination of the repayment of debt throughout the year and lower interest rates on certain variable interest debt instruments. The $60.5 million increase in interest expense in 2018 reflects the combination of higher debt levels throughout the year, primarily related to the increase in debt associated with the AAG acquisition on November 2, 2017, and rising interest rates on certain variable interest debt instruments. To offset potential rising interest rates, the Company has entered into interest hedge products to increase our fixed interest rate debt relative to total debt.

The Company recorded $42.8 million in special termination costs related to benefits provided through the Company's defined benefit plans to employees that accepted the VRP package as part of the Company's 2019 Cost Savings Plan. Refer to the restructuring footnote in the Notes to Consolidated Financial Statements for additional information.

In “Other”, the net benefit of interest income, equity method investment income, investment dividends, noncontrolling interests and pension income in 2019 was $86.7 million, an approximate $25.3 million increase in income from the prior year primarily driven by changes in retirement plan valuation. In 2018, the $0.3 million decrease in Other reflects lower interest income, pension income and investments income earned in 2018 relative to 2017.

Income Before Income Taxes

Income before income taxes was $859.3 million in 2019, down 13.6% from 2018. As a percentage of net sales, income before income taxes was 4.9% in 2019 compared to 5.9% in 2018. Income before income taxes was $994.6 million in 2018, up

6.9% from 2017. As a percentage of net sales, income before income taxes, which we refer to as segment margin, was 5.9% in 2018 compared to 6.5% in 2017.

Income before income taxes is used as the measure of segment profit for each business segment. Segment profit is calculated as net sales less operating expenses excluding general corporate expenses, interest expense, equity in income from investees, intangible asset amortization, income attributable to noncontrolling interests and other unallocated amounts that are driven by corporate initiatives. Segment profit as a percent of revenues reflects the segment margin for each business segment.

Automotive Group

Automotive's segment profit decreased 2.8% in 2019 from 2018 and segment margin was 7.6% in 2019 as compared to 8.1% in 2018. The decrease in segment margin reflects the loss of expense leverage due to the 2.3% growth in comparable sales for Automotive. In addition, rising costs in several areas as described above negatively impacted Automotive's segment margin. By geography, the Company's European automotive operations were most challenged in 2019 and primarily account for Automotive's decline in margin for the year.

Automotive segment profit increased 18.5% in 2018 from 2017 and segment margin was 8.1% in 2018 as compared to 8.4% in 2017. The decrease in segment margin reflects the loss of expense leverage due to the 2.5% growth in comparable sales for Automotive. In addition, rising costs in several areas as described above negatively impacted Automotive's segment margin.

Industrial Group

Industrial’s segment profit increased 7.1% in 2019 from 2018 and segment margin was 8.0%, an increase from 7.7% in 2018. The improvement in segment margin for this group primarily reflects the benefit of improved gross margins, despite the slowing sales trend during the year and 1.7% comparable sales growth. 2019 was a transformative year for Industrial, given the the addition of Inenco in Australasia and sale of EIS.

Industrial’s segment profit increased 10.6% in 2018 from 2017 and segment margin was 7.7%, an increase from 7.6% in 2017. The improvement in segment margin for this group primarily reflects the continued benefit of strong sales growth throughout the year, as gross margins benefited from the increase in supplier incentives and rebates and operating expenses were better leveraged.

Income Taxes

The effective income tax rate of 24.8% in 2019 increased from 24.6% in 2018. The increase in rate is primarily due to geographic income tax rate mix shifts and the impact of one-time transaction and other costs, as well as changes in the realizability of future tax benefit adjustments recorded in the comparable periods.

The effective income tax rate of 24.6% in 2018 decreased from 39.4% in 2017. The decrease in rate primarily reflects the positive impact of the lower U.S. federal tax rate described above and the comparative benefit associated with the transition tax expense in 2017, as required by the Tax Cuts and Jobs Act.

Net Income from Continuing Operations

Net income from continuing operations was $646.5 million in 2019, a decrease of 13.7% from $749.5 million in 2018. On a per share diluted basis, net income from continuing operations was $4.42 in 2019, down 13.2% compared to $5.09 in 2018. Net income from continuing operations was 3.7% of net sales in 2019 compared to 4.5% of net sales in 2018. Net income from continuing operations was $749.5 million in 2018, an increase of 32.9% from $563.8 million in 2017. On a per share diluted basis, net income from continuing operations was $5.09 in 2018, up 33.2% compared to $3.82 in 2017. Net income from continuing operations was 4.5% of net sales in 2018 compared to 3.9% of net sales in 2017. Adjusted net income from continuing operations was $776.8 million in 2019, up 0.3% from adjusted net income from continuing operations in 2018. On a per share diluted basis, adjusted net income from continuing operations was $5.31, a 1.0% increase compared to adjusted diluted net income from continuing operations per share of $5.26 in 2018. Adjusted net income from continuing operations was $774.3 million in 2018, up 21.4% from adjusted net income from continuing operations in 2017. On a per share diluted basis, adjusted net income from continuing operations was $5.26, a 21.8% increase compared to adjusted diluted net income from continuing operations per share of $4.32 in 2017. Adjusted net income from continuing operations and adjusted diluted net income from continuing operations per share, both Non-GAAP measures, in 2019 and 2018 exclude those items noted above. See "Non-GAAP Measures" below for more information and for a reconciliation to GAAP.

Non-GAAP Measures

The following table sets forth a reconciliation of net income from continuing operations and diluted net income from continuing operations per common share to adjusted net income from continuing operations and adjusted diluted net income from continuing operations per common share to account for the impact of adjustments. The Company believes that the presentation of adjusted net income from continuing operations and adjusted diluted net income from continuing operations per common share, 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 the Company's core operations. The Company considers these metrics useful to investors because they provide greater transparency into management’s view and assessment of the Company’s ongoing operating performance by removing items management believes are not representative of our continuing operations and may distort our longer-term operating trends. We believe these measures to be useful to 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 the Company’s core operations. The Company does not, nor does it suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information.

	Year Ended December 31,
(In thousands)	2019		2018		2017
GAAP net income from continuing operations	$	646,475	$	749,534	$	563,783
Adjustments:
Restructuring (1)	$	142,780	$	—	$	—
Realized currency and other divestiture losses (2)	34,701		—		—
Gain on equity investment (3)	(38,663)		—		—
Transaction and other costs (4)	31,254		34,930		36,650
Total adjustments	170,072		34,930		36,650
Tax impact of adjustments	(39,704)		(10,170)		(15,738)
Provisional transition tax and deferred tax revaluation (5)	—		—		53,064
Adjusted net income from continuing operations	$	776,843	$	774,294	$	637,759

The table below represent amounts per common share assuming dilution:

	Year Ended December 31,
	2019		2018		2017
GAAP diluted net income from continuing operations per common share	$	4.42	$	5.09	$	3.82
Adjustments:
Restructuring (1)	$	0.98	$	—	$	—
Realized currency and other divestiture losses (2)	0.24		—		—
Gain on equity investment (3)	(0.26)		—		—
Transaction and other costs (4)	0.20		0.24		0.25
Total adjustments	1.16		0.24		0.25
Tax impact of adjustments	(0.27)		(0.07)		(0.11)
Provisional transition tax and deferred tax revaluation (5)	—		—		0.36
Adjusted diluted net income from continuing operations per common share	$	5.31	$	5.26	$	4.32
Weighted average common shares outstanding – assuming dilution	146,417		147,241		147,701

(1) Adjustment reflects restructuring and special termination costs related to the 2019 Cost Savings Plan announced in the fourth quarter of 2019. The costs are primarily associated with severance and other employee costs, including a voluntary retirement program, and facility and closure costs related to the consolidation of operations.

(2) Adjustment reflects realized currency and other divestitures losses primarily related to the sale of EIS and Grupo AutoTodo.

(3) Adjustment relates to the gain recognized upon remeasuring the Company's preexisting 35% equity investment to fair value upon acquiring the remaining equity of Inenco on July 1, 2019.

(4) Adjustment reflects transaction and other costs related to acquisitions and divestitures in 2019.

(5) Adjustment reflects the impact of the Tax Cuts and Jobs Act enacted December 22, 2017.

FINANCIAL CONDITION

The Company’s cash balance of $277.0 million at December 31, 2019 compares to cash of $333.5 million at December 31, 2018, as discussed further below. For the year ended December 31, 2019, the Company used $724.7 million for acquisitions and other investing activities, $438.9 million for dividends paid to the Company’s shareholders, and $277.9 million for investments in the Company via capital expenditures. These items were offset by the Company’s earnings and net cash provided by operating activities.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s sources of capital consist primarily of cash flows from operations, supplemented as necessary by private issuances of debt and bank borrowings. Currently, we believe that our cash on hand and available short-term and long-term sources of capital are sufficient to fund the Company’s operations, including working capital requirements, scheduled debt payments, interest payments, capital expenditures, benefit plan contributions, income tax obligations, dividends, share repurchases and contemplated acquisitions.

The ratio of current assets to current liabilities was 1.24 to 1 at December 31, 2019 and 1.28 to 1 at 2018, and our liquidity position remains solid. We continue to negotiate extended payment dates with our vendors. Certain vendors participate in financing arrangements with financial institutions that allow the vendors to receive payment earlier while we pay the financial institution based on the underlying vendor invoice amounts and due dates. The Company’s total debt outstanding at December 31, 2019 increased by $282.8 million or 9.0% from December 31, 2018, due primarily to additional private placement debt to fund various acquisitions.

Sources and Uses of Cash

A summary of the Company’s consolidated statements of cash flows is as follows:

	Year Ended December 31,
(In thousands)	2019		2018		Change	% Change
Operating activities	$	832,519	$	1,056,722		(21.2)	%
Investing activities	$	(543,595)	$	(469,938)		15.7	%
Financing activities	$	(385,962)	$	(608,830)		(36.6)	%

All values are in US Dollars.

	Year Ended December 31,
(In thousands)	2018		2017		Change	% Change
Operating activities	$	1,056,722	$	754,565		40.0	%
Investing activities	$	(469,938)	$	(1,625,175)		(71.1)	%
Financing activities	$	(608,830)	$	872,059		(169.8)	%

All values are in US Dollars.

Operating Activities

The Company continues to generate cash, and in 2019 net cash provided by operating activities totaled $832.5 million, a $224.2 million, or 21.2%, decrease from 2018. The decrease in cash provided by operating activities was primarily due to the change in working capital in 2019 as compared to 2018, as the Company's increase in accounts payable was less than in the prior year.

In 2018, net cash provided by operating activities totaled $1.1 billion. This reflects a $0.3 billion or 40.0% increase from 2017, and is primarily related to the Company’s ongoing working capital initiatives and the increase in the Company’s net income from continuing operations during 2018. The primary source of cash relates to the Company’s increased payables that are a result of ongoing strategic negotiations with key suppliers. In addition, the Company achieved a $185.8 million increase in net income from continuing operations or 32.9% increase from 2017.

Investing Activities

Net cash used in investing activities was $543.6 million in 2019 compared to $469.9 million in 2018, a $73.7 million, or 15.7%, increase. In 2019, net cash used in investing activities included $724.7 million used for acquisitions of businesses and other investing activities, an increase of $466.9 million, or 181.1%, from 2018, and capital expenditures of $277.9 million, an increase of $51.4 million, or 22.7%, from the prior year. Capital expenditures were in-line with our original estimate of $300 million for the year, and we estimate that cash used for capital expenditures in 2020 will be in the range of $300 million to $330 million. The Company received $434.6 million in proceeds for the divestiture of businesses during the year and $24.4 million in

proceeds from the sale of property, plant and equipment. These items partially offset the net cash used in investing activities described above.

Net cash used in investing activities was $469.9 million in 2018 compared to $1,625.2 million in 2017, a $1,155.2 million or 71.1% decrease. Cash used for acquisitions of businesses and other investing activities in 2018 was $257.8 million, or $1,237.0 million less than in 2017. The decrease in 2018 reflects the Company's smaller acquisitions as compared to the purchase of AAG in 2017. Capital expenditures of $226.5 million in 2018 compare to $148.7 million in 2017.

Financing Activities

Net cash used in financing activities in 2019 totaled $386.0 million, a decrease of $222.9 million, or 36.6%, from the $608.8 million in cash used in financing activities in 2018. Primarily, the decrease reflects the net proceeds from debt issued in 2019 as compared to the net payments on debt in 2018. For the years presented, the Company's financing activities also included the use of cash for dividends paid to shareholders and repurchases of the Company’s common stock. The Company paid dividends to shareholders of $438.9 million and $416.0 million during 2019 and 2018, respectively. During 2019 and 2018, the Company repurchased $74.2 million and $92.0 million, respectively, of the Company’s common stock.

Net cash used in financing activities in 2018 totaled $608.8 million, a decrease of $1,480.9 million or 170% from the $872.1 million in cash provided by financing activities in 2017. The decrease reflects no new debt issuance in 2018 and the paying down of our credit facilities.

Notes and Other Borrowings

The Company maintains a $2.6 billion multi-currency Syndicated Facility Agreement (the "Syndicated Facility") with a consortium of financial institutions, which matures in October 2022 and bears interest at London Inter-bank Offered Rate ("LIBOR") plus a margin, which is based on the Company’s debt to earnings before interest, tax, depreciation and amortization ("EBITDA") ratio. The Company also has the option to increase the borrowing capacity up to an additional $1 billion, as well as an option to decrease the borrowing capacity or terminate the facility with appropriate notice. At December 31, 2019, approximately $1.4 billion was outstanding under this line of credit. Due to the workers’ compensation and insurance reserve requirements in certain states, the Company also had unused letters of credit of approximately $65 million and $64 million outstanding at December 31, 2019 and 2018, respectively.

At December 31, 2019, the Company had unsecured Senior Notes outstanding of $2.0 billion. These borrowings contain covenants related to a maximum debt to EBITDA ratio and certain limitations on additional borrowings. At December 31, 2019, the Company was in compliance with all such covenants. The weighted average interest rate on the Company’s total outstanding borrowings was approximately 2.18% at December 31, 2019 and 2.71% at December 31, 2018. Total interest expense, net of interest income, for all borrowings was $91.4 million, $93.3 million and $38.6 million in 2019, 2018 and 2017, respectively. Refer to the credit facilities footnote in the Notes to Consolidated Financial Statements for more information.

