GPC 10-Q
Genuine Parts Co (GPC)
10-Q
2023-10-19
For: 2023-09-30
View Original
Added on
April 04, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number: 1-5690
__________________________________________
(Exact name of registrant as specified in its charter)
__________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 140,196,631 shares of common stock outstanding as of October 16, 2023.
| Table of Contents | ||||||||
| Page | ||||||||
1
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| (in thousands, except share and per share data) | September 30, 2023 | December 31, 2022 | ||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
Trade accounts receivable, less allowance for doubtful accounts (2023 – $ | ||||||||||||||
| Merchandise inventories, net | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Goodwill | ||||||||||||||
| Other intangible assets, less accumulated amortization | ||||||||||||||
Property, plant and equipment, less accumulated depreciation (2023 – $ | ||||||||||||||
| Operating lease assets | ||||||||||||||
| Other assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities and equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Trade accounts payable | $ | $ | ||||||||||||
| Current portion of debt | ||||||||||||||
| Dividends payable | ||||||||||||||
| Other current liabilities | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term debt | ||||||||||||||
| Operating lease liabilities | ||||||||||||||
| Pension and other post–retirement benefit liabilities | ||||||||||||||
| Deferred tax liabilities | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Equity: | ||||||||||||||
Preferred stock, par value – $ | ||||||||||||||
Common stock, par value – $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Retained earnings | ||||||||||||||
| Total parent equity | ||||||||||||||
| Noncontrolling interests in subsidiaries | ||||||||||||||
| Total equity | ||||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Selling, administrative and other expenses | ||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| Provision for doubtful accounts | ||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||
| Non-operating expense (income): | ||||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||
| Other | ( | ( | ( | ( | ||||||||||||||||||||||
| Total non-operating expense (income) | ||||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||
| Income taxes | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Dividends declared per common share | $ | $ | $ | $ | ||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Other comprehensive income (loss), net of income taxes: | ||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ( | ||||||||||||||||||||||
Cash flow hedge adjustments, net of income taxes in 2023 — $ | ||||||||||||||||||||||||||
Pension and postretirement benefit adjustments, net of income taxes in 2023 — $ | ||||||||||||||||||||||||||
| Other comprehensive income (loss), net of income taxes | ( | ( | ( | ( | ||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
| Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | Common Stock Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Parent Equity | Non-controlling Interests in Subsidiaries | Total Equity | ||||||||||||||||||||||||||||||||||||||||||
| July 1, 2023 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
Cash dividend declared, $ | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued from employee incentive plans | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Purchase of stock | ( | ( | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest activities | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2023 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | Common Stock Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Parent Equity | Non-controlling Interests in Subsidiaries | Total Equity | ||||||||||||||||||||||||||||||||||||||||||
| January 1, 2023 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
Cash dividend declared, $ | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued from employee incentive plans | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Purchase of stock | ( | ( | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest activities | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2023 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
5
| Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | Common Stock Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Parent Equity | Non-controlling Interests in Subsidiaries | Total Equity | ||||||||||||||||||||||||||||||||||||||||||
| July 1, 2022 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
Cash dividend declared, $ | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued from employee incentive plans | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Purchase of stock | ( | ( | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest activities | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | Common Stock Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Parent Equity | Non-controlling Interests in Subsidiaries | Total Equity | ||||||||||||||||||||||||||||||||||||||||||
| January 1, 2022 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
Cash dividend declared, $ | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued from employee incentive plans | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Purchase of stock | ( | ( | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest activities | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
6
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended September 30, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| Operating activities: | ||||||||||||||
| Net income | $ | $ | ||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Share-based compensation | ||||||||||||||
| Excess tax benefits from share-based compensation | ( | ( | ||||||||||||
| Gain on sale of real estate | ( | |||||||||||||
| Changes in operating assets and liabilities | ( | |||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| Investing activities: | ||||||||||||||
| Purchases of property, plant and equipment | ( | ( | ||||||||||||
| Proceeds from sale of property, plant and equipment | ||||||||||||||
| Proceeds from sale of investments | ||||||||||||||
| Acquisitions and other investing activities | ( | ( | ||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||
| Financing activities: | ||||||||||||||
| Proceeds from debt | ||||||||||||||
| Payments on debt | ( | ( | ||||||||||||
| Shares issued from employee incentive plans | ( | ( | ||||||||||||
| Dividends paid | ( | ( | ||||||||||||
| Purchases of stock | ( | ( | ||||||||||||
| Other financing activities | ( | ( | ||||||||||||
| Net cash provided by (used in) financing activities | ( | |||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ( | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | |||||||||||||
| Cash and cash equivalents at beginning of period | ||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.General
Basis of Presentation
Recent Accounting Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASU”) to the FASB Accounting Standards Codification (“ASC”). We consider the applicability and impact of all ASUs and any not listed below were assessed and determined to not be applicable or are expected to have an immaterial impact on our Condensed Consolidated Financial Statements.
In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs. This standard requires disclosure of the key terms of outstanding supply chain finance programs and a rollforward of the related amounts due to vendors participating in these programs. The new standard does not affect the recognition, measurement or financial statement presentation of any amounts due. The guidance was effective in the first quarter of 2023, except for the rollforward, which becomes effective in the first quarter of 2024. For additional information, please refer to the supply chain finance programs section herein.
Prepaid Expenses and Other Current Assets
The following table provides a detail of prepaid expenses and other current assets reported within the Condensed Consolidated Balance Sheets as of:
| (in thousands) | September 30, 2023 | December 31, 2022 | ||||||||||||
| Prepaid expenses | $ | $ | ||||||||||||
| Consideration receivable from vendors | ||||||||||||||
| Other current assets | ||||||||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||||||||
8
Derivatives and Hedging
We are exposed to various risks arising from business operations and market conditions, including fluctuations in certain foreign currencies. We use derivative and non-derivative instruments as risk management tools to mitigate the potential impact of foreign exchange rate risks. The objective of using these tools is to reduce fluctuations in our earnings and cash flows associated with changes in these rates. Derivative instruments are recognized in the Condensed Consolidated Balance Sheets at fair value and are designated as Level 2 in the fair value hierarchy. They are valued using inputs other than quoted prices, such as foreign exchange rates and yield curves.
The following table summarizes the classification and carrying amounts of the derivative instruments and the foreign currency denominated debt, a non-derivative financial instrument, that are designated and qualify as part of hedging relationships (in thousands):
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||
| Instrument | Balance Sheet Location | Notional | Balance | Notional | Balance | |||||||||||||||||||||||||||
| Net investment hedges: | ||||||||||||||||||||||||||||||||
| Forward contracts | Prepaid expenses and other current assets | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Forward contract | Other current liabilities | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Foreign currency debt | Long-term debt | € | $ | € | $ | |||||||||||||||||||||||||||
The tables below present gains and losses related to designated net investment hedges:
| Gain Recognized in AOCL before Reclassifications | Gain Recognized in Interest Expense for Excluded Components | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| Net investment hedges: | ||||||||||||||||||||||||||
| Forward contracts | $ | $ | $ | $ | ||||||||||||||||||||||
| Foreign currency debt | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Gain Recognized in AOCL before Reclassifications | Gain Recognized in Interest Expense for Excluded Components | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
| Net investment hedges: | ||||||||||||||||||||||||||
| Forward contracts | $ | $ | $ | $ | ||||||||||||||||||||||
| Foreign currency debt | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Fair Value of Financial Instruments
As of September 30, 2023 the fair value of our senior unsecured notes was approximately $2.9 billion, which are designated as Level 2 in the fair value hierarchy. Our valuation technique is based primarily on prices and other relevant information generated by observable transactions involving identical or comparable assets or liabilities.
Guarantees
9
As of September 30, 2023, the total borrowings of the independents and affiliates subject to guarantee by us were approximately $991 million. These loans generally mature over periods from to six years . We regularly monitor the performance of these loans and the ongoing operating results, financial condition and ratings from credit rating agencies of the independents and affiliates that participate in the guarantee programs. In the event that we are required to make payments in connection with these guarantees, we would obtain and liquidate certain collateral pledged by the independents or affiliates (e.g., accounts receivable and inventory) to recover all or a substantial portion of the amounts paid under the guarantees. We recognize a liability equal to current expected credit losses over the lives of the loans in the guaranteed loan portfolio, based on a consideration of historical experience, current conditions, the nature and expected value of any collateral, and reasonable and supportable forecasts. To date, we have not had significant losses in connection with guarantees of independents’ and affiliates’ borrowings and the current expected credit loss reserve is not material. As of September 30, 2023, there are no material guaranteed loans for which the borrower is experiencing financial difficulty and recovery is expected to be provided substantially through the operation or sale of the collateral.
As of September 30, 2023, we have recognized certain assets and liabilities amounting to $63
Supply Chain Finance Programs
Several global financial institutions offer voluntary supply chain finance (“SCF”) programs which enable our suppliers (generally those that grant extended terms), at their sole discretion, to sell their receivables from us to these financial institutions on a non-recourse basis at a rate that takes advantage of our credit rating and may be beneficial to them. We and our suppliers agree on commercial terms for the goods and services we procure, including prices, quantities and payment terms, regardless of whether the supplier elects to participate in the SCF program. Our current payment terms with the majority of our suppliers range from 30 to 360 days. The suppliers sell goods or services, as applicable, to us and they issue the associated invoices to us based on the agreed-upon contractual terms. Then, if they are participating in the SCF program, our suppliers, at their sole discretion, determine which invoices, if any, they want to sell to the financial institutions. In turn, we direct payment to the financial institutions, rather than the suppliers, for the invoices sold to the financial institutions. No guarantees are provided by us or any of our subsidiaries on third-party performance under the SCF program; however, we guarantee the payment by our subsidiaries to the financial institutions participating in the SCF program for the applicable invoices. We have no economic interest in a supplier’s decision to participate in the SCF program, and we have no direct financial relationship with the financial institutions, as it relates to the SCF program. Accordingly, amounts due to our suppliers that elected to participate in the SCF program are included in the line item accounts payable in our Condensed Consolidated Balance Sheets.
Earnings Per Share
We calculate basic earnings per share by dividing net income by the weighted average number of common shares outstanding. Certain outstanding options are not included in the diluted earnings per share calculation
10
The following table summarizes basic and diluted shares outstanding:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||||||||||||
| Dilutive effect of stock options and non-vested restricted stock awards | ||||||||||||||||||||||||||
| Weighted average common shares outstanding – assuming dilution | ||||||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
2. Segment Information
The following table presents a summary of our reportable segment financial information:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||||
| Automotive | $ | $ | $ | $ | ||||||||||||||||||||||
| Industrial | ||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | ||||||||||||||||||||||
| Segment profit: | ||||||||||||||||||||||||||
| Automotive | $ | $ | $ | $ | ||||||||||||||||||||||
| Industrial | ||||||||||||||||||||||||||
| Total segment profit | ||||||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | ||||||||||||||||||||||
| Intangible asset amortization | ( | ( | ( | ( | ||||||||||||||||||||||
| Corporate expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Other unallocated (loss) income, net (1) | ( | |||||||||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | ||||||||||||||||||||||
(1) The following table presents a summary of the other unallocated income, net:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Other unallocated income, net: | ||||||||||||||||||||||||||
| Gain on sale of real estate (2) | $ | $ | $ | $ | ||||||||||||||||||||||
| Gain on insurance proceeds (3) | ||||||||||||||||||||||||||
| Transaction and other costs (4) | ( | ( | ||||||||||||||||||||||||
| Total other unallocated (loss) income, net | $ | $ | ( | $ | $ | |||||||||||||||||||||
11
(2) Amount reflects a gain on the sale of real estate that had been leased to S.P. Richards.