Contractual and Other Obligations

The following table shows the Company’s approximate obligations and commitments, including interest due on credit facilities, to make future payments under specified contractual obligations as of December 31, 2019:

Contractual Obligations

	Payment Due by Period
(In thousands)	Total		Less Than<br>1 Year		1-3 Years		3-5 Years		Over<br>5 Years
Credit facilities	$	3,426,099	$	624,043	$	903,525	$	609,138	$	1,289,393
Operating leases	1,092,181		281,535		415,908		208,284		186,454
Total contractual cash obligations	$	4,518,280	$	905,578	$	1,319,433	$	817,422	$	1,475,847

Due to the uncertainty of the timing of future cash flows associated with the Company’s unrecognized tax benefits at December 31, 2019, the Company is unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $18.3 million of unrecognized tax benefits have been excluded from the contractual obligations table above. Refer to the income taxes footnote in the Notes to Consolidated Financial Statements for a discussion on income taxes.

Purchase orders or contracts for the purchase of inventory and other goods and services are not included in our estimates. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current distribution needs and are fulfilled by our vendors within short time horizons. The Company does not have significant

agreements for the purchase of inventory or other goods specifying minimum quantities or set prices that exceed our expected requirements.

The Company guarantees the borrowings of certain independently owned automotive parts stores (independents) and certain other affiliates in which the Company has a noncontrolling equity ownership interest (affiliates). 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 guarantee. To date, the Company has had no significant losses in connection with guarantees of independents’ and affiliates’ borrowings. The following table shows the Company’s approximate commercial commitments as of December 31, 2019:

Other Commercial Commitments

			Amount of Commitment Expiration per Period
(In thousands)	Total  Amounts<br>Committed		Less Than<br>1 Year		1-3 Years		3-5 Years		Over<br>5 Years
Standby letters of credit	$	65,322	$	65,322	$	—	$	—	$	—
Guaranteed borrowings of independents and affiliates	904,662		514,353		379,039		11,270		—
Total commercial commitments	$	969,984	$	579,675	$	379,039	$	11,270	$	—

In addition, the Company sponsors defined benefit pension plans that may obligate us to make contributions to the plans from time to time. Contributions in 2019 were $15.8 million. We expect to make $6.9 million in cash contributions to our qualified defined benefit plans in 2020, however, contributions required for 2020 and future years will depend on a number of unpredictable factors including the market performance of the plans’ assets and future changes in interest rates that affect the actuarial measurement of the plans’ obligations.

Share Repurchases

In 2019, the Company repurchased approximately 0.8 million shares of its common stock and the Company had remaining authority to purchase approximately 15.6 million shares of its common stock at December 31, 2019.

CRITICAL ACCOUNTING POLICIES

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, net sales and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We describe in this section certain critical accounting policies that require us to make significant estimates, assumptions and judgments. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain at the time the estimate is made and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. Management believes the following critical accounting policies reflect its most significant estimates and assumptions used in the preparation of the consolidated financial statements. For further information on the critical accounting policies, see the summary of significant accounting policies footnote in the Notes to Consolidated Financial Statements.

Inventories — Provisions for Slow Moving and Obsolescence

The Company identifies slow moving or obsolete inventories and estimates appropriate provisions related thereto. Historically, these losses have not been significant as the vast majority of the Company’s inventories are not highly susceptible to obsolescence and a majority are eligible for return under various vendor return programs. While the Company has no reason to believe its inventory return privileges will be discontinued in the future, its risk of loss associated with obsolete or slow moving inventories would increase if such were to occur.

Allowance for Doubtful Accounts — Methodology

The Company evaluates the collectability of trade accounts receivable based on a combination of factors. The Company estimates an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience and periodically adjusts this estimate when the Company becomes aware of a specific customer’s inability to meet its financial

obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While the Company has a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which the Company operates could result in higher than expected defaults and, therefore, the need to revise estimates for bad debts. For the years ended December 31, 2019, 2018 and 2017, the Company recorded provisions for doubtful accounts of approximately $13.9 million, $15.9 million, and $10.4 million, respectively.

Consideration Received from Vendors

The Company may enter into agreements at the beginning of each year with many of its vendors that provide for inventory purchase incentives. Generally, the Company earns inventory purchase incentives upon achieving specified volume purchasing levels or other criteria. The Company accrues for the receipt of these incentives as part of its inventory cost based on cumulative purchases of inventory to date and projected inventory purchases through the end of the year. While management believes the Company will continue to receive consideration from vendors in 2020 and beyond, there can be no assurance that vendors will continue to provide comparable amounts of incentives in the future or that we will be able to achieve the specified volumes necessary to take advantage of such incentives.

Impairment of Property, Plant and Equipment and Goodwill and Other Intangible Assets

At least annually, the Company evaluates property, plant and equipment, goodwill and other intangible assets for potential impairment indicators. The Company’s judgments regarding the existence of impairment indicators are based on market conditions and operational performance, among other factors. Future events could cause the Company to conclude that impairment indicators exist and that assets associated with a particular operation are impaired. Evaluating for impairment also requires the Company to estimate future operating results and cash flows which requires judgment by management. Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations. Refer to the goodwill and other intangible assets footnote of the Notes to Consolidated Financial Statements for further information on the results of the Company's annual goodwill impairment testing.

Employee Benefit Plans

The Company’s benefit plan committees in the U.S. and Canada establish investment policies and strategies and regularly monitor the performance of the Company’s pension plan assets. The plans in Europe are unfunded and therefore there are no plan assets. The pension plan investment strategy implemented by the Company’s management is to achieve long-term objectives and invest the pension assets in accordance with the applicable pension legislation in the U.S. and Canada, as well as fiduciary standards. The long-term primary objectives for the pension plan funds are to provide for a reasonable amount of long-term growth of capital without undue exposure to risk, protect the assets from erosion of purchasing power and provide investment results that meet or exceed the pension plans’ actuarially assumed long-term rates of return. The Company’s investment strategy with respect to pension plan assets is to generate a return in excess of the passive portfolio benchmark (47% S&P 500 Index, 5% Russell Mid Cap Index, 7% Russell 2000 Index, 5% MSCI EAFE Index, 5% DJ Global Moderate Index, 3% MSCI Emerging Market Net, and 28% Barclays U.S. Long Govt/Credit).

We make several critical assumptions in determining our pension plan assets and liabilities and related pension income. We believe the most critical of these assumptions are the expected rate of return on plan assets and the discount rate. Other assumptions we make relate to employee demographic factors such as rate of compensation increases, mortality rates, retirement patterns and turnover rates. Refer to the employee benefit plans footnote of the Notes to Consolidated Financial Statements for more information regarding these assumptions.

Based on the investment policy for the pension plans, as well as an asset study that was performed based on the Company’s asset allocations and future expectations, the Company’s expected rate of return on plan assets for measuring 2020 pension income is 7.11% for the plans. The asset study forecasted expected rates of return for the approximate duration of the Company’s benefit obligations, using capital market data and historical relationships.

The discount rate is chosen as the rate at which pension obligations could be effectively settled and is based on capital market conditions as of the measurement date. We have matched the timing and duration of the expected cash flows of our pension obligations to a yield curve generated from a broad portfolio of high-quality fixed income debt instruments to select our discount rate. Based upon this cash flow matching analysis, we selected a weighted average discount rate for the plans of 3.4% at December 31, 2019.

Net periodic benefit income for our defined benefit pension plans was $16.2 million, $15.8 million, and $12.6 million for the years ended December 31, 2019, 2018 and 2017, respectively. The income associated with the pension plans in 2019, 2018 and 2017 reflects the impact of the hard freeze effective December 31, 2013. No further benefits were provided after this date for additional credited service or earnings and all participants became fully vested as of December 31, 2013. Refer to the employee benefit plans footnote of the Notes to Consolidated Financial Statements for more information regarding employee benefit plans.

Business Combinations

When the Company acquires businesses, it applies the acquisition method of accounting and recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree at their fair values on the acquisition date, which requires significant estimates and assumptions. Goodwill is measured as the excess of the fair value of the consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method requires the Company to record provisional amounts for any items for which the accounting is not complete at the end of a reporting period. The Company must complete the accounting during the measurement period, which cannot exceed one year. Adjustments made during the measurement period could have a material impact on the Company's financial condition and results of operations.

The Company typically measures customer relationship and other intangible assets using an income approach. Significant estimates and assumptions used in this approach include discount rates and certain assumptions that form the basis of the forecasted cash flows expected to be generated from the asset (e.g., future revenue growth rates, operating margins and attrition rates). If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, the Company could record impairment charges. In addition, the Company has estimated the economic lives of certain acquired tangible and intangible assets and these lives are used to calculate depreciation and amortization expense. If the Company's estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired.

Legal and Product Liabilities

The Company accrues for potential losses related to legal disputes, litigation, product liabilities, and regulatory matters when it is probable (more likely than not) that the Company will incur a loss and the amount of the loss can be reasonably estimated.

To calculate product liabilities, the Company estimates potential losses relating to pending claims and also estimates the likelihood of additional, similar claims being filed against the Company in the future. To estimate potential losses on claims that could be filed in the future, the Company considers claims pending against the Company, claim filing rates, the number of codefendants and the extent to which they share in settlements, and the amount of loss by claim type. The estimated losses for pending and potential future claims are calculated on a discounted basis using risk-free interest rates derived from market data about monetary assets with maturities comparable to those of the projected product liabilities. The Company uses an actuarial specialist to assist with measuring its product liabilities. Refer to the commitments and contingencies footnote of the Notes to Consolidated Financial Statements for additional information regarding product liabilities.

Self Insurance

The Company is self-insured for the majority of its group health insurance costs. A reserve for claims incurred but not reported is developed by analyzing historical claims data provided by the Company’s claims administrators. These reserves are included in accrued expenses in the accompanying consolidated balance sheets as the expenses are expected to be paid within one year.

Long-term insurance liabilities consist primarily of reserves for the Company's workers’ compensation program. In addition, the Company carries various large risk deductible workers’ compensation policies for the majority of workers’ compensation liabilities. The Company records the workers’ compensation reserves based on an analysis performed by an independent actuary. The analysis calculates development factors, which are applied to total reserves as provided by the various insurance companies who underwrite the program. While the Company believes that the assumptions used to calculate these liabilities are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect workers’ compensation costs.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amount and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes. In addition, valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. In making this determination, the Company considers all available positive and negative evidence including projected future taxable income, future reversals of existing temporary differences, recent financial operations and tax planning strategies.

The Company recognizes a tax benefit from uncertain tax positions when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Refer to the summary of significant accounting policies footnote in the Notes to Consolidated Financial Statements for information on recent accounting pronouncements.

QUARTERLY RESULTS OF OPERATIONS

The following is a summary of the quarterly results of operations for the years ended December 31, 2019 and 2018. Our historical results are not necessarily indicative of the results that may be expected in the future.

	Three Months Ended
(In thousands, except per share data)	March 31, 2019		June 30, 2019		Sept. 30, 2019		Dec. 31, 2019
Net sales	$	4,259,129	$	4,457,931	$	4,525,284	$	4,279,890
Gross profit	$	1,392,798	$	1,482,704	$	1,505,234	$	1,478,947
Net income from continuing operations	$	145,684	$	209,519	$	212,256	$	79,016
Net income	$	160,250	$	224,430	$	227,487	$	8,918
Earnings per share from continuing operations:
Basic	$	1.00	$	1.43	$	1.46	$	0.54
Diluted	$	0.99	$	1.43	$	1.45	$	0.54
Earnings per share:
Basic	$	1.10	$	1.54	$	1.56	$	0.06
Diluted	$	1.09	$	1.53	$	1.56	$	0.06
	Three Months Ended
---	---	---	---	---	---	---	---	---
(In thousands, except per share data)	March 31, 2018		June 30, 2018		Sept. 30, 2018		Dec. 31, 2018
Net sales	$	4,113,812	$	4,340,568	$	4,228,764	$	4,148,461
Gross profit	$	1,318,514	$	1,405,401	$	1,366,630	$	1,429,210
Net income from continuing operations	$	164,802	$	214,808	$	200,221	$	169,703
Net income	$	176,576	$	226,972	$	220,227	$	186,699
Earnings per share from continuing operations:
Basic	$	1.12	$	1.46	$	1.36	$	1.16
Diluted	$	1.12	$	1.46	$	1.36	$	1.15
Earnings per share:
Basic	$	1.20	$	1.55	$	1.50	$	1.28
Diluted	$	1.20	$	1.54	$	1.49	$	1.27

During the fourth quarter of 2019, we approved and began to implement the 2019 Cost Savings Plan, which resulted in recognizing $142.8 million in total restructuring costs and special termination costs primarily due to planned workforce reductions and facility closures and consolidations. Refer to the restructuring footnote in the Notes to Consolidated Financial Statements for additional information.

We recorded the quarterly earnings per share amounts as if each quarter was a discrete period. As a result, the sum of the basic and diluted earnings per share will not necessarily total the annual basic and diluted earnings per share.

The preparation of interim consolidated financial statements requires management to make estimates and assumptions for 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, the accrual of insurance reserves, 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, which is performed each year-end. Reserves for bad debts, insurance 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. Income taxes are estimated on an interim basis to reflect the impact of tax reform assumptions and other considerations. The estimates and assumptions for interim reporting may change upon final determination at year-end, and such changes may be significant. The effect of these adjustments in 2019 and 2018 was not significant.

12

gpc-20201023_d2

Exhibit 99.4

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

ANNUAL REPORT ON FORM 10-K

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	2
Consolidated Balance Sheets as of December 31, 2019 and 2018	6
Consolidated Statements of Income and Comprehensive Income for the Years Ended December  31, 2019, 2018 and 2017	7
Consolidated Statements of Equity for the Years Ended December 31, 2019, 2018 and 2017	9
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017	10
Notes to Consolidated Financial Statements	11

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Genuine Parts Company and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Genuine Parts Company and Subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income and comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 21, 2020 expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 1 to the consolidated financial statements, the Company changed its method for accounting for leases in 2019. See below for discussion of our related critical audit matter.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

	Valuation of Goodwill
Description of the Matter	As of December 31, 2019, the Company’s goodwill was $2,293,519,000. As disclosed in Note 1 to the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level. For a reporting unit in which the Company concludes, based on the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount (or if the Company elects to skip the optional qualitative assessment), the Company is required to perform a quantitative impairment test, which includes measuring the fair value of the reporting unit and comparing it to the reporting unit’s carrying amount. In the year ended December 31, 2019, the Company recorded a goodwill impairment charge of $81,968,000 related to one of its reporting units as disclosed in Note 2 to the consolidated financial statements. <br><br>Auditing management’s quantitative impairment test for goodwill was complex and judgmental due to the significant estimation required to determine the fair value of a reporting unit. In particular, the fair value estimate was sensitive to significant assumptions, such as changes in the weighted average costs of capital, revenue growth rates, operating margins, working capital and terminal value, which are affected by expectations about future market or economic conditions.
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s review of the significant assumptions described above. <br><br>To test the estimated fair value of the reporting units where the quantitative impairment tests were performed, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. For example, we compared the significant assumptions of the reporting unit to current industry, market and economic trends, to the Company's historical results and those of other guideline companies in the same industry, and to other relevant factors. We involved our valuation specialists to assist in our evaluation of the Company's valuation methodology and significant assumptions. In addition, we assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair values of the reporting units that would result from changes in the assumptions. We also recalculated the resulting impairment charge recorded by the Company.
	Fair Value of Customer Relationships Acquired in Business Combinations
Description of the Matter	As disclosed in Note 12 to the consolidated financial statements, the Company’s cash used in acquisitions of businesses totaled $732,142,000, net of cash acquired, during the year ended December 31, 2019. These acquisitions were accounted for under the acquisition method of accounting for business combinations. For each business combination, the Company allocated the net purchase price to the assets acquired and the liabilities assumed based on their respective fair values as of the date of acquisition, including other intangible assets of $340,799,000. Of the other intangible assets acquired, the largest was customer relationships of $304,302,000. <br><br>Auditing the Company's accounting for business combinations was complex due to the significant estimation uncertainty in the Company’s determination of the fair value of customer relationships. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values of customer relationships to assumptions about the future cash flows that the Company expects to generate from the acquired businesses. The Company used the multi-period excess earnings method under the income approach to measure the customer relationships. The significant assumptions used to estimate the fair value of the customer relationships included discount rates and certain assumptions that form the basis of the forecasted results (e.g., future revenue growth rates, operating margins and attrition rates). The significant assumptions are forward-looking and could be affected by future economic and market conditions.
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant controls over the Company’s process for estimating the fair value of customer relationships, including controls over management's review of the significant assumptions used in the multi-period excess earnings method under the income approach. <br><br>To test the estimated fair value of the customer relationships, we performed audit procedures that included, among others, evaluating the Company's selection and application of the multi-period excess earnings method under the income approach and evaluating the significant assumptions used by the Company. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. For example, we compared the significant assumptions to the historical results of the acquired businesses and to other guideline companies within the same industries. We also performed sensitivity analyses of the significant assumptions, including the future revenue growth rates, operating margins and attrition rates, to evaluate the change in the fair value of the intangible assets resulting from changes in the assumptions.
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	Adoption of New Lease Accounting Standard
Description of the Matter	As discussed above and in Note 1 to the consolidated financial statements, the Company adopted Accounting Standard Codification Topic 842, Leases (“ASC 842”) as of January 1, 2019. The adoption of ASC 842 resulted in the recognition of a right-of-use asset and lease liability on the consolidated balance sheet for substantially all leases, including operating leases. The cumulative effect of adopting the standard resulted in an adjustment to retained earnings of $4,797,000, net of taxes, at the same date. Management elected to adopt ASC 842 using the modified retrospective approach, in which existing leases were recorded at the adoption date, but prior periods were not recast under this approach. As of December 31, 2019, the Company’s right-of-use asset and lease liability were $995,667,000 and $1,011,726,000, respectively, as disclosed in Note 6 to the consolidated financial statements. The right-of-use asset and liability were dependent on management’s determination of incremental borrowing rates (IBRs), which required significant judgment.<br><br><br><br>Auditing the Company's adoption of ASC 842 was especially challenging due to the effort required to ensure the completeness of the lease population and accuracy of lease terms given the significant volume of lease arrangements and subjectivity due to management’s judgment required to estimate its IBRs. Generally, the Company's lease arrangements do not provide an implicit interest rate. Therefore, the Company was required to estimate its IBRs across various currency environments to use as the discount rates when determining its right-of-use asset and lease liability.
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant controls over the Company’s process for implementing the new lease accounting standard. For example, we tested controls over management's process for review of the application of accounting policy elections and over management’s review of the IBRs.<br> <br>To test the Company’s adoption of ASC 842, our audit procedures included, among others, an evaluation of the completeness of the population of contracts that meet the definition of a lease under ASC 842, testing the accuracy of lease terms within the lease information technology system, and testing the accuracy of the Company’s system calculations of initial right-of-use assets and lease liabilities. Additionally, we involved our valuation specialists to test management’s model for estimating the IBRs. Our specialists assisted us in evaluating management’s methodology for developing the IBR, testing significant assumptions, such as currency environment adjustments, and comparing the Company’s IBRs to ranges developed by our specialists based on independently observed data.
	Loss Contingencies Related to Product Liabilities
Description of the Matter	As disclosed in Notes 1 and 11 to the consolidated financial statements, the Company is subject to pending product liability lawsuits primarily resulting from its national distribution of automotive parts and supplies. The Company accrues for loss contingencies related to product liabilities if it is probable that the Company will incur a loss and the loss can be reasonably estimated. The amount accrued for product liabilities as of December 31, 2019 was $146,230,000. <br><br>Auditing the Company’s loss contingencies related to product liabilities was complex due to the significant measurement uncertainty associated with the estimate, management’s application of significant judgment and the use of valuation techniques. In addition, the loss contingencies related to product liabilities are sensitive to significant management assumptions, including the number, type, and severity of claims incurred and estimated to be incurred in future periods.
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant controls over the Company’s process for estimating loss contingencies related to product liabilities. For example, we tested controls over management's review of the significant assumptions described above and the reconciliation of claims data to that used by the Company’s actuarial specialist.<br><br>To test the estimated loss contingencies related to product liabilities, our audit procedures included, among others, assessing the methodology used, testing the significant assumptions, including testing the completeness and accuracy of the underlying data, and comparing significant assumptions to historical claims as well as external data. We evaluated the legal letters obtained from internal and external legal counsel, held discussions with legal counsel, and performed a search for new or contrary evidence affecting the estimate. We involved our actuarial specialists to assist in our evaluation of the methodology and assumptions used by management and to independently develop a range of estimated product liabilities using the Company’s historical data as well as other information available for similar cases. We compared the Company's estimated loss contingencies related to product liabilities to the range developed by our actuarial specialists. We also assessed the adequacy of the Company’s disclosures, included in Notes 1 and 11 to the consolidated financial statements, in relation to these matters.
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/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1948.

Atlanta, Georgia

February 21, 2020, except for the effects of discontinued operations as discussed in Note 1 and Note 12, as to which the date is October 23, 2020

Genuine Parts Company and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Share Data and per Share Amounts)

	As of December 31,
	2019		2018
Assets
Current assets:
Cash and cash equivalents	$	276,992	$	333,547
Trade accounts receivable, net	2,440,252		2,276,728
Merchandise inventories, net	3,443,876		3,211,695
Prepaid expenses and other current assets	1,063,245		1,024,071
Current assets of discontinued operations	714,251		729,649
Total current assets	7,938,616		7,575,690
Goodwill	2,293,519		2,046,820
Other intangible assets, less accumulated amortization	1,492,097		1,327,898
Deferred tax assets	45,921		35,442
Operating lease assets	995,667		—
Other assets	457,350		461,924
Net property, plant, and equipment	1,173,688		994,654
Noncurrent assets of discontinued operations	248,771		240,612
Total assets	$	14,645,629	$	12,683,040
Liabilities and equity
Current liabilities:
Trade accounts payable	$	3,948,000	$	3,825,650
Current portion of debt	624,043		711,147
Dividends payable	110,851		105,369
Other current liabilities	1,493,109		1,050,442
Current liabilities of discontinued operations	218,117		208,125
Total current liabilities	6,394,120		5,900,733
Long-term debt	2,802,056		2,432,133
Operating lease liabilities	756,519		—
Pension and other post-retirement benefit liabilities	249,832		235,228
Deferred tax liabilities	233,044		196,843
Other long-term liabilities	445,652		442,908
Noncurrent liabilities of discontinued operations	68,906		3,204
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 - 145,378,158 shares and 2018 - 145,936,613 shares	145,378		145,937
Additional paid-in capital	98,777		78,380
Accumulated other comprehensive loss	(1,141,308)		(1,115,078)
Retained earnings	4,571,860		4,341,212
Total parent equity	3,674,707		3,450,451
Noncontrolling interests in subsidiaries	20,793		21,540
Total equity	3,695,500		3,471,991
Total liabilities and equity	$	14,645,629	$	12,683,040

See accompanying notes.

Genuine Parts Company and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

(In Thousands, Except per Share Amounts)

	Year Ended December 31,
	2019		2018		2017
Net sales	$	17,522,234	$	16,831,605	$	14,396,442
Cost of goods sold	11,662,551		11,311,850		9,964,967
Gross margin	5,859,683		5,519,755		4,431,475
Operating expenses:
Selling, administrative, and other expenses	4,577,610		4,241,203		3,358,019
Depreciation and amortization	257,263		227,584		152,808
Provision for doubtful accounts	13,876		15,929		10,387
Restructuring costs	100,023		—		—
Goodwill impairment charge	—		—		—
Total operating expenses	4,948,772		4,484,716		3,521,214
Non-operating expenses (income):
Interest expense	95,583		101,796		41,327
Other	(86,712)		(61,395)		(61,713)
Special termination costs	42,757		—		—
Total non-operating expenses (income)	51,628		40,401		(20,386)
Income before income taxes	859,283		994,638		930,647
Income taxes	212,808		245,104		366,864
Net income from continuing operations	$	646,475	$	749,534	$	563,783
Net (loss) income from discontinued operations	(25,390)		60,940		52,974
Net income	$	621,085	$	810,474	$	616,757
Basic earnings per share:
Continuing operations	$	4.44	$	5.11	$	3.83
Discontinued operations	(0.18)		0.42		0.36
Basic earnings per share	$	4.26	$	5.53	$	4.19
Diluted earnings per share:
Continuing operations	$	4.42	$	5.09	$	3.82
Discontinued operations	(0.18)		0.41		0.36
Diluted earnings per share	$	4.24	$	5.50	$	4.18
Weighted average common shares outstanding	145,736		146,657		147,140
Dilutive effect of stock options and nonvested restricted stock awards	681		584		561
Weighted average common shares outstanding — assuming dilution	146,417		147,241		147,701

See accompanying notes.

Genuine Parts Company and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

(In Thousands, Except per Share Amounts)

	Year Ended December 31,
	2019		2018		2017
Net income	$	621,085	$	810,474	$	616,757
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	38,246		(233,235)		137,694
Net gain (loss) on cash flow and net investment hedges, net of income taxes of 2019 — $16,600; 2018 — $10,398; 2017 — $9,711	13,617		28,114		(17,388)
Pension and postretirement benefit adjustments, net of income taxes of 2019 — $5,036; 2018 — $21,297; 2017 — $20,539	44,433		(57,365)		40,123
Other comprehensive income (loss), net of tax	96,296		(262,486)		160,429
Comprehensive income	$	717,381	$	547,988	$	777,186

See accompanying notes.

Genuine Parts Company and Subsidiaries

Consolidated Statements of Equity

(In Thousands, Except Share Data and per Share Amounts)

	Common Stock						Additional<br>Paid-In<br>Capital		Accumulated<br>Other<br>Comprehensive<br>Loss		Retained<br>Earnings		Total<br>Parent<br>Equity		Non-<br>controlling<br>Interests in<br>Subsidiaries		Total<br>Equity
		Shares		Amount
Balance at January 1, 2017	148,410,422		$	148,410	$	56,605	$	(1,013,021)	$	4,001,734	$	3,193,728	$	13,628	$	3,207,356
Net income	—		—		—		—		616,757		616,757		—		616,757
Other comprehensive income, net of tax	—		—		—		160,429		—		160,429		—		160,429
Cash dividends declared, $2.70 per share	—		—		—		—		(396,891)		(396,891)		—		(396,891)
Share-based awards exercised, including tax benefit of $3,134	131,232		132		(5,371)		—		—		(5,239)		—		(5,239)
Share-based compensation	—		—		16,892		—		—		16,892		—		16,892
Purchase of stock	(1,889,039)		(1,889)		—		—		(171,635)		(173,524)		—		(173,524)
Noncontrolling interest activities	—		—		—		—		—		—		38,376		38,376
Balance at December 31, 2017	146,652,615		146,653		68,126		(852,592)		4,049,965		3,412,152		52,004		3,464,156
Net income	—		—		—		—		810,474		810,474		—		810,474
Other comprehensive loss, net of tax	—		—		—		(262,486)		—		(262,486)		—		(262,486)
Cash dividends declared, $2.88 per share	—		—		—		—		(422,352)		(422,352)		—		(422,352)
Share-based awards exercised, including tax benefit of $4,232	235,058		235		(10,462)		—		—		(10,227)		—		(10,227)
Share-based compensation	—		—		20,716		—		—		20,716		—		20,716
Purchase of stock	(951,060)		(951)		—		—		(91,032)		(91,983)		—		(91,983)
Cumulative effect from adoption of ASU No. 2014-09, net of tax	—		—		—		—		(5,843)		(5,843)		—		(5,843)
Noncontrolling interest activities	—		—		—		—		—		—		(30,464)		(30,464)
Balance at December 31, 2018	145,936,613		145,937		78,380		(1,115,078)		4,341,212		3,450,451		21,540		3,471,991
Net income	—		—		—		—		621,085		621,085		—		621,085
Other comprehensive income, net of tax	—		—		—		96,296		—		96,296		—		96,296
Cash dividends declared, $3.05 per share	—		—		—		—		(444,372)		(444,372)		—		(444,372)
Share-based awards exercised, including tax benefit of $4,920	240,568		240		(11,653)		—		—		(11,413)		—		(11,413)
Share-based compensation	—		—		32,050		—		—		32,050		—		32,050
Purchase of stock	(799,023)		(799)		—		—		(73,388)		(74,187)		—		(74,187)
Cumulative effect from adoption of ASU No. 2018-02	—		—		—		(122,526)		122,526		—		—		—
Cumulative effect from adoption of ASU No. 2016-02, net of tax	—		—		—		—		4,797		4,797		—		4,797
Noncontrolling interest activities	—		—		—		—		—		—		(747)		(747)
Balance at December 31, 2019	145,378,158		$	145,378	$	98,777	$	(1,141,308)	$	4,571,860	$	3,674,707	$	20,793	$	3,695,500

See accompanying notes.