(3) Amount reflects insurance recoveries in excess of losses incurred on inventory, property, plant and equipment and other fire-related costs.
(4) Amount primarily reflects costs associated with the January 3, 2022 acquisition of Kaman Distribution Group.
Beginning in 2023, certain functions, including cybersecurity and the management of our product liability litigation, were transferred to corporate to be streamlined and centrally managed. These costs totaled $15 million and $44 million for the three and nine months ended September 30, 2022, of which $9 million and $27 million were allocated to Automotive and $6 million and $17 million were allocated to Industrial based on several factors, including sales volumes and headcount. Beginning in 2023, these costs, which totaled $30 million and $49 million for the three and nine months ended September 30, 2023, are no longer allocated to our segments when measuring their operating performance. We have not restated the 2022 comparative segment financial information.
Net sales are disaggregated by geographical region for each of our reportable segments, as we deem this presentation best depicts how the nature, amount, timing and uncertainty of net sales and cash flows are affected by economic factors. The following table presents disaggregated geographical net sales from contracts with customers by reportable segment:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| North America: | ||||||||||||||||||||||||||
| Automotive | $ | $ | $ | $ | ||||||||||||||||||||||
| Industrial | ||||||||||||||||||||||||||
| Total North America | $ | $ | $ | $ | ||||||||||||||||||||||
| Australasia: | ||||||||||||||||||||||||||
| Automotive | $ | $ | $ | $ | ||||||||||||||||||||||
| Industrial | ||||||||||||||||||||||||||
| Total Australasia | $ | $ | $ | $ | ||||||||||||||||||||||
| Europe – Automotive | $ | $ | $ | $ | ||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | ||||||||||||||||||||||
3. Accounts Receivable Sales Agreement
Under our accounts receivable sales agreement (the "A/R Sales Agreement"), we continuously sell designated pools of receivables as they are originated by us and certain U.S. subsidiaries to a separate bankruptcy-remote special purpose entity (“SPE”). The A/R Sales Agreement has a three-year term, which we intend to renew.
We continue to be involved with the receivables transferred by the SPE to the unaffiliated financial institutions by providing collection services. As cash is collected on sold receivables, the SPE continuously transfers ownership and control of new qualifying receivables to the unaffiliated financial institutions so that the total principal amount outstanding of receivables sold is approximately $1.0 billion at any point in time (which is the maximum amount allowed under the agreement as amended on January 3, 2022).
The total principal amount outstanding of receivables sold is approximately $1.0 1.3 billion and $1.1 billion, respectively.
The following table summarizes the activity and amounts outstanding under the A/R Sales Agreement for the:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Receivables sold to the financial institution and derecognized | $ | $ | $ | $ | ||||||||||||||||||||||
| Cash collected on sold receivables | $ | $ | $ | $ | ||||||||||||||||||||||
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4. Employee Benefit Plans
Net periodic benefit income from our pension plans included the following components for our pension benefits:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ||||||||||||||||||||||
| Amortization of prior service cost | ||||||||||||||||||||||||||
| Amortization of actuarial loss | ||||||||||||||||||||||||||
| Net periodic benefit income | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
5. Acquisitions
We acquired several businesses for approximately $232 million and $1.6 billion, net of cash acquired, during the nine months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2023, we recognized approximately $290 million and $38 million of revenue, net of store closures, related to our current year Automotive and Industrial acquisitions, respectively. We recorded approximately $172 million of goodwill and other intangible assets associated with these acquisitions. Other intangible assets acquired of $77 million consisted of customer relationships with a weighted average amortization lives of 20 years. For each acquisition, we allocate 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 acquired businesses are included in our Condensed Consolidated Statements of Income beginning on their respective acquisition dates.
KDG Acquisition
On January 3, 2022, we, through our wholly-owned subsidiary, Motion Industries, Inc., acquired all of the equity interests in KDG for a purchase price of approximately $1.3 billion in cash, net of cash acquired of approximately $30 million. KDG, which is headquartered in Bloomfield, Connecticut, is a power transmission, automation and fluid power industrial distributor and solutions provider with operations throughout the United States, providing electro-mechanical products, bearings, power transmission, motion control and electrical and fluid power components to maintenance, repair, and operation and original equipment manufacturer customers.
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6. Accumulated Other Comprehensive Loss
The following tables present the changes in AOCL by component for the nine months ended September 30:
| Changes in Accumulated Other Comprehensive Loss by Component | ||||||||||||||||||||||||||
| (in thousands) | Pension and Other Post-Retirement Benefits | Cash Flow Hedges | Foreign Currency Translation | Total | ||||||||||||||||||||||
| Beginning balance, January 1, 2023 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | |||||||||||||||||||||||||
| Other comprehensive income (loss), net of income taxes | ( | ( | ||||||||||||||||||||||||
| Ending balance, September 30, 2023 | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Changes in Accumulated Other Comprehensive Loss by Component | ||||||||||||||||||||||||||
| (in thousands) | Pension and Other Post-Retirement Benefits | Cash Flow Hedges | Foreign Currency Translation | Total | ||||||||||||||||||||||
| Beginning balance, January 1, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Other comprehensive loss before reclassifications | ( | ( | ||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||||||||||||||
| Other comprehensive income (loss), net of income taxes | ( | ( | ||||||||||||||||||||||||
| Ending balance, September 30, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
The AOCL components related to the pension benefits are included in the computation of net periodic benefit income in the Employee Benefit Plans Footnote. Generally, tax effects in AOCL are established at the currently enacted tax rate and reclassified to net income in the same period that the related pre-tax AOCL reclassifications are recognized.
7. Commitments and Contingencies
Legal Matters
We are subject to various legal proceedings, many involving routine litigation incidental to the businesses, including approximately 2,309 pending product liability lawsuits resulting from our national distribution of automotive parts and supplies. Many of these involve claims of personal injury allegedly resulting from the use of automotive parts we distributed. The amount accrued for pending and future claims was $225 million as of September 30, 2023, which represented our best estimate of the liability within our calculated range of $199 million to $283 million, discounted using a discount rate of 4.59 %. The amount accrued for pending and future claims was $220 million as of December 31, 2022, which represented our best estimate of the liability within our calculated range of $190 million to $270 million, discounted using a discount rate of 3.83 %. Our undiscounted product liability was $297 million and $285 million as of September 30, 2023 and December 31, 2022, respectively. There have been no significant developments to the information presented in our 2022 Annual Report on Form 10-K with respect to litigation or commitments and contingencies.
Environmental Liabilities
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and accompanying notes contained herein and with the audited Consolidated Financial Statements, accompanying notes, related information and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of results for the year ended December 31, 2023.
Forward-Looking Statements
Some statements in this report, as well as in other materials we file with the Securities and Exchange Commission (“SEC”), release to the public, or make available on our website, constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements in the future tense and all statements accompanied by words such as “expect,” “likely,” “outlook,” “forecast,” “preliminary,” “would,” “could,” “should,” “position,” “will,” “project,” “intend,” “plan,” “on track,” “anticipate,” “to come,” “may,” “possible,” “assume,” or similar expressions are intended to identify such forward-looking statements. These forward-looking statements include our view of business and economic trends for the remainder of the year and our expectations regarding our ability to capitalize on these business and economic trends and to execute our strategic priorities. Senior officers may also make verbal statements to analysts, investors, the media and others that are forward-looking.
We caution you that all forward-looking statements involve risks and uncertainties, and while we believe that our expectations for the future are reasonable in view of currently available information, you are cautioned not to place undue reliance on our forward-looking statements. Actual results or events may differ materially from those indicated as a result of various important factors. Such factors may include, among other things, changes in general economic conditions, including unemployment, inflation (including the impact of tariffs) or deflation, financial institution disruptions and geopolitical conflicts such as the conflict between Russia and Ukraine and the conflict in the Gaza strip; volatility in oil prices; significant cost increases, such as rising fuel and freight expenses; public health emergencies, including the effects on the financial health of our business partners and customers, on supply chains and our suppliers, on vehicle miles driven as well as other metrics that affect our business, and on access to capital and liquidity provided by the financial and capital markets; our ability to maintain compliance with our debt covenants; our ability to successfully integrate acquired businesses into our operations and to realize the anticipated synergies and benefits; our ability to successfully implement our business initiatives in our two business segments; slowing demand for our products; the ability to maintain favorable supplier arrangements and relationships; changes in national and international legislation or government regulations or policies, including changes to import tariffs, environmental and social policy, infrastructure programs and privacy legislation, and their impact to us, our suppliers and customers; changes in tax policies; volatile exchange rates; our ability to successfully attract and retain employees in the current labor market; uncertain credit markets and other macroeconomic conditions; competitive product, service and pricing pressures; failure or weakness in our disclosure controls and procedures and internal controls over financial reporting, including as a result of the work from home environment; the uncertainties and costs of litigation; disruptions caused by a failure or breach of our information systems, as well as other risks and uncertainties discussed in our 2022 Annual Report on Form 10-K and from time to time in our subsequent filings with the SEC.
Forward-looking statements speak only as of the date they are made, and we undertake no duty to update any forward-looking statements except as required by law. You are advised, however, to review any further disclosures we make on related subjects in our subsequent Forms 10-K, 10-Q, 8-K and other reports filed with the SEC.
Overview
Genuine Parts Company is a service organization engaged in the global distribution of automotive and industrial replacement parts. We have a long tradition of growth dating back to 1928, the year we were founded in Atlanta, Georgia. We conduct business in North America, Europe and Australasia from a network of more than 10,000 locations.
Our Automotive Parts Group ("Automotive") operates in the U.S., Canada, Mexico, France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Spain, Portugal, Australia and New Zealand, and accounted for 62% of total revenues for the nine months ended September 30, 2023. Our Industrial Parts Group ("Industrial") operates in the U.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore, and accounted for 38% of our total revenues for the nine months ended September 30, 2023.
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Key Performance Indicators
We consider a variety of performance and financial measures in assessing our business, and the key performance indicators used to measure our results are Comparable Sales, Gross Profit and Gross Margin, Selling, Administrative and Other Expenses ("SG&A"), Segment Profit and Segment Margin, as well as Net Income and EBITDA along with their adjusted measures. For more information regarding our key performance indicators please reference the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Results of Operations
Our results for the third quarter of 2023 reflect a 2.6% increase in sales driven by our international automotive businesses and continued growth in our Industrial segment. Our year-over-year sales growth was negatively impacted by one less selling day in the U.S., the moderating benefit of inflation on the pricing environment in our global automotive segment and declines in sales in our U.S. Automotive business. The combination of continued revenue growth and gross margin expansion led to earnings growth of 12.4% and further expansion of total segment margin.
For the nine months ended September 30, 2023, our revenue grew 5.6%, helping drive earnings growth of 7.4%, which reflects the ongoing benefits of our diverse business mix and geographic footprint. Our results for the nine months ended September 30, 2022 include costs of $47 million resulting from a gain on the June 2022 sale of real estate and KDG acquisition costs incurred throughout 2022.
Our results of operations are summarized below for the three months ended September 30, 2023 and 2022.