Genuine Parts Company and Subsidiaries

Consolidated Statements of Cash Flows

(In Thousands)

	Year Ended December 31,
	2019		2018		2017
Operating activities
Net income	$	621,085	$	810,474	$	616,757
Net (loss) income from discontinued operations	(25,390)		60,940		52,974
Net income from continuing operations	646,475		749,534		563,783
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Depreciation and amortization	257,263		227,584		152,808
Excess tax benefits from share-based compensation	(4,920)		(4,232)		(3,134)
Deferred income taxes	(55,939)		1,593		69,018
Share-based compensation	28,703		17,737		14,031
Realized currency and other divestiture losses	34,701		—		—
Gain on equity investment	(38,663)		—		—
Other operating activities	(17,589)		1,648		(18,097)
Changes in operating assets and liabilities:
Trade accounts receivable, net	(134,163)		(62,103)		(22,722)
Merchandise inventories, net	(54,765)		(74,148)		(19,813)
Trade accounts payable	82,739		357,097		89,543
Other short-term assets and liabilities	11,740		(100,616)		(12,713)
Other long-term assets and liabilities	76,937		(57,372)		(58,139)
Net cash provided by operating activities from continuing operations	832,519		1,056,722		754,565
Investing activities
Purchases of property, plant and equipment	(277,873)		(226,506)		(148,726)
Proceeds from sale of property, plant and equipment	24,387		14,391		18,346
Proceeds from divestitures of businesses	434,609		—		—
Acquisitions of businesses and other investing activities	(724,718)		(257,823)		(1,494,795)
Net cash used in investing activities from continuing operations	(543,595)		(469,938)		(1,625,175)
Financing activities
Proceeds from debt	5,037,168		5,064,291		6,630,294
Payments on debt	(4,897,769)		(5,124,265)		(4,350,222)
Payments on acquired debt of AAG	—		—		(833,775)
Share-based awards exercised	(11,413)		(10,227)		(5,239)
Dividends paid	(438,890)		(415,983)		(395,475)
Purchase of stock	(74,187)		(91,983)		(173,524)
Other financing activities	(871)		(30,663)		—
Net cash (used in) provided by financing activities from continuing operations	(385,962)		(608,830)		872,059
Cash flows from discontinued operations:
Net cash provided by operating activities from discontinued operations	59,491		88,442		60,478
Net cash used in investing activities from discontinued operations	(19,611)		(26,186)		(5,105)
Net cash provided by financing activities from discontinued operations	—		—		—
Net cash provided by discontinued operations	39,880		62,256		55,373
Effect of exchange rate changes on cash	603		(21,562)		15,198
Net (decrease) increase in cash and cash equivalents	(56,555)		18,648		72,020
Cash and cash equivalents at beginning of year	333,547		314,899		242,879
Cash and cash equivalents at end of year	$	276,992	$	333,547	$	314,899
Supplemental disclosures of cash flow information
Cash paid during the year for:
Income taxes	$	303,736	$	236,536	$	298,827
Interest	$	95,281	$	102,131	$	38,401

See accompanying notes.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except per share data)

1. Summary of Significant Accounting Policies

Business

Genuine Parts Company and all of its majority-owned subsidiaries (the "Company") is a distributor of automotive replacement parts and industrial parts. The Company serves a diverse customer base through approximately 3,600 locations in North America, Australasia and Europe and, therefore, has limited exposure from credit losses to any particular customer, region, or industry segment. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company has evaluated subsequent events through the date the financial statements were issued.

Principles of Consolidation

The consolidated financial statements include all of the accounts of the Company. The net income attributable to noncontrolling interests is not material to the Company’s consolidated net income. Intercompany accounts and transactions have been eliminated in consolidation. Effective June 30, 2020, the Company completed the divestiture of its Business Products Group. Refer to the acquisitions, divestitures and discontinued operations footnote for more information. The Company's results of operations for the Business Products Group are reported as discontinued operations and all information related to the discontinued operations has been excluded from the notes to the consolidated financial statements for all periods presented. Net (loss) income from discontinued operations for each period includes all costs that are directly attributable to these businesses and excludes certain corporate overhead costs that were previously allocated. Additionally, revenue from freight services provided by the Automotive Parts Group are grossed up and recast in continuing operations in each period because those sales are continuing with the discontinued operations after the divestiture.

Use of Estimates

The preparation of the consolidated financial statements, in conformity with U.S. generally accepted accounting principles, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates and the differences could be material.

Revenue Recognition

The Company applied ASU 2014-09, using the modified retrospective method effective January 1, 2018. The cumulative effect of initially applying ASU 2014-09 and its amendments resulted in a reduction to the opening retained earnings balance of $8,000 prior to the tax adjustment, at January 1, 2018 and a related adjustment to other current liabilities as of that date. Revenue for periods prior to January 1, 2018 has not been adjusted and continues to be reported under Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition (ASC 605).

The Company primarily recognizes revenue at the point the customer obtains control of the products or services and at an amount that reflects the consideration expected to be received for those products or services. Contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price and recognizes revenue upon delivery or as services are rendered.

Revenue is recognized net of allowances for returns, variable consideration and any taxes collected from customers that will be remitted to governmental authorities. Revenue recognized over time is not significant. Payment terms with customers vary by the type and location of the customer and the products or services offered. The Company does not adjust the promised amount of consideration for the effects of significant financing components based on the expectation that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Arrangements with customers that include payment terms extending beyond one year are not significant. Liabilities for customer incentives, discounts, or rebates are included in other current liabilities in the consolidated balance sheets.

Product Distribution Revenues

The Company generates revenue primarily by distributing products through wholesale and retail channels. For wholesale customers, revenue is recognized when title and control of the goods has passed to the customer. Retail revenue is recognized at the point of sale when the goods are transferred to customers and consideration is received. Shipping and handling activities are

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

performed prior to the customer obtaining control of the products. Costs associated with shipping and handling are considered costs to fulfill a contract and are included in selling, administrative and other expenses in the period they are incurred.

Other Revenues

The Company offers software support, product cataloging, marketing, training and other membership program and support services to certain customers. This revenue is recognized as services are performed. Revenue from these services is recognized over a short duration and the impact to our consolidated financial statements is not significant.

Variable Consideration

The Company’s products are generally sold with a right of return and may include variable consideration in the form of incentives, discounts, credits or rebates. The Company estimates variable consideration based on historical experience to determine the expected amount to which the Company will be entitled in exchange for transferring the promised goods or services to a customer. The Company recognizes estimated variable consideration as an adjustment to the transaction price when control of the related product or service is transferred. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant.

Foreign Currency Translation

The consolidated balance sheets and statements of income and comprehensive income of the Company’s foreign subsidiaries have been translated into U.S. dollars at the current and average exchange rates, respectively. The foreign currency translation adjustment is included as a component of accumulated other comprehensive loss.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.

Trade Accounts Receivable and the Allowance for Doubtful Accounts

The Company evaluates the collectability of trade accounts receivable based on a combination of factors. The Company estimates an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience and periodically adjusts this estimate when the Company becomes aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While the Company has a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which the Company operates could result in higher than expected defaults and, therefore, the need to revise estimates for bad debts. For the years ended December 31, 2019, 2018, and 2017, the Company recorded provisions for doubtful accounts of approximately $13,876, $15,929, and $10,387, respectively. At December 31, 2019 and 2018, the allowance for doubtful accounts was approximately $35,047 and $18,747, respectively.

Merchandise Inventories, Including Consideration Received From Vendors

Merchandise inventories are valued at the lower of cost or net realizable value. Cost is determined by the last-in, first-out ("LIFO") method for a majority of U.S. automotive and industrial parts, and generally by the first-in, first-out ("FIFO") method for certain non-U.S. and other inventories. If the FIFO method had been used for all inventories, cost would have been approximately $531,800 and $479,500 higher than reported at December 31, 2019 and 2018, respectively. During 2019 and 2017, reductions in industrial parts inventories resulted in liquidations of LIFO inventory layers, which reduced cost of goods sold by approximately $10,400 and $2,000, respectively. There were no LIFO liquidations in 2018.

The Company identifies slow moving or obsolete inventories and estimates appropriate provisions related thereto. Historically, these losses have not been significant as the vast majority of the Company’s inventories are not highly susceptible to obsolescence and are eligible for return under various vendor return programs. While the Company has no reason to believe its inventory return privileges will be discontinued in the future, its risk of loss associated with obsolete or slow moving inventories would increase if such were to occur.

The Company enters into agreements at the beginning of each year with many of its vendors that provide for inventory purchase incentives. Generally, the Company earns inventory purchase incentives upon achieving specified volume purchasing levels or other criteria. The Company accrues for the receipt of these incentives as part of its inventory cost based on cumulative purchases of inventory to date and projected inventory purchases through the end of the year. While management believes the Company will continue to receive consideration from vendors in 2020 and beyond, there can be no assurance that vendors will continue to provide comparable amounts of incentives in the future.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist primarily of amounts due from vendors, prepaid expenses, and income and other taxes receivable.

Goodwill

The Company reviews its goodwill annually for impairment in the fourth quarter, or sooner if circumstances indicate that the carrying amount may exceed fair value. The Company tests goodwill for impairment at the reporting unit level, which is an operating segment or a level below an operating segment (a component). A component is a reporting unit if the component constitutes a business for which discrete financial information and operating results are available and management regularly reviews that information. However, the Company may aggregate two or more components of an operating segment into a single reporting unit if the components have similar economic characteristics.

To review goodwill at a reporting unit for impairment, the Company generally elects to first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. Qualitative factors include adverse macroeconomic, industry or market conditions, cost factors, or financial performance. If the Company elects not to perform a qualitative assessment or concludes from its assessment of qualitative factors that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company must perform a quantitative test to evaluate goodwill impairment.

To perform a quantitative test, the Company calculates the fair value of the reporting unit and compares that amount to the reporting unit's carrying value. The Company typically calculates the fair value by using a combination of a market approach and an income approach that is based on a discounted cash flow model. The assumptions used in the market approach generally include benchmark company market multiples and the assumptions used in the income approach generally include the projected cash flows of the reporting unit, which are based on projected revenue growth rates and operating margins, and the estimated weighted average costs of capital, working capital and terminal value. The Company uses inputs and assumptions it believes are consistent with those a hypothetical marketplace participant would use. The Company recognizes goodwill impairment (if any) as the excess of the reporting unit's carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

Refer to the goodwill and other intangible assets footnote for further information on the results of the Company's annual goodwill impairment testing.

Long-Lived Assets Other Than Goodwill

The Company assesses its long-lived assets other than goodwill for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining life of such assets. If these projected cash flows are less than the carrying amount, an impairment would be recognized, resulting in a write-down of assets with a corresponding charge to earnings. Impairment losses, if any, are measured based upon the difference between the carrying amount and the fair value of the assets. For the year ended December 31, 2019, the Company recognized long-lived asset impairments of $5,408 related to certain assets expected to be abandoned in connection with the 2019 Cost Savings Plan (refer to the restructuring footnote for more information). No impairments were recognized in 2018 or 2017.

Other Assets

Other assets consist primarily of cash surrender value of life insurance policies, equity method investments, guarantee fees receivable, and deferred compensation benefits.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation and amortization are primarily determined on a straight-line basis over the following estimated useful lives of each asset: buildings and improvements, 10 to 40 years; machinery and equipment, 5 to 15 years.

Other Current Liabilities

Other current liabilities consist primarily of reserves for sales returns expected within the next year, accrued compensation, accrued customer incentives, accrued income and other taxes, and other reserves for expenses incurred.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

Other Long-term Liabilities

Other long-term liabilities consist primarily of reserves for sales returns expected after the next year, guarantee obligations, accrued taxes and other non-current obligations.

Self-Insurance

The Company is self-insured for the majority its group health insurance costs. A reserve for claims incurred but not reported is developed by analyzing historical claims data provided by the Company’s claims administrators. These reserves are included in accrued expenses in the accompanying consolidated balance sheets as the expenses are expected to be paid within one year.

Long-term insurance liabilities consist primarily of reserves for the Company's workers’ compensation program. In addition, the Company carries various large risk deductible workers’ compensation policies for the majority of workers’ compensation liabilities. The Company records the workers’ compensation reserves based on an analysis performed by an independent actuary. The analysis calculates development factors, which are applied to total reserves as provided by the various insurance companies who underwrite the program. While the Company believes that the assumptions used to calculate these liabilities are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect workers’ compensation costs.

Accumulated Other Comprehensive Loss

The following table presents the amounts that comprise accumulated other comprehensive loss ("AOCL") as well as the changes in those amounts by component for the years ended on December 31, 2019 and 2018:

	Changes in Accumulated Other Comprehensive<br>Loss by Component
	Pension Benefits		Other Post-Retirement Benefits		Cash Flow and Net Investment Hedges		Foreign Currency Translation		Total
Beginning balance, January 1, 2018	$	(567,443)	$	(1,514)	$	(17,388)	$	(266,247)	$	(852,592)
Other comprehensive (loss) income before reclassifications, net of tax	(85,677)		20		26,563		(233,235)		(292,329)
Amounts reclassified from accumulated other comprehensive loss, net of tax	28,581		(289)		1,551		—		29,843
Net current period other comprehensive (loss) income	(57,096)		(269)		28,114		(233,235)		(262,486)
Ending balance, December 31, 2018	(624,539)		(1,783)		10,726		(499,482)		(1,115,078)
Other comprehensive income (loss) before reclassifications, net of tax	22,119		1		11,237		3,545		36,902
Amounts reclassified from accumulated other comprehensive loss, net of tax	22,646		(333)		2,380		34,701		59,394
Net current period other comprehensive income (loss)	44,765		(332)		13,617		38,246		96,296
Cumulative effect from adoption of ASU 2018-02	(122,526)		—		—		—		(122,526)
Ending balance, December 31, 2019	$	(702,300)	$	(2,115)	$	24,343	$	(461,236)	$	(1,141,308)

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 components related to the cash flow and net investment hedges are included in the derivatives and hedging footnote.