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| (in thousands) | $ | % of Sales | $ | % of Sales | $ Change | % Change | ||||||||||||||||||||||||||||||||
| Net sales | $ | 5,824,602 | 100.0 | % | $ | 5,675,274 | 100.0 | % | $ | 149,328 | 2.6 | % | ||||||||||||||||||||||||||
| Cost of goods sold | 3,715,361 | 63.8 | % | 3,695,607 | 65.1 | % | 19,754 | 0.5 | % | |||||||||||||||||||||||||||||
| Gross profit | 2,109,241 | 36.2 | % | 1,979,667 | 34.9 | % | 129,574 | 6.5 | % | |||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||||||||
| Selling, administrative and other expenses | 1,551,799 | 26.6 | % | 1,458,418 | 25.7 | % | 93,381 | 6.4 | % | |||||||||||||||||||||||||||||
| Depreciation and amortization | 83,860 | 1.4 | % | 86,563 | 1.5 | % | (2,703) | (3.1) | % | |||||||||||||||||||||||||||||
| Provision for doubtful accounts | 8,417 | 0.1 | % | 6,146 | 0.1 | % | 2,271 | 37.0 | % | |||||||||||||||||||||||||||||
| Total operating expenses | 1,644,076 | 28.2 | % | 1,551,127 | 27.3 | % | 92,949 | 6.0 | % | |||||||||||||||||||||||||||||
| Non-operating expense (income): | ||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 15,827 | 0.3 | % | 18,220 | 0.3 | % | (2,393) | (13.1) | % | |||||||||||||||||||||||||||||
| Other | (15,722) | (0.3) | % | (7,616) | (0.1) | % | (8,106) | 106.4 | % | |||||||||||||||||||||||||||||
| Total non-operating expense (income) | 105 | — | % | 10,604 | 0.2 | % | (10,499) | (99.0) | % | |||||||||||||||||||||||||||||
| Income before income taxes | 465,060 | 8.0 | % | 417,936 | 7.4 | % | 47,124 | 11.3 | % | |||||||||||||||||||||||||||||
| Income taxes | 113,862 | 2.0 | % | 105,578 | 1.9 | % | 8,284 | 7.8 | % | |||||||||||||||||||||||||||||
| Net income | $ | 351,198 | 6.0 | % | $ | 312,358 | 5.5 | % | $ | 38,840 | 12.4 | % | ||||||||||||||||||||||||||
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| Three Months Ended September 30, | ||||||||||||||||||||||||||
| (in thousands, except per share data) | 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||||
| Diluted EPS | $ | 2.49 | $ | 2.20 | $ | 0.29 | 13.2 | % | ||||||||||||||||||
| Total adjusted EBITDA | $ | 564,747 | $ | 526,181 | $ | 38,566 | 7.3 | % | ||||||||||||||||||
| Automotive segment profit | $ | 322,004 | $ | 309,349 | $ | 12,655 | 4.1 | % | ||||||||||||||||||
| Industrial segment profit | $ | 282,807 | $ | 242,505 | $ | 40,302 | 16.6 | % | ||||||||||||||||||
| Total segment profit | $ | 604,811 | $ | 551,854 | $ | 52,957 | 9.6 | % | ||||||||||||||||||
| Automotive segment margin | 8.9 | % | 8.9 | % | ||||||||||||||||||||||
| Industrial segment margin | 12.9 | % | 11.1 | % | ||||||||||||||||||||||
| Total segment margin | 10.4 | % | 9.7 | % | ||||||||||||||||||||||
Our results of operations are summarized below for the nine months ended September 30, 2023 and 2022.
| Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| (in thousands) | $ | % of Sales | $ | % of Sales | $ Change | % Change | ||||||||||||||||||||||||||||||||
| Net sales | $ | 17,504,726 | 100.0 | % | $ | 16,572,323 | 100.0 | % | $ | 932,403 | 5.6 | % | ||||||||||||||||||||||||||
| Cost of goods sold | 11,247,341 | 64.3 | % | 10,805,910 | 65.2 | % | 441,431 | 4.1 | % | |||||||||||||||||||||||||||||
| Gross profit | 6,257,385 | 35.7 | % | 5,766,413 | 34.8 | % | 490,972 | 8.5 | % | |||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||||||||
| Selling, administrative and other expenses | 4,644,696 | 26.5 | % | 4,226,412 | 25.5 | % | 418,284 | 9.9 | % | |||||||||||||||||||||||||||||
| Depreciation and amortization | 261,948 | 1.5 | % | 259,822 | 1.6 | % | 2,126 | 0.8 | % | |||||||||||||||||||||||||||||
| Provision for doubtful accounts | 22,378 | 0.1 | % | 13,539 | 0.1 | % | 8,839 | 65.3 | % | |||||||||||||||||||||||||||||
| Total operating expenses | 4,929,022 | 28.2 | % | 4,499,773 | 27.2 | % | 429,249 | 9.5 | % | |||||||||||||||||||||||||||||
| Non-operating expense (income): | ||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 49,146 | 0.3 | % | 58,318 | 0.4 | % | (9,172) | (15.7) | % | |||||||||||||||||||||||||||||
| Other | (44,338) | (0.3) | % | (26,897) | (0.2) | % | (17,441) | 64.8 | % | |||||||||||||||||||||||||||||
| Total non-operating expense (income) | 4,808 | — | % | 31,421 | 0.2 | % | (26,613) | (84.7) | % | |||||||||||||||||||||||||||||
| Income before income taxes | 1,323,555 | 7.6 | % | 1,235,219 | 7.5 | % | 88,336 | 7.2 | % | |||||||||||||||||||||||||||||
| Income taxes | 323,906 | 1.9 | % | 304,494 | 1.8 | % | 19,412 | 6.4 | % | |||||||||||||||||||||||||||||
| Net income | $ | 999,649 | 5.7 | % | $ | 930,725 | 5.6 | % | $ | 68,924 | 7.4 | % | ||||||||||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
| (in thousands, except per share data) | 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||||
| Diluted EPS | $ | 7.08 | $ | 6.53 | $ | 0.55 | 8.4 | % | ||||||||||||||||||
| Total adjusted EBITDA | $ | 1,634,649 | $ | 1,506,004 | $ | 128,645 | 8.5 | % | ||||||||||||||||||
| Automotive segment profit | $ | 915,771 | $ | 896,475 | $ | 19,296 | 2.2 | % | ||||||||||||||||||
| Industrial segment profit | $ | 828,166 | $ | 656,330 | $ | 171,836 | 26.2 | % | ||||||||||||||||||
| Total segment profit | $ | 1,743,937 | $ | 1,552,805 | $ | 191,132 | 12.3 | % | ||||||||||||||||||
| Automotive segment margin | 8.5 | % | 8.8 | % | ||||||||||||||||||||||
| Industrial segment margin | 12.3 | % | 10.4 | % | ||||||||||||||||||||||
| Total segment margin | 10.0 | % | 9.4 | % | ||||||||||||||||||||||
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Net Sales
Our net sales for the three months ended September 30, 2023 increased 2.6% compared to the same period of the prior year. The increase in sales is attributable to a 0.5% increase in comparable sales, a 1.7% benefit from acquisitions and 0.4% favorable impact of foreign currency and other.
Our net sales for the nine months ended September 30, 2023 increased 5.6% compared to the same period of the prior year. The increase in sales is attributable to a 4.6% increase in comparable sales and a 2.0% benefit from acquisitions, partially offset by a net unfavorable impact of foreign currency and other of 1.0%.
Our comparable sales growth was driven by Industrial and our international automotive businesses for the three and nine months ended September 30, 2023. Both segments also experienced the ongoing benefits of strategic pricing initiatives and acquisitions completed in prior periods. For the three months ended September 30, 2023, sales growth was negatively impacted by one less sales day compared to the same prior year period and declines in our U.S. Automotive sales.
Automotive
Net sales for Automotive were $3.6 billion for the third quarter of 2023, an increase of 3.9%, compared to the same period in the prior year. The increase for the third quarter of 2023 consisted of a 2.4% benefit from acquisitions, 0.9% favorable impact of foreign currency and other and 0.6% increase in comparable sales. Comparable sales was impacted by one less sales day and lower sales in our U.S. Automotive business. While our sales growth was impacted by the prior year benefit from price increases to offset higher product costs and other inflationary pressures, we continued to benefit from the positive effects of our strategic sales initiatives in our European and Australasia businesses. The benefit from acquisitions includes our recent acquisition of Recambios y Accesorios Gaudí, S.L. ("Gaudi") in Spain, and the favorable impact from foreign currency primarily reflects the appreciation of the Euro against the U.S. dollar during the period.
Net sales for Automotive were $10.8 billion for the nine months ended September 30, 2023, an increase of 5.4%, compared to the same period in the prior year. The increase for the nine months ended September 30, 2023 consisted of a 3.7% increase in comparable sales and a 2.8% benefit from acquisitions, offset by a 1.1% unfavorable impact of foreign currency and other. The increase in comparable sales is due to higher sales in our international businesses. The benefit from acquisitions includes the effects of our entry into new markets in Spain and Portugal. The unfavorable impact of foreign currency primarily results from the weakening of the Australian and Canadian dollars compared to the U.S. dollar throughout the period.
Industrial
Net sales for Industrial were $2.2 billion, an increase of 0.6% for the three months ended September 30, 2023 compared to the same period in 2022. The increase reflects a 0.3% increase in comparable sales and a 0.6% benefit from acquisitions, slightly offset by a 0.3% unfavorable impact of foreign currency compared to the same period in 2022.
Net sales for Industrial were $6.7 billion, an increase of 6.0% for the nine months ended September 30, 2023 compared to the same period in 2022. The increase reflects a 6.0% increase in comparable sales and a 0.6% from acquisitions, slightly offset by a 0.6% unfavorable impact of foreign currency compared to the same period in 2022.
For the three months ended September 30, 2023, our results reflect anticipated softer economic activity and industry demand. For the nine months ended September 30, 2023, our growth in comparable sales reflects the positive impact of our ongoing sales and pricing initiatives and continued growth in many of the industry segments we serve. We attribute part of our sales growth to the diversification of our products and service offerings, and ongoing benefits from the KDG acquisition.
Gross Profit and Gross Margin
Gross profit for the three months ended September 30, 2023, increased $130 million, or approximately 6.5%, compared to the same period in the prior year. Gross margin increased 130 basis points to 36.2% for the three months ended September 30, 2023. Gross profit for the nine months ended September 30, 2023 increased $491 million or 8.5% compared to the same period in prior year. Gross margin increased 90 basis points to 35.7% for the nine months ended September 30, 2023.
Gross profit increases for the quarter and for the year-to-date periods were primarily driven by the increases in net sales and expanded gross margins. Gross margin improvements for the periods primarily reflect the positive contributions of our strategic pricing and sourcing initiatives.
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Operating Expenses
SG&A expenses represent 26.6% of sales for the three months ended September 30, 2023, an increase of 90 basis points from 25.7% in the third quarter of 2022. SG&A expenses represent 26.5% for the nine months ended September 30, 2023, an increase of 100 basis points from 25.5% for the same period in 2022. SG&A expenses as a percentage of sales for the three and nine months ended September 30, 2022 include costs of $3 million and income of $47 million, respectively, which primarily related to the net benefit of a gain on the June 2022 sale of real estate and KDG acquisition costs incurred throughout 2022. The increases in both periods are primarily driven by planned increases in personnel costs due to wage inflation and global investments in information technology to support our ongoing strategic initiatives, and the timing of additional product liability expense for the three months ended September 30, 2023 due to increases in our estimated product liability claim exposure.
Segment Profit
Beginning in 2023, certain functions, including cybersecurity and the management of our product liability litigation, were transferred to corporate to be streamlined and centrally managed. These costs totaled $15 million and $44 million for the three and nine months ended September 30, 2022, of which $9 million and $27 million were allocated to Automotive and $6 million and $17 million were allocated to Industrial based on several factors, including sales volumes and headcount. Beginning in 2023, these costs, which totaled $30 million and $49 million for the three and nine months ended September 30, 2023, are no longer allocated to our segments when measuring their operating performance. We have not restated the 2022 comparative segment profit financial information.