Business Combinations

When the Company acquires businesses, it applies the acquisition method of accounting and recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree at their fair values on the acquisition date, which requires significant estimates and assumptions. Goodwill is measured as the excess of the fair value of the consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method requires the Company to record provisional amounts for any items for which the accounting is not complete

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

at the end of a reporting period. The Company must complete the accounting during the measurement period, which cannot exceed one year. Adjustments made during the measurement period could have a material impact on the Company's financial condition and results of operations.

The Company typically measures customer relationship and other intangible assets using an income approach. Significant estimates and assumptions used in this approach include discount rates and certain assumptions that form the basis of the forecasted cash flows expected to be generated from the asset (e.g., future revenue growth rates, operating margins and attrition rates). If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, the Company could record impairment charges. In addition, the Company has estimated the economic lives of certain acquired tangible and intangible assets and these lives are used to calculate depreciation and amortization expense. If the Company's estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired.

Legal and Product Liabilities

The Company accrues for potential losses related to legal disputes, litigation, product liabilities, and regulatory matters when it is probable (more likely than not) that the Company will incur a loss and the amount of the loss can be reasonably estimated.

The amount of the product liability reflects the Company’s reasonable estimate of losses based upon currently known facts. To calculate the liability, the Company estimates potential losses relating to pending claims and also estimates the likelihood of additional, similar claims being filed against the Company in the future. To estimate potential losses on claims that could be filed in the future, the Company considers claims pending against the Company, claim filing rates, the number of codefendants and the extent to which they share in settlements, and the amount of loss by claim type. The estimated losses for pending and potential future claims are calculated on a discounted basis using risk-free interest rates derived from market data about monetary assets with maturities comparable to those of the projected product liabilities. The Company uses an actuarial specialist to assist with measuring its product liabilities.

Fair Value Measurements

The carrying amounts reflected in the 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. At December 31, 2019 and 2018, the fair value of fixed rate debt was approximately $2,013,542 and $1,427,381, 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. At December 31, 2019 and 2018, the carrying value of fixed rate debt, net of debt issuance costs, was $1,945,387 and $1,466,803, respectively, and is included in long-term and short-term debt in the consolidated balance sheets. Derivative instruments are recognized in the 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.

Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analyses of goodwill, other intangible assets, and long-lived assets. These involve fair value measurements on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy (i.e., unobservable pricing inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing an asset or liability).

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, cash flows and net investments in certain foreign subsidiaries 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.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

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.

Shipping and Handling Costs

Shipping and handling costs are classified as selling, administrative and other expenses in the accompanying consolidated statements of income and comprehensive income and totaled approximately $303,900, $278,500, and $183,100, for the years ended December 31, 2019, 2018, and 2017, respectively.

Advertising Costs

Advertising costs are expensed as incurred and totaled $201,600, $203,500, and $164,800 in the years ended December 31, 2019, 2018, and 2017, respectively.

Accounting for Legal Costs

The Company’s legal costs expected to be incurred in connection with loss contingencies are expensed as such costs are incurred.

Share-Based Compensation

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. SARs represent a right to receive upon exercise an amount, payable in shares of common stock, equal to the excess, if any, of the fair market value of the Company’s common stock on the date of exercise over the base value of the grant. The terms of such SARs require net settlement in shares of common stock and do not provide for cash settlement. RSUs represent a contingent right to receive one share of the Company’s common stock at a future date. The majority of awards previously granted vest on a pro-rata basis for periods ranging from one to five years and are expensed accordingly on a straight-line basis. Forfeitures are accounted for as they occur. The Company issues new shares upon exercise or conversion of awards under these plans.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amount and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes. In addition, valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. In making this determination, the Company considers all available positive and negative evidence including projected future taxable income, future reversals of existing temporary differences, recent financial operations and tax planning strategies.

The Company recognizes a tax benefit from uncertain tax positions when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

Net Income from Continuing Operations per Common Share

Basic net income from continuing operations per common share is computed by dividing net income from continuing operations by the weighted average number of common shares outstanding during the year. The computation of diluted net income from continuing operations per common share includes the dilutive effect of stock options, stock appreciation rights and nonvested restricted stock awards options. Options to purchase approximately 210, 1,490, and 1,920 shares of common stock ranging from $85 — $105 per share were outstanding at December 31, 2019, 2018, and 2017, respectively. These options were excluded from the computation of diluted net income from continuing operations per common share because the options’ exercise prices were greater than the average market prices of common stock in each respective year.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

Recent Accounting Pronouncements

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 Company adopted ASU 2016-02 and its amendments as of January 1, 2019 using the modified retrospective method and utilized the optional transition method to apply the legacy guidance in ASC 840, Leases, including its disclosure requirements, in the comparative periods presented. 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 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 increase retained earnings by $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.

Intangibles - Goodwill and Other (Topic 350)

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The ASU simplifies the subsequent measurement of goodwill by eliminating the second step from the goodwill impairment test. ASU 2017-04 requires applying a one-step quantitative test and recording the amount of goodwill impairment as the excess of the reporting unit's carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 does not amend the optional qualitative assessment of goodwill impairment. The Company adopted ASU 2017-04 as of October 1, 2019 and performed its annual evaluation of goodwill in accordance with this standard.

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. On this date the Company currently expects to record an immaterial cumulative effect adjustment to reduce retained earnings as a result of the adoption. The adoption of ASU 2016-13 and its amendments is not expected to have a significant impact 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 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.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop internal-use software. These provisions should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. ASU 2018-15 is effective for periods beginning after December 15, 2019, with an option to adopt early. The adoption of ASU 2018-15 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.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

2. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill during the years ended December 31, 2019 and 2018 by reportable segment, as well as other identifiable intangible assets, are summarized as follows:

	Goodwill
	Automotive		Industrial		Total		Other Intangible Assets, Net
Balance as of January 1, 2018	$	1,765,508	$	306,491	$	2,071,999	$	1,311,165
Additions	55,371		19,213		74,584		164,348
Amortization	—		—		—		(83,489)
Foreign currency translation	(99,056)		(707)		(99,763)		(64,126)
Balance as of December 31, 2018	1,721,823		324,997		2,046,820		1,327,898
Additions	194,561		185,679		380,240		340,799
Divestitures	(294)		(115,437)		(115,731)		(89,030)
Amortization	—		—		—		(92,206)
Impairments	—		—		—		(2,194)
Foreign currency translation	(18,595)		785		(17,810)		6,830
Balance as of December 31, 2019	$	1,897,495	$	396,024	$	2,293,519	$	1,492,097

The Company completed both qualitative and quantitative goodwill assessments as of October 1, 2019.

Due to several factors that developed in the fourth quarter of 2019, the Company performed an interim impairment test as of December 31, 2019 for its Business Products reporting unit and recorded a goodwill impairment charge of $81,968. As such, total goodwill of the Business Products reporting unit is net of $81,968 of accumulated impairment loss. The factors that developed in the fourth quarter of 2019 at the Business Products reporting unit included: (i) greater uncertainty associated with long-term industry trends and the competitive environment and (ii) fourth quarter results, including segment profitability, that were below management expectations due primarily to a reduction in volume with certain national account customers. The Company performed a quantitative goodwill impairment test as of December 31, 2019 and concluded that the full amount of goodwill allocated to the Business Products reporting unit was impaired. Due to the subsequent divestiture of the Business Products reporting unit, its goodwill balance, net of accumulated impairment loss, is classified in noncurrent assets of discontinued operations on the consolidated balance sheet. Further, the impairment charge is classified in net (loss) from discontinued operations in the consolidated statements of income and comprehensive income. Refer to the acquisitions, divestitures and discontinued operations footnote for further information.

The Company determined that the fair values of its remaining reporting units are in excess of their carrying amounts and there were no other indicators that goodwill was impaired.

The gross carrying amounts and accumulated amortization relating to other intangible assets at December 31, 2019 and 2018 are as follows:

	2019										2018
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Customer relationships	$	1,481,470	$	(287,851)	$	1,193,619	$	1,278,499	$	(248,903)	$	1,029,596
Trademarks	334,643		(36,501)		298,142		327,217		(29,643)		297,574
Non-competition agreements	5,268		(4,932)		336		4,989		(4,261)		728
	$	1,821,381	$	(329,284)	$	1,492,097	$	1,610,705	$	(282,807)	$	1,327,898

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

Amortization expense for other intangible assets totaled $92,206, $83,489, and $46,384 for the years ended December 31, 2019, 2018, and 2017, respectively. Estimated other intangible assets amortization expense for the succeeding five years is as follows:

2020	$	93,123
2021	92,797
2022	92,687
2023	91,953
2024	91,105
	$	461,665

3. Property, Plant and Equipment

Property, plant and equipment as of December 31, 2019 and December 31, 2018, consisted of the following:

	2019		2018
Land	$	128,353	$	105,960
Buildings	779,124		715,649
Machinery, equipment and other	1,466,899		1,278,384
Property, plant and equipment, at cost	2,374,376		2,099,993
Less: accumulated depreciation	1,200,688		1,105,339
Property, plant and equipment, net	$	1,173,688	$	994,654

4. Credit Facilities

The principal amounts of the Company’s borrowings subject to variable rates (after consideration of hedging arrangements) totaled approximately $554,902 and $1,176,477 at December 31, 2019 and 2018, respectively. The weighted average interest rate on the Company’s outstanding borrowings was approximately 2.18% and 2.71% at December 31, 2019 and 2018, respectively.

The Company entered into long-term fixed rate debt private placement agreements of €250,000 and Australian dollar ("A$") A$310,000 on May 31, 2019 and June 30, 2019, respectively. The rates of interest and maturity dates related to these agreements are included in the table below.

Certain borrowings require the Company to comply with a financial covenant with respect to a maximum debt to EBITDA ratio. At December 31, 2019, the Company was in compliance with all such covenants. Due to the workers’ compensation and insurance reserve requirements in certain states, the Company also had unused letters of credit of approximately $65,322 and $63,504 outstanding at December 31, 2019 and 2018, respectively.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

Amounts outstanding under the Company’s credit facilities, net of debt issuance costs consist of the following:

	December 31,
	2019		2018
Unsecured Revolving Credit Facility, $1,500,000, LIBOR plus 1.50% variable, due October 30, 2022	$	477,873	$	604,383
Unsecured Term Loan A, $1,100,000, LIBOR plus 1.50% variable, due October 30, 2022	962,500		1,045,000
Unsecured term notes:
July 29, 2016, Series G Senior Unsecured Notes, $50,000, 2.64% fixed, due July 29, 2021	50,000		50,000
December 2, 2013, Series F Senior Unsecured Notes, $250,000, 3.24% fixed, due December 2, 2023	250,000		250,000
June 30, 2019, Series A Senior Unsecured Notes, A$155,000, 3.10% fixed, due June 30, 2024	108,422		—
October 30, 2017, Series J Senior Unsecured Notes, €225,000, 1.40% fixed, due October 30, 2024	252,000		257,468
June 30, 2019, Series B Senior Unsecured Notes, A$155,000, 3.43% fixed, due June 30, 2026	108,422		—
November 30, 2016, Series H Senior Unsecured Notes, $250,000, 3.24% fixed, due November 30, 2026	250,000		250,000
October 30, 2017, Series K Senior Unsecured Notes, €250,000, 1.81% fixed, due October 30, 2027	280,000		286,075
October 30, 2017, Series I Senior Unsecured Notes, $120,000, 3.70% fixed, due October 30, 2027	120,000		120,000
May 31, 2019, Series A Senior Unsecured Notes, €50,000, 1.55% fixed, due May 31, 2029	56,000		—
October 30, 2017, Series L Senior Unsecured Notes, €125,000, 2.02% fixed, due October 30, 2029	140,000		143,038
May 31, 2019, Series B Senior Unsecured Notes, €100,000, 1.74% fixed, due May 31, 2031	112,000		—
October 30, 2017, Series M Senior Unsecured Notes, €100,000, 2.32% fixed, due October 30, 2032	112,000		114,430
May 31, 2019, Series C Senior Unsecured Notes, €100,000, 1.95% fixed, due May 31, 2034	112,000		—
Other unsecured debt	40,340		27,093
Total unsecured debt	3,431,557		3,147,487
Unamortized debt issuance costs	(5,458)		(4,207)
Total debt	3,426,099		3,143,280
Less debt due within one year	624,043		711,147
Long-term debt, excluding current portion	$	2,802,056	$	2,432,133

Approximate maturities under the Company’s credit facilities, net of debt issuance costs, are as follows:

2020	$	624,043
2021	189,573
2022	713,952
2023	249,240
2024	359,898
Thereafter	1,289,393
	$	3,426,099

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

5. Derivatives and Hedging

The following table summarizes the location 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:

		December 31, 2019						December 31, 2018
Instrument	Balance sheet location	Notional		Balance		Notional		Balance
Cash flow hedges:
Interest rate swaps	Other current liabilities	$	800,000	$	24,792	$	500,000	$	6,345
Net investment hedges:
Cross-currency swap	Prepaid expenses and other current assets	$	—	$	—	$	500,000	$	6,006
Forward contracts	Prepaid expenses and other current assets	$	925,810	$	39,965	$	—	$	—
Foreign currency debt	Long-term debt	€	700,000	$	784,000	€	700,000	$	801,010

Cash Flow Hedges

The Company uses interest rate swaps to mitigate variability in forecasted interest payments on a portion 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 designates the interest rate swaps as qualifying hedging instruments and accounts for them as cash flow hedges. Gains and losses from fair value adjustments on the cash flow hedges are initially classified in accumulated other comprehensive loss and are reclassified to interest expense on the dates interest payments are accrued.