Automotive
Automotive segment profit for the three months ended September 30, 2023 increased 4.1% compared to the same period in 2022. Automotive segment margin remained at 8.9% for the three months ended September 30, 2023. For the nine months ended September 30, 2023, Automotive segment profit increased 2.2% compared to the same period in the prior year, and Automotive segment margin decreased 30 basis points to 8.5% for the same period in 2022. Automotive segment margin was negatively impacted by the loss of expense leverage primarily caused by slowing demand and the impact of lower sales in the U.S., combined with planned investments in wages and information technology. Our results in the U.S. also reflect operational execution challenges and further tightening of market conditions.
Industrial
Industrial segment profit increased 16.6% and 26.2% for the three and nine months ended September 30, 2023 compared to the same periods in 2022. For the three and nine months ended September 30, 2023, Industrial segment margin increased 180 basis points and 190 basis points to 12.9% and 12.3%, respectively, when compared to the same periods in the previous year. The improved Industrial segment margin is primarily due to continued sales growth and our focus on leveraging expenses and executing supply chain initiatives as well as other strategic initiatives in areas such as category management and pricing.
Income Taxes
Our effective income tax rate for the three and nine months ended September 30, 2023 was 24.5%, compared to 25.3% and 24.7% for the same periods in 2022. The rate decrease is primarily due to statute-related adjustments and domestic tax credit benefits.
Net Income
For the three months ended September 30, 2023, net income was $351 million, an increase of 12.4% compared to net income of $312 million for the same three month period in the prior year. On a per share diluted basis, net income was $2.49, an increase of 13.2% compared to $2.20 for the same period in 2022. Our results for the three months ended September 30, 2022 include costs of $3 million, which primarily related to KDG acquisition costs. Excluding these amounts, on an adjusted basis, net income increased 10.7% compared to $317 million for the same period in the prior year. On an adjusted per share diluted basis, net income increased 11.7% compared to $2.23 for the same period in 2022.
For the nine months ended September 30, 2023, net income was $1.0 billion, an increase of 7.4% compared to net income of $931 million for the same nine month period in the prior year. On a per share diluted basis, net income was $7.08, an increase of 8.4% compared to $6.53 for the same period in 2022. Our results for the nine months ended September 30, 2022 include income of $47 million, which primarily related to the net benefit of a gain on sale of real estate and KDG acquisition costs. Excluding these amounts, on an adjusted basis, net income increased 11.6% compared to $896 million for the same period in the prior year. On an adjusted per share diluted basis, net income increased 12.6% compared to $6.29 for the same period in 2022.
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For the three months ended September 30, 2023, adjusted EBITDA was $565 million, an increase of 7.3% from $526 million for the same three month period in the prior year. For the nine months ended September 30, 2023, adjusted EBITDA was $1.6 billion, an increase of 8.5% from $1.5 billion for the same nine month period in the prior year.
The growth in these metrics in all periods presented reflects improved segment margin, primarily in our Industrial segment, driven by higher revenue, particularly in our international business. We also benefited from the continued execution of our strategic pricing and other initiatives, as discussed more fully in the commentary above.
Non-GAAP Financial Measures
Adjusted net income, adjusted diluted EPS, adjusted EBITDA, total segment profit, total segment margin, and adjusted EBITDA for each segment are non-GAAP measures (see table below for reconciliations to the most directly comparable GAAP measures).
The following tables set forth reconciliations of net income and diluted EPS to adjusted net income and adjusted diluted EPS, respectively, as well as net income to adjusted EBITDA, in each case, to account for the impact of adjustments. We also include a reconciliation from net income to total segment profit and total segment margin, as well as a reconciliation from segment profit to adjusted EBITDA for each segment. We believe that the presentation these non-GAAP measures, when considered together with the corresponding GAAP financial measures and related reconciliations, provide meaningful supplemental information to both management and investors that is indicative of our core operations. We consider these metrics useful to investors because they provide greater transparency into management’s view and assessment of our ongoing operating performance by removing items management believes are not representative of our continuing operations and may distort our longer-term operating trends. In the case of adjusted EBITDA by segment, we believe this additional metric is useful to investors as it provides further insight into the performance of our segments. We believe the non-GAAP metrics included herein also enhance the comparability of our results from period to period and with our competitors, as well as to show ongoing results from operations distinct from items that are infrequent or not associated with our core operations. We do not, nor do we suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| GAAP net income | $ | 351,198 | $ | 312,358 | $ | 999,649 | $ | 930,725 | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Gain on sale of real estate (1) | — | — | — | (102,803) | ||||||||||||||||||||||
| Gain on insurance proceeds (2) | — | — | — | (1,507) | ||||||||||||||||||||||
| Transaction and other costs (3) | — | 3,462 | — | 56,955 | ||||||||||||||||||||||
| Total adjustments | — | 3,462 | — | (47,355) | ||||||||||||||||||||||
| Tax impact of adjustments (4) | — | 1,464 | — | 12,651 | ||||||||||||||||||||||
| Adjusted net income | $ | 351,198 | $ | 317,284 | $ | 999,649 | $ | 896,021 | ||||||||||||||||||
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The table below represents amounts per common share assuming dilution:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| GAAP diluted earnings per share | $ | 2.49 | $ | 2.20 | $ | 7.08 | $ | 6.53 | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Gain on sale of real estate (1) | — | — | — | (0.72) | ||||||||||||||||||||||
| Gain on insurance proceeds (2) | — | — | — | (0.01) | ||||||||||||||||||||||
| Transaction and other costs (3) | — | 0.02 | — | 0.40 | ||||||||||||||||||||||
| Total adjustments | — | 0.02 | — | (0.33) | ||||||||||||||||||||||
| Tax impact of adjustments (4) | — | 0.01 | — | 0.09 | ||||||||||||||||||||||
| Adjusted diluted earnings per share | $ | 2.49 | $ | 2.23 | $ | 7.08 | $ | 6.29 | ||||||||||||||||||
| Weighted average common shares outstanding – assuming dilution | 140,934 | 142,109 | 141,285 | 142,428 | ||||||||||||||||||||||
(1) Adjustment reflects a gain on the sale of real estate that had been leased to S.P. Richards.