Hedges of Net Investments in Foreign Operations

The Company has designated certain derivative instruments and a portion of its foreign currency denominated debt, a non-derivative financial instrument, as hedges of the foreign currency exchange rate exposure of the Company's Euro-denominated net investment in a European subsidiary. The Company applies the spot method to assess the hedge effectiveness of the derivative instruments and this assessment for each instrument excludes the initial value related to the difference at contract inception between the foreign exchange spot rate and the forward rate (i.e., the forward points). The initial value of this excluded component is recognized as a reduction to interest expense in a systematic and rational manner over the term of the derivative instrument. All other changes in value for the net investment hedges are included in accumulated other comprehensive loss and would only be reclassified to earnings if the European subsidiary were liquidated, or otherwise disposed.

The table below presents pre-tax gains and losses related to designated cash flow hedges and net investment hedges:

	Gain (Loss) Recognized in AOCL Before Reclassifications										Gain Recognized in Interest Expense For Excluded Components
	2019		2018		2017		2019		2018		2017
Year Ended December 31,
Cash Flow Hedges:
Interest rate contract	$	(21,972)	$	(7,896)	$	—	$	—	$	—	$	—
Net Investment Hedges:
Cross-currency swap	2,936		6,006		—		2,294		6,740		—
Forward contracts	20,679		—		—		17,892		—		—
Foreign currency debt	17,010		38,850		(27,099)		—		—		—
Total	$	18,653	$	36,960	$	(27,099)	$	20,186	$	6,740	$	—

Amounts reclassified from accumulated other comprehensive loss to interest expense for the periods presented were not material.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

6. 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 or more. 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 locations of the operating lease assets and liabilities on the consolidated balance sheets as of December 31, 2019:

	Balance Sheet Line Item	December 31, 2019
Operating lease assets	Operating lease assets	$	995,667
Operating lease liabilities:
Current operating lease liabilities	Other current liabilities	$	255,207
Noncurrent operating lease liabilities	Operating lease liabilities	756,519
Total operating lease liabilities		$	1,011,726

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.

The Company's weighted average remaining lease term and weighted average discount rate for operating leases as of December 31, 2019 are:

Weighted average remaining lease term (in years)	5.5
Weighted average discount rate	2.82	%

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

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 consolidated balance sheets as of December 31, 2019:

2020	$	281,535
2021	236,652
2022	179,256
2023	127,058
2024	81,226
Thereafter	186,454
Total undiscounted future minimum lease payments	1,092,181
Less: Difference between undiscounted lease payments and discounted operating lease liabilities	80,455
Total operating lease liabilities	$	1,011,726

Operating lease payments include $55,055 related to options to extend lease terms that are reasonably certain of being exercised.

Operating lease costs (as defined under ASU 2016-02) were $310,028 for the year ended December 31, 2019. Operating lease costs are included within selling, administrative and other expenses on the consolidated statements of income and comprehensive income. Short-term lease costs, variable lease costs and sublease income were not material for the periods presented.

Rental expense for operating leases (as defined prior to the adoption of ASU 2016-02) was approximately $334,000 and $278,000 for 2018 and 2017, respectively.

Cash paid for amounts included in the measurement of operating lease liabilities was $311,170 for the year ended December 31, 2019, and this amount is included in operating activities in the consolidated statements of cash flows. Operating lease assets obtained in exchange for new operating lease liabilities were $330,103 for the year ended December 31, 2019.

7. Share-Based Compensation

At December 31, 2019, total compensation cost related to nonvested awards not yet recognized was approximately $38,000. The weighted-average period over which this compensation cost is expected to be recognized is approximately two years. The aggregate intrinsic value for SARs and RSUs outstanding at December 31, 2019 and 2018 was approximately $132,700 and $97,800, respectively. The aggregate intrinsic value for SARs and RSUs vested totaled approximately $58,200 and $41,300 at December 31, 2019 and 2018, respectively. At December 31, 2019, the weighted-average contractual life for outstanding and exercisable SARs and RSUs was 4 years. Share-based compensation costs of $28,703, $17,737, and $14,031, were recorded for the years ended December 31, 2019, 2018, and 2017, respectively. The total income tax benefits recognized in the consolidated statements of income and comprehensive income for share-based compensation arrangements were approximately $8,700, $5,600, and $4,600 for 2019, 2018, and 2017, respectively. There have been no modifications to valuation methodologies or methods during the years ended December 31, 2019, 2018, or 2017.

The fair value of RSUs is based on the price of the Company’s stock on the date of grant. The total fair value of RSUs vested during the years ended December 31, 2019, 2018, and 2017 were $26,200, $20,800, and $15,500, respectively. The Company did not grant SARs for the years ended December 31, 2019 and 2018. For the year ended December 31, 2017, the fair value of SARs granted were estimated using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 2.3%; dividend yield of 2.8%; annual historical volatility factor of the expected market price of the Company’s common stock of 19% for an average expected life of approximately 6 years.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

A summary of the Company’s share-based compensation activity and related information is as follows:

	2019
	Shares (1)	Weighted Average Exercise Price (2)
Outstanding at beginning of year	3,650	$	85
Granted	395	$	—
Exercised	(922)	$	76
Forfeited	(98)	$	92
Outstanding at end of year (3)	3,025	$	88
Exercisable at end of year	2,190	$	87
Shares available for future grants	7,834

(1)Shares include RSUs.

(2)The weighted average exercise price excludes RSUs.

(3)The exercise prices for SARs outstanding as of December 31, 2019 ranged from approximately $43 to $100. The weighted average remaining contractual life of all SARs outstanding is approximately five years.

The weighted average grant date fair value of SARs granted during 2017 was $13.89. The aggregate intrinsic value of SARs and RSUs exercised during the years ended December 31, 2019, 2018, and 2017 was $36,200, $32,600, and $16,800, respectively.

In 2019, the Company granted approximately 395 RSUs. In 2018, the Company granted approximately 360 RSUs. In 2017, the Company granted approximately 746 SARs and 171 RSUs.

A summary of the Company’s nonvested share awards activity is as follows:

Nonvested Share Awards (RSUs)	Shares	Weighted Average Grant Date Fair Value
Nonvested at January 1, 2019	563	$	91
Granted	395	$	100
Vested	(216)	$	94
Forfeited	(65)	$	94
Nonvested at December 31, 2019	677	$	95

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

8. Income Taxes

Significant components of the Company’s deferred tax assets and liabilities are as follows:

	2019		2018
Deferred tax assets related to:
Expenses not yet deducted for tax purposes	$	276,845	$	248,382
Operating lease liabilities	281,853		—
Pension liability not yet deducted for tax purposes	261,909		277,929
Capital loss	18,317		11,944
Net operating loss	38,445		29,785
	877,369		568,040
Deferred tax liabilities related to:
Employee and retiree benefits	215,899		218,019
Inventory	92,577		94,361
Operating lease assets	274,630		—
Other intangible assets	343,649		289,897
Property, plant and equipment	63,518		68,122
Other	38,936		32,947
	1,029,209		703,346
Net deferred tax liability before valuation allowance	(151,840)		(135,306)
Valuation allowance	(35,282)		(26,095)
Total net deferred tax liability	$	(187,122)	$	(161,401)

The Company currently holds approximately $173,515 in net operating losses, of which approximately $122,212 will carry forward indefinitely. The remaining net operating losses of approximately $51,303 will begin to expire in 2024.

The components of income before income taxes are as follows:

	2019		2018		2017
United States	$	613,910	$	712,951	$	737,339
Foreign	245,373		281,687		193,308
Income before income taxes	$	859,283	$	994,638	$	930,647

The components of income tax expense are as follows:

	2019		2018		2017
Current:
Federal	$	162,883	$	130,144	$	225,394
State	45,488		36,457		28,603
Foreign	60,376		76,910		43,849
Deferred:
Federal	(21,617)		13,295		74,197
State	(11,273)		5,427		13,761
Foreign	(23,049)		(17,129)		(18,940)
	$	212,808	$	245,104	$	366,864

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

The reasons for the difference between total tax expense and the amount computed by applying the statutory Federal income tax rate to income before income taxes are as follows:

	2019		2018		2017
Statutory rate applied to income (1)	$	180,449	$	208,874	$	325,742
Plus state income taxes, net of Federal tax benefit	27,030		33,088		27,537
Taxation of foreign operations, net (2)	(17,663)		(7,862)		(33,870)
U.S. tax reform - transition tax (3)	4,492		4,875		37,132
U.S. tax reform - deferred tax remeasurement (3)	—		424		15,932
Foreign rate change - deferred tax remeasurement	6,215		(1,461)		(9,338)
Book tax basis difference in investment	—		(11,944)		—
Valuation allowance	4,503		20,505		1,362
Other	7,782		(1,395)		2,367
	$	212,808	$	245,104	$	366,864

(1)U.S. statutory rates applied to income are as follows: 2019 and 2018 at 21%, 2017 at 35%.

(2)The Company's effective tax rate reflects the net benefit of having operations outside of the U.S. which are taxed at statutory rates different from the U.S. statutory rate, with some income being fully or partially exempt from income taxes due to various operating and financing activities.

(3)Impact of the Tax Cuts and Jobs Act, enacted December 22, 2017.

The Company accounts for Global Intangible Low Taxed income in the year the tax is incurred as a period cost.

The Company, or one of its subsidiaries, files income tax returns in the U.S., various states, and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state and local tax examinations by tax authorities for years before 2015 or subject to non-United States income tax examinations for years ended prior to 2013. The Company is currently under audit in the U.S. and some of its foreign jurisdictions. Some audits may conclude in the next 12 months and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts. It is not possible to estimate the effect, if any, of the amount of such change during the next 12 months to previously recorded uncertain tax positions in connection with the audits. The Company does not anticipate that total unrecognized tax benefits will significantly change in the next 12 months.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

	2019		2018		2017
Balance at beginning of year	$	18,428	$	14,697	$	15,190
Additions based on tax positions related to the current year	3,701		2,034		2,644
Additions for tax positions of prior years	620		4,787		1,511
Reductions for tax positions for prior years	(965)		(725)		(430)
Reduction for lapse in statute of limitations	—		(2,338)		(3,917)
Settlements	(323)		(27)		(301)
Balance at end of year	$	21,461	$	18,428	$	14,697

The amount of gross unrecognized tax benefits, including interest and penalties, as of December 31, 2019 and 2018 was approximately $24,347 and $20,669, respectively, of which approximately $18,286 and $14,760, respectively, if recognized, would affect the effective tax rate.

During the years ended December 31, 2019, 2018, and 2017, the Company paid, received refunds, or accrued insignificant amounts of interest and penalties. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

As of December 31, 2019, the Company estimates that it has an outside basis difference in certain foreign subsidiaries of approximately $900,000, which includes the cumulative undistributed earnings from the Company's foreign subsidiaries. The Company continues to be indefinitely reinvested in this outside basis difference. Determining the amount of net unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practicable. This is due to the complexities associated with the calculation to determine residual taxes on the undistributed earnings, including the availability of foreign tax credits, applicability of any additional local withholding tax and other indirect tax consequences that may arise due to the distribution of these earnings.

9. Employee Benefit Plans

The Company’s defined benefit pension plans cover employees in the U.S., Canada, and Europe who meet eligibility requirements. The plan covering U.S. employees is noncontributory and the Company implemented a hard freeze for the U.S. qualified defined benefit plan as of December 31, 2013. No further benefits were provided after this date for additional credited service or earnings and all participants became fully vested as of December 31, 2013. The Canadian plan is contributory and benefits are based on career average compensation. The Company’s funding policy is to contribute an amount equal to the minimum required contribution under applicable pension legislation. For the plans in the U.S. and Canada, the Company may increase its contribution above the minimum, if appropriate to its tax and cash position and the plans’ funded position. The European plans are funded in accordance with local regulations.

The Company also sponsors supplemental retirement plans covering employees in the U.S. and Canada. The Company uses a measurement date of December 31 for its pension and supplemental retirement plans.

Several assumptions are used to determine the benefit obligations, plan assets, and net periodic income. The discount rate for the U.S. pension plan is calculated using a bond matching approach to select specific bonds that would satisfy the projected benefit payments. The bond matching approach reflects the process that would be used to settle the pension obligations. The discount rate for non U.S. plans are set by using Willis Towers Watson's RATE:Link model. For each plan, this approach reflects yields available on high quality corporate bonds that would generate the cash flow necessary to pay the plan's benefits when due. The expected return on plan assets is based on a calculated market-related value of plan assets, where gains and losses on plan assets are amortized over a five year period and accumulate in other comprehensive income. Other non-investment unrecognized gains and losses are amortized in future net income based on a “corridor” approach, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year. The unrecognized gains and losses in excess of the corridor criteria are amortized over the average future lifetime or service of plan participants, depending on the plan. These assumptions are updated at each annual measurement date.

Changes in benefit obligations for the years ended December 31, 2019 and 2018 were:

	2019		2018
Changes in benefit obligation
Benefit obligation at beginning of year	$	2,278,043	$	2,435,765
Service cost	9,558		10,410
Interest cost	97,441		88,247
Plan participants’ contributions	2,246		2,466
Actuarial loss (gain)	246,352		(122,556)
Foreign currency exchange rate changes	9,073		(18,416)
Gross benefits paid	(119,789)		(118,643)
Plan amendments	3,327		—
Curtailments	(6,569)		—
Settlements	(67,831)		—
Special termination costs	42,757		—
Acquired plans	1,992		770
Benefit obligation at end of year	$	2,496,600	$	2,278,043

The benefit obligations for the Company’s U.S. pension plans included in the above were $2,228,066 and $2,055,701 at December 31, 2019 and 2018, respectively. The total accumulated benefit obligation for the Company’s defined benefit pension

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

plans in the U.S., Canada, and Europe was approximately $2,466,322 and $2,247,013 at December 31, 2019 and 2018, respectively.

The Company recorded $42,757 in special termination costs related to benefits provided through the Company's defined benefit plans to employees that accepted the voluntary retirement program ("VRP") as part of the Company's 2019 Cost Savings Plan. Refer to the restructuring footnote for more information.

The assumptions used to measure the pension benefit obligations for the plans at December 31, 2019 and 2018, were:

	2019		2018
Weighted average discount rate	3.43	%	4.36	%
Rate of increase in future compensation levels	3.13	%	3.14	%

Changes in plan assets for the years ended December 31, 2019 and 2018 were:

	2019		2018
Changes in plan assets
Fair value of plan assets at beginning of year	$	2,043,379	$	2,206,479
Actual return on plan assets	427,597		(86,418)
Foreign currency exchange rate changes	9,826		(18,054)
Employer contributions	15,799		57,549
Plan participants’ contributions	2,246		2,466
Benefits paid	(119,789)		(118,643)
Settlements	(67,831)		—
Fair value of plan assets at end of year	$	2,311,227	$	2,043,379

The fair values of plan assets for the Company’s U.S. pension plans included in the above were $2,051,474 and $1,831,513 at December 31, 2019 and 2018, respectively.

For the years ended December 31, 2019 and 2018, the aggregate benefit obligation and aggregate fair value of plan assets for plans with benefit obligations in excess of plan assets were as follows:

	2019		2018
Aggregate benefit obligation	$	298,565	$	2,106,348
Aggregate fair value of plan assets	$	39,672	$	1,863,245

For the years ended December 31, 2019 and 2018, the aggregate accumulated benefit obligation and aggregate fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets were as follows:

	2019		2018
Aggregate accumulated benefit obligation	$	270,230	$	2,070,183
Aggregate fair value of plan assets	$	39,672	$	1,855,714

The asset allocations for the Company’s funded pension plans at December 31, 2019 and 2018, and the target allocation for 2020, by asset category were:

	Target Allocation		Percentage of Plan Assets at December 31
	2020			2019			2018
Asset Category
Equity securities	68	%	70		%	67		%
Debt securities	32	%	30		%	33		%
	100	%	100		%	100		%

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

The Company’s benefit plan committees in the U.S. and Canada establish investment policies and strategies and regularly monitor the performance of the funds. The plans in Europe are unfunded and, therefore, there are no plan assets. The pension plan strategy implemented by the Company’s management is to achieve long-term objectives and invest the pension assets in accordance with the applicable pension legislation in the U.S. and Canada as well as fiduciary standards. The long-term primary investment objectives for the pension plans are to provide for a reasonable amount of long-term growth of capital, without undue exposure to risk, protect the assets from erosion of purchasing power, and provide investment results that meet or exceed the pension plans’ actuarially assumed long-term rates of return. The Company’s investment strategy with respect to pension plan assets is to generate a return in excess of the passive portfolio benchmark (47% S&P 500 Index, 5% Russell Midcap Index, 7% Russell 2000 Index, 5% MSCI EAFE Index, 5% DJ Global Moderate Index, 3% MSCI Emerging Market Net, and 28% Barclays U.S. Long Govt/Credit).

The fair values of the plan assets as of December 31, 2019 and 2018, by asset category, are shown in the tables below. Various inputs are considered when determining the value of the Company’s pension plan assets. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. Level 1 represents observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 represents other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.). Level 3 represents significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments). Certain investments are measured at fair value using the net asset value ("NAV") per share as a practical expedient and have not been classified in the fair value hierarchy.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

The valuation methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Equity securities are valued at the closing price reported on the active market on which the individual securities are traded on the last day of the calendar plan year. Debt securities including corporate bonds, U.S. Government securities, and asset-backed securities are valued using price evaluations reflecting the bid and/or ask sides of the market for an investment as of the last day of the calendar plan year.

	2019
	Total		Assets Measured at NAV		Quoted Prices<br>in Active<br>Markets for<br>Identical<br>Assets<br>(Level 1)		Significant<br>Observable<br>Inputs<br>(Level 2)		Significant<br>Unobservable<br>Inputs<br>(Level 3)
Equity Securities
Common stocks — mutual funds — equity	$	527,151	$	187,500	$	339,651	$	—	$	—
Genuine Parts Company common stock	214,418		—		214,418		—		—
Other stocks	865,078		—		865,070		—		8
Debt Securities
Short-term investments	34,516		—		34,516		—		—
Cash and equivalents	15,833		—		15,833		—		—
Government bonds	259,939		—		167,394		92,545		—
Corporate bonds	255,352		—		—		255,352		—
Asset-backed and mortgage-backed securities	9,316		—		—		9,316		—
Other-international	27,903		—		27,903		—		—
Municipal bonds	10,153		—		—		10,153		—
Mutual funds—fixed income	89,298		89,298		—		—		—
Other
Cash surrender value of life insurance policies	2,270		—		—		—		2,270
Total	$	2,311,227	$	276,798	$	1,664,785	$	367,366	$	2,278

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

	2018
	Total		Assets Measured at NAV		Quoted Prices<br>in Active<br>Markets for<br>Identical<br>Assets<br>(Level 1)		Significant<br>Observable<br>Inputs<br>(Level 2)		Significant<br>Unobservable<br>Inputs<br>(Level 3)
Equity Securities
Common stocks — mutual funds — equity	$	457,567	$	166,045	$	291,522	$	—	$	—
Genuine Parts Company common stock	193,810		—		193,810		—		—
Other stocks	713,924		—		713,882		—		42
Debt Securities
Short-term investments	30,855		—		30,855		—		—
Cash and equivalents	14,583		—		14,583		—		—
Government bonds	223,750		—		159,483		64,267		—
Corporate bonds	227,616		—		—		227,616		—
Asset-backed and mortgage-backed securities	8,866		—		—		8,866		—
Other-international	29,471		—		29,126		345		—
Municipal bonds	8,747		—		—		8,747		—
Mutual funds—fixed income	131,755		86,443		—		45,312		—
Other
Cash surrender value of life insurance policies	2,435		—		—		—		2,435
Total	$	2,043,379	$	252,488	$	1,433,261	$	355,153	$	2,477

Equity securities include Genuine Parts Company common stock in the amounts of $214,418 (9% of total plan assets) and $193,810 (9% of total plan assets) at December 31, 2019 and 2018, respectively. Dividend payments received by the plan on Company stock totaled approximately $6,156 and $5,813 in 2019 and 2018, respectively. Fees paid during the year for services rendered by parties in interest were based on customary and reasonable rates for such services.

The changes in the fair value measurement of plan assets using significant unobservable inputs (Level 3) during 2019 and 2018 were not material.

Based on the investment policy for the pension plans, as well as an asset study that was performed based on the Company’s asset allocations and future expectations, the Company’s expected rate of return on plan assets for measuring 2020 pension income is 7.11% for the plans. The asset study forecasted expected rates of return for the approximate duration of the Company’s benefit obligations, using capital market data and historical relationships.

The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheets at December 31:

	2019		2018
Other long-term asset	$	73,520	$	8,440
Other current liability	(11,692)		(9,213)
Pension and other post-retirement liabilities	(247,201)		(233,891)
	$	(185,373)	$	(234,664)

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

Amounts recognized in accumulated other comprehensive loss consist of:

	2019		2018
Net actuarial loss	$	952,133	$	1,014,794
Prior service cost	9,343		5,939
	$	961,476	$	1,020,733

The following table reflects the total benefits expected to be paid from the pension plans’ or the Company’s assets. Of the pension benefits expected to be paid in 2020, approximately $11,694 is expected to be paid from employer assets. Expected employer contributions below reflect amounts expected to be contributed to funded plans. Information about the expected cash flows for the pension plans follows:

Employer contribution
2020 (expected)	$	6,943
Expected benefit payments:
2020	$	123,033
2021	$	130,333
2022	$	134,260
2023	$	138,539
2024	$	141,350
2025 through 2029	$	737,591

Net periodic benefit income included the following components:

	2019		2018		2017
Service cost	$	9,558	$	10,410	$	8,459
Interest cost	97,441		88,247		96,651
Expected return on plan assets	(154,137)		(154,006)		(155,432)
Amortization of prior service credit	(67)		(147)		(350)
Amortization of actuarial loss	31,000		39,721		38,034
Net periodic benefit income	$	(16,205)	$	(15,775)	$	(12,638)

Service cost is recorded in selling, administrative and other expenses in the consolidated statements of income and comprehensive income while all other components except for special termination costs are recorded within other non-operating expenses (income). The special termination costs incurred in connection with the 2019 Cost Savings Plan are presented on their own line within non-operating expenses (income).

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) are as follows:

	2019		2018		2017
Current year actuarial (gain) loss	$	(33,677)	$	117,867	$	(27,672)
Recognition of actuarial loss	(31,000)		(39,721)		(38,034)
Current year prior service cost	3,327		—		4,768
Recognition of prior service credit	67		147		350
Recognition of curtailment loss	(155)		—		—
Other	(50)		—		—
Total recognized in other comprehensive (loss) income	$	(61,488)	$	78,293	$	(60,588)
Total recognized in net periodic benefit income and other comprehensive (loss) income	$	(77,693)	$	62,518	$	(73,226)

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

The estimated amounts that will be amortized from accumulated other comprehensive loss into net periodic benefit income in 2020 are as follows:

Actuarial loss	$	44,602
Prior service credit	691
Total	$	45,293

The assumptions used in measuring the net periodic benefit income for the plans follow:

	2019		2018		2017
Weighted average discount rate	4.36	%	3.70	%	4.26	%
Rate of increase in future compensation levels	3.14	%	3.11	%	3.15	%
Expected long-term rate of return on plan assets	7.12	%	7.14	%	7.80	%

The Company has one defined contribution plan in the U.S. that covers substantially all of its domestic employees. Employees receive a matching contribution of 100% of the first 5% of the employees’ salary. Total plan expense was approximately $64,990 in 2019, $62,335 in 2018, and $58,186 in 2017.

The Company has a defined contribution plan that covers full-time Canadian employees after six months of employment and part-time employees upon meeting provincial minimum standards. Employees receive a matching contribution of 100% of the first 5% of the employees’ salary. Total plan expense was approximately $4,433 in 2019 and $4,108 in 2018.

10. Guarantees

The Company guarantees the borrowings of certain independently controlled automotive parts stores (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 a controlling financial interest through ownership of a majority voting interest in the independent. The Company has no voting interest or other equity conversion rights in any of the independents. The Company does not control the independents or the affiliates, but receives a fee for the guarantee. 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 entity’s 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 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 guarantee. 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 EBITDA ratio and certain limitations on additional borrowings. At December 31, 2019, the Company was in compliance with all such covenants.

At December 31, 2019, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately $904,662. 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 guaranteed obligations of the independents or the affiliates, the Company would obtain and liquidate certain collateral (e.g., accounts receivable and inventory) to recover all or a portion of the amounts paid under the guarantee. 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.

The Company has recognized certain assets and liabilities amounting to $90,000 and $78,000 for the guarantees related to the independents’ and affiliates’ borrowings at December 31, 2019 and 2018, respectively. These assets and liabilities are included in other assets and other long-term liabilities in the consolidated balance sheets.

11. Commitments and Contingencies

Legal Matters

The Company is subject to various legal proceedings, many involving routine litigation incidental to the businesses, including approximately 1,615 pending product liability lawsuits resulting from its national distribution of automotive parts and supplies. Many of these involve claims of personal injury allegedly resulting from the use of automotive parts distributed by the

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

Company. The amounts accrued for product liabilities as of December 31, 2019 and 2018 were $146,230 and $141,203, respectively. While litigation of any type contains an element of uncertainty, the Company believes that its insurance coverage and its defense, and ultimate resolution of pending and reasonably anticipated claims will continue to occur within the ordinary course of the Company’s business and that resolution of these claims will not have a material effect on the Company’s business, results of operations or financial condition.

On April 17, 2017, a jury awarded damages against the Company of $81,500 in a litigated automotive product liability dispute. Through post-trial motions and offsets from previous settlements, the initial verdict was reduced to $77,100. The Company believed the verdict was not supported by the facts or the law and was contrary to the Company’s role in the automotive parts industry. The Company challenged the verdict through an appeal to a higher court. On February 19, 2020, the higher court issued an order entirely reversing the jury’s finding on damages and ordering a new trial on damages.  Absent any further appeal, the matter will be remanded to the trial court for a new trial on damages only. 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 consolidated financial statements.

Fire at S.P. Richards Headquarters and Distribution Center

On July 19, 2019, a fire occurred at the S.P. Richards headquarters in Atlanta, Georgia. The building primarily held the S.P. Richards headquarters office and was connected to its Atlanta distribution center. The Company maintains property and casualty loss insurance coverage. The Company expects to recover all losses on inventory, property, plant and equipment and other fire-related costs from insurance proceeds.

12. Acquisitions, Divestitures and Discontinued Operations

Acquisitions

2019

The Company's cash used in acquisitions of businesses totaled $732,142, net of cash acquired, during the year ended December 31, 2019. In the Automotive Parts Group, the acquired businesses included all of its equity interests in Hennig Fahrzeugteile Group ("Hennig") in January 2019 and of PartsPoint Group in June 2019, which together generate estimated annual revenues of approximately $520,000, as well as several bolt-on acquisitions.

In the Industrial Parts Group, the Company acquired all of the equity interests in Axis New England and Axis New York ("Axis") in March 2019, which generate estimated annual revenue of approximately $55,000, and the remaining 65% equity investment in Inenco Group Pty Ltd ("Inenco") in July 2019. 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 $400,000. Prior to the 65% acquisition, the Company accounted for its 35% investment in Inenco under the equity method of accounting. Upon acquisition the Company recognized the 35% investment at its acquisition-date fair value of $123,385. The difference between the acquisition-date fair value and the carrying amount of the equity method investment resulted in the recognition of a gain of $38,663 on the acquisition date. The acquisition-date fair value was determined using a market and income approach with the assistance of a third party valuation firm. The gain is included in the line item "other" within non-operating (income) expenses on the consolidated statement of income and comprehensive income for the year ended December 31, 2019.

The total acquisition date fair value of the consideration transferred for the businesses and of any previously held equity interests was $860,712, net of cash acquired of $16,591, and it consisted of the following:

	December 31, 2019
Cash	$	732,142
Fair value of 35% investment in Inenco held prior to business combination	123,385
Fair value of other investments held prior to business combination	5,185
Total	$	860,712

The following table summarizes the preliminary, estimated fair values of the assets acquired and liabilities assumed at the acquisition dates for the aggregate of these businesses. Additional adjustments may be made to the acquisition accounting during the measurement period primarily related to intangible asset revaluations and tax accounting.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

	As of Acquisition Dates
Trade accounts receivable	$	148,543
Merchandise inventories	319,579
Prepaid expenses and other current assets	788
Intangible assets	340,799
Deferred tax assets	1,480
Property, plant and equipment	70,958
Operating lease assets	127,470
Other assets	20,318
Total identifiable assets acquired	1,029,935
Current liabilities	122,307
Long-term debt	164,662
Operating lease liabilities	61,626
Deferred tax liabilities	67,081
Other long-term liabilities	132,187
Total liabilities assumed	547,863
Net identifiable assets acquired	482,072
Noncontrolling interests in a subsidiary	(1,600)
Goodwill	380,240
Net assets acquired	$	860,712

The acquired intangible assets of approximately $340,799 were provisionally assigned to customer relationships of $304,302, trademarks of $32,907, and other intangibles of $3,590 with weighted average amortization lives of 16.6, 21.7, and 5.0 years, respectively, for a total weighted average amortization life of 17.0 years. The fair value of the acquired identifiable intangible assets is provisional pending completion of the final valuations for these assets.

The estimated goodwill recognized as part of the acquisitions is generally not tax deductible. The goodwill is attributable primarily to the expected synergies and assembled workforces of the acquired businesses.

The results of operations for the acquired businesses were included in the Company’s consolidated statements of income and comprehensive income beginning on their respective acquisition dates.

2018

In 2018, a significant portion of the businesses acquired included 20 businesses in the Automotive Parts Group and three businesses in the Industrial Parts Group.

The 20 Automotive Parts Group acquisitions generate estimated annual revenues of approximately $180,000. The acquisitions included TMS Motor Spares ("TMS") in August 2018 and Platinum International Group ("Platinum") in October 2018. TMS is a leading automotive parts distributor and operates 17 locations in Scotland and seven locations in England. Platinum is a leading value-added battery distributor in the automotive, industrial, and leisure markets and operates nine locations in the U.K. and one location in the Netherlands.

The three Industrial Parts Group acquisitions generate estimated annual revenues of approximately $100,000. The largest acquisition was Hydraulic Supply Company ("HSC") in October 2018, which operates 30 locations in the U.S. HSC is a full-service fluid power distributor, with a product offering of hydraulic, pneumatic and industrial components and systems.

For each acquisition, the Company allocated the purchase price to the assets acquired and the liabilities assumed based on their fair values as of their respective acquisition dates. The results of operations for the acquired businesses were included in the Company’s consolidated statements of income and comprehensive income beginning on their respective acquisition dates. The Company recorded approximately $167,000 of goodwill and other intangible assets associated with the 2018 acquisitions. Other intangible assets acquired consisted of customer relationships of $76,000 with weighted average amortization lives of 15 years.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

2017

In 2017, a significant portion of the businesses acquired included 12 businesses in the Automotive Parts Group and three businesses in the Industrial Parts Group. The aggregate purchase price for these 15 acquisitions was approximately $1,334,000, net of cash acquired. In 2017, the Company allocated the purchase price to the assets acquired and the liabilities assumed based on their fair values as of their respective acquisition dates. The results of operations for the acquired companies were included in the Company’s consolidated statements of income and comprehensive income beginning on their respective acquisition dates. The Company recorded $1,926,000 of goodwill and other intangible assets associated with the 2017 acquisitions. Other intangible assets acquired in 2017, excluding AAG, consisted of customer relationships of $69,000 with weighted average amortization lives of 15 years.

Divestitures

2019

The Company received proceeds from divestitures of businesses totaling $434,609 during the year ended December 31, 2019. The divestitures are not considered strategic shifts that will have a major effect on the Company’s operations or financial results; therefore, they are not reported as discontinued operations. The Company recognized realized currency losses of $34,701 during the year ended December 31, 2019. These losses are included in the line item "other" within non-operating expenses (income) on the consolidated statement of income and comprehensive income for the year ended December 31, 2019.

Grupo Auto Todo

On March 7, 2019, the Company sold all of its equity in Grupo Auto Todo, a Mexican subsidiary within the Automotive Parts Group. Grupo Auto Todo contributed revenues of $15,900 for the year ended December 31, 2019 and $93,000 for the year ended December 31, 2018.

EIS

During the third quarter of 2019, the Company approved a transaction to sell EIS, a wholly owned subsidiary within the Industrial Parts Group. The transaction closed on September 30, 2019. EIS contributed revenues of $588,031 for the year ended December 31, 2019 and $817,249 for the year ended December 31, 2018.

2018

Business Products Group

On April 12, 2018, the Company entered into a definitive agreement with Essendant, Inc. ("Essendant") for Essendant to combine with the Company's Business Products Group in a business combination transaction. The transaction was to be structured as a Reverse Morris Trust, in which the Company would separate the Business Products Group into a standalone company and spin off that standalone company to the Company's shareholders, immediately followed by the merger of a subsidiary of Essendant and the spun-off company.

On September 14, 2018, the definitive agreement with Essendant was terminated by Essendant, so that Essendant could enter into a merger agreement with another party. Concurrently with the termination, the Company received a termination fee of $12,000. The termination fee is classified as an offset to the transaction and other costs incurred related to the merger agreement within selling, administrative and other expenses in the consolidated statements of income and comprehensive income.

Discontinued Operations

Business Products Group

Effective June 30, 2020, the Company completed the divestiture of its Business Products Group by selling Supply Source Enterprises, Inc. ("SSE") and S.P. Richards Company ("SPR") in separate transactions. There may be additional cash payments or receipts in subsequent quarters as the Company finalizes customary post-transaction working capital adjustments. These divestitures are part of the Company's long-term strategic initiative to streamline its operations and optimize its portfolio so that it can drive shareholder value by focusing on its global Automotive and Industrial Parts Groups. The Business Products Group was previously a reportable segment of the Company. These divestitures, together with prior period divestitures of Garland C. Norris (effective December 13, 2019), SPR Canada (effective January 1, 2020) and Safety Zone Canada (effective March 2, 2020), represent a single plan to exit the Business Products Group segment and are considered a strategic shift that will have a major effect on the Company’s operations and financial results. Therefore, the results of operations, financial position and cash flows for the Business Products Group are reported as discontinued operations for all periods presented.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

The Company maintains an immaterial investment in SPR and has concluded that SPR is a variable interest entity. The Company also remains involved with SPR for a limited period of time through various lease, sublease, freight distribution and transition service agreements. The Company is not the primary beneficiary and therefore does not consolidate SPR. Among other things, the Company does not have any voting rights and does not have the power to direct the activities that most significantly affect SPR's economic performance.

For a limited period of time as SPR completes its transition away from the Company’s shared services platform, the Company continues to pay certain payables on SPR’s behalf and at SPR’s direction with full, weekly reimbursement from SPR under the terms of a transition services agreement.

The Company’s results of operations for discontinued operations were:

	Year Ended December 31,
	2019		2018		2017
Net sales	$	1,870,071	$	1,903,468	$	1,912,359
Cost of goods sold	1,413,485		1,439,436		1,437,436
Gross profit	456,586		464,032		474,923
Operating and non-operating expenses	476,521		383,058		396,302
Loss on disposal	9,048		—		—
(Loss) income before income taxes	(28,983)		80,974		78,621
Income taxes	(3,593)		20,034		25,647
Net (loss) income from discontinued operations	$	(25,390)	$	60,940	$	52,974

The Company’s assets and liabilities for discontinued operations, by major class, were:

	As of December 31,
	2019		2018
Assets
Trade accounts receivable, net	$	194,903	$	216,908
Merchandise inventories, net	387,307		397,694
Prepaid expenses and other current assets	132,041		115,047
Goodwill	—		81,956
Other intangible assets, less accumulated amortization	76,829		83,744
Operating lease assets	80,302		—
Other assets	91,640		74,912
Total assets of discontinued operations	$	963,022	$	970,261
Liabilities
Trade accounts payable	$	158,163	$	170,139
Other current liabilities	59,954		37,986
Long-term liabilities	68,906		3,204
Total liabilities of discontinued operations	$	287,023	$	211,329

13. Segment Data

The Company’s reportable segments consist of automotive and industrial parts. Within the reportable segments, certain of the Company’s operating segments are aggregated since they have similar economic characteristics, products and services, type and class of customers, and distribution methods.

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

The Company’s automotive segment distributes replacement parts (other than body parts) for substantially all makes and models of automobiles, trucks, and other vehicles.

The Company’s industrial segment distributes a wide variety of industrial bearings, mechanical and fluid power transmission equipment, including hydraulic and pneumatic products, material handling components and related parts and supplies.

Inter-segment sales are not significant. Segment profit for each industry segment is calculated as net sales less operating expenses excluding general corporate expenses, interest expense, equity in income from investees, intangible asset amortization, income attributable to noncontrolling interests and other unallocated amounts that are driven by corporate initiatives. Approximately $245,373, $281,687 and $193,308 of income before income taxes was generated in jurisdictions outside the U.S. for the years ended December 31, 2019, 2018, and 2017, respectively. Net sales and net property, plant and equipment by country relate directly to the Company’s operations in the respective country. Corporate assets are principally cash and cash equivalents and headquarters’ facilities and equipment.

	2019		2018		2017
Net sales: (1)
Automotive	$	10,993,902	$	10,533,021	$	8,591,430
Industrial	6,528,332		6,298,584		5,805,012
Total net sales	$	17,522,234	$	16,831,605	$	14,396,442
Segment profit:
Automotive	$	831,951	$	856,014	$	722,493
Industrial	521,830		487,360		440,454
Total segment profit	$	1,353,781	$	1,343,374	$	1,162,947
Interest expense, net	(91,405)		(93,281)		(38,586)
Corporate expense	(140,815)		(137,036)		(110,679)
Intangible asset amortization	(92,206)		(83,489)		(46,385)
Other unallocated costs	(170,072)		(34,930)		(36,650)
Income before income taxes from continuing operations	$	859,283	$	994,638	$	930,647
The following table presents a summary of the other unallocated costs:
	2019		2018		2017
Other unallocated amounts:
Restructuring costs	$	(100,023)	$	—	$	—
Special termination costs	(42,757)		—		—
Realized currency and other divestiture losses	(34,701)		—		—
Gain on equity investment	38,663		—		—
Transaction and other costs	(31,254)		(34,930)		(36,650)
Total other unallocated amounts	$	(170,072)	$	(34,930)	$	(36,650)
	2019		2018		2017
Assets:
Automotive	$	7,376,408	$	6,248,117	$	6,146,919
Industrial	1,993,457		1,792,662		1,648,761
Corporate	527,126		297,282		256,744
Goodwill and other intangible assets	3,785,616		3,374,718		3,383,164
Discontinued operations	963,022		970,261		976,793
Total assets	$	14,645,629	$	12,683,040	$	12,412,381

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

	2019		2018		2017
Depreciation and amortization:
Automotive	$	122,905	$	105,238	$	71,405
Industrial	17,577		14,518		13,446
Corporate	24,575		24,339		21,936
Intangible asset amortization	92,206		83,489		46,021
Total depreciation and amortization	$	257,263	$	227,584	$	152,808
Capital expenditures:
Automotive	$	227,420	$	198,910	$	118,181
Industrial	39,003		21,783		28,566
Corporate	11,450		5,813		1,979
Total capital expenditures	$	277,873	$	226,506	$	148,726
Net sales:
United States	$	12,226,381	$	12,083,120	$	11,392,499
Europe	2,223,498		1,860,912		256,364
Canada	1,614,659		1,565,393		1,467,182
Australasia	1,369,361		1,193,148		1,162,122
Mexico	88,335		129,032		118,275
Total net sales	$	17,522,234	$	16,831,605	$	14,396,442
Net property, plant and equipment:
United States	$	763,746	$	693,683	$	614,473
Europe	153,357		110,184		96,857
Canada	103,320		91,195		90,700
Australasia	147,457		95,578		95,299
Mexico	5,808		4,014		6,303
Total net property, plant and equipment	$	1,173,688	$	994,654	$	903,632

(1)The net effect of discounts, incentives, and freight billed to customers has been allocated to their respective segments for the current and prior periods. Previously, the net effect of such items were captured and presented separately in a line item entitled “Other.”

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

The following table presents disaggregated geographical net sales from contracts with customers by reportable segment. The Company believes this presentation best depicts how the nature, amount, timing and uncertainty of net sales and cash flows are affected by economic factors:

	2019		2018		2017
North America:
Automotive	$	7,613,047	$	7,478,961	$	7,172,944
Industrial	6,316,328		6,298,584		5,805,012
Total North America	$	13,929,375	$	13,777,545	$	12,977,956
Australasia:
Automotive	$	1,157,357	$	1,193,148	$	1,162,122
Industrial	212,004		—		—
Total Australasia	$	1,369,361	$	1,193,148	$	1,162,122
Europe - Automotive	$	2,223,498	$	1,860,912	$	256,364
Total net sales	$	17,522,234	$	16,831,605	$	14,396,442

Genuine Parts Company and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2019

14. Restructuring

In October of 2019, the Company approved and began to implement certain restructuring actions (the "2019 Cost Savings Plan") across its subsidiaries primarily targeted at simplifying organizational structures and distribution networks. The Company believes these actions will reduce costs in the future and allow it to more effectively and efficiently manage its businesses. Among other things, the 2019 Cost Savings Plan will result in workforce reductions and facility closures and consolidations. The Company executed a VRP for its U.S. and Canadian subsidiaries in the fourth quarter of 2019 in connection with this plan.

The table below summarizes costs associated with the 2019 Cost Savings Plan:

	Total
Restructuring costs	$	100,023
Special termination costs	42,757
Total costs incurred in 2019	$	142,780
Remaining costs expected but not yet incurred	19,621
Total costs	$	162,401

The 2019 Cost Savings Plan was approved and funded by the Company's corporate office and therefore these costs are not allocated to the Company's segments. See the segment data footnote for more information.

The table below summarizes the activity related to the restructuring costs discussed above. As of December 31, 2019, the current portion of the restructuring liability of $74,153 is included in other current liabilities on the consolidated balance sheet.

	Severance and other employee costs		Facility and closure costs		Accelerated operating lease costs		Asset impairments		Total
Liability as of January 1, 2019	$	—	$	—	$	—	$	—	$	—
Restructuring costs	81,866		9,526		3,223		5,408		100,023
Cash payments	(5,209)		(3,378)		—		—		(8,587)
Non-cash charges	(5,550)		—		(3,223)		(5,408)		(14,181)
Translation	333		491		—		—		824
Liability as of December 31, 2019	$	71,440	$	6,639	$	—	$	—	$	78,079

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