(2) Adjustment reflects insurance recoveries in excess of losses incurred on inventory, property, plant and equipment and other fire-related costs.
(3) Adjustment primarily reflects costs associated with the January 3, 2022 acquisition of Kaman Distribution Group.
(4) We determine the tax effect of non-GAAP adjustments by considering the tax laws and statutory income tax rates applicable in the tax jurisdictions of the underlying non-GAAP adjustments, including any related valuation allowances. For the three and nine months ended September 30, 2022, we applied the statutory income tax rates to the taxable portion of all of our adjustments, which resulted in a tax impact of $1.5 million and $12.7 million respectively. A portion of our transaction costs included in our non-GAAP adjustments for the three and nine months ended September 30, 2022 were not deductible for income tax purposes; therefore, no statutory income tax rate was applied to such costs.
The table below represents a reconciliation from GAAP net income to adjusted EBITDA:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| GAAP net income | $ | 351,198 | $ | 312,358 | $ | 999,649 | $ | 930,725 | ||||||||||||||||||
| Depreciation and amortization | 83,860 | 86,563 | 261,948 | 259,822 | ||||||||||||||||||||||
| Interest expense, net | 15,827 | 18,220 | 49,146 | 58,318 | ||||||||||||||||||||||
| Income taxes | 113,862 | 105,578 | 323,906 | 304,494 | ||||||||||||||||||||||
| EBITDA | 564,747 | 522,719 | 1,634,649 | 1,553,359 | ||||||||||||||||||||||
| Total adjustments (1) | — | 3,462 | — | (47,355) | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 564,747 | $ | 526,181 | $ | 1,634,649 | $ | 1,506,004 | ||||||||||||||||||
(1) Amounts are the same as adjustments included within the adjusted net income table above.
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The table below clarifies where the adjusted items are presented in the Condensed Consolidated Statements of Income:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Line item: | ||||||||||||||||||||||||||
| Cost of goods sold | $ | — | $ | — | $ | — | $ | 5,000 | ||||||||||||||||||
| Selling, administrative and other expenses | — | 3,462 | — | (50,848) | ||||||||||||||||||||||
| Non-operating income: Other | — | — | — | (1,507) | ||||||||||||||||||||||
| Total adjustments | $ | — | $ | 3,462 | $ | — | $ | (47,355) | ||||||||||||||||||
The table below represents a reconciliation from GAAP net income to total segment profit:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| GAAP net income | $ | 351,198 | $ | 312,358 | $ | 999,649 | $ | 930,725 | ||||||||||||||||||
| Income taxes | 113,862 | 105,578 | 323,906 | 304,494 | ||||||||||||||||||||||
| Income before income taxes | 465,060 | 417,936 | 1,323,555 | 1,235,219 | ||||||||||||||||||||||
| Interest expense, net | 15,827 | 18,220 | 49,146 | 58,318 | ||||||||||||||||||||||
| Corporate expense | 90,257 | 72,820 | 257,822 | 187,883 | ||||||||||||||||||||||
| Intangible asset amortization | 33,667 | 39,416 | 113,414 | 118,740 | ||||||||||||||||||||||
| Other unallocated (loss) income, net (1) | — | 3,462 | — | (47,355) | ||||||||||||||||||||||
| Total segment profit | $ | 604,811 | $ | 551,854 | $ | 1,743,937 | $ | 1,552,805 | ||||||||||||||||||
| GAAP net sales | $ | 5,824,602 | $ | 5,675,274 | $ | 17,504,726 | $ | 16,572,323 | ||||||||||||||||||
| GAAP net income margin (2) | 6.0 | % | 5.5 | % | 5.7 | % | 5.6 | % | ||||||||||||||||||
| Total segment profit margin (3) | 10.4 | % | 9.7 | % | 10.0 | % | 9.4 | % | ||||||||||||||||||
(1) Amounts are the same as adjustments included within the adjusted net income table above.
(2) Represents GAAP net income as a percentage of GAAP net sales.
(3) Represents total segment profit as a percentage of GAAP net sales.
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The table below represents a reconciliation from segment profit to segment EBITDA and adjusted EBITDA:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Automotive: | ||||||||||||||||||||||||||
| Segment profit | $ | 322,004 | $ | 309,349 | $ | 915,771 | $ | 896,475 | ||||||||||||||||||
| Depreciation | 40,673 | 36,335 | 119,683 | 109,028 | ||||||||||||||||||||||
| Other costs (2) | — | 8,927 | — | 26,780 | ||||||||||||||||||||||
| Automotive segment adjusted EBITDA | 362,677 | 354,611 | 1,035,454 | 1,032,283 | ||||||||||||||||||||||
| Industrial: | ||||||||||||||||||||||||||
| Segment profit | 282,807 | 242,505 | 828,166 | 656,330 | ||||||||||||||||||||||
| Depreciation | 7,644 | 7,340 | 21,774 | 21,865 | ||||||||||||||||||||||
| Other costs (2) | — | 5,587 | — | 16,761 | ||||||||||||||||||||||
| Industrial segment adjusted EBITDA | 290,451 | 255,432 | 849,940 | 694,956 | ||||||||||||||||||||||
| Corporate: | ||||||||||||||||||||||||||
| Corporate expense | (90,257) | (72,820) | (257,822) | (187,883) | ||||||||||||||||||||||
| Depreciation | 1,876 | 3,472 | 7,077 | 10,189 | ||||||||||||||||||||||
| Other costs (2) | — | (14,514) | — | (43,541) | ||||||||||||||||||||||
| Other unallocated (loss) income, net (1) | — | (3,462) | — | 47,355 | ||||||||||||||||||||||
| Corporate EBITDA | (88,381) | (87,324) | (250,745) | (173,880) | ||||||||||||||||||||||
| Total adjustments (1) | — | 3,462 | — | (47,355) | ||||||||||||||||||||||
| Corporate adjusted EBITDA | (88,381) | (83,862) | (250,745) | (221,235) | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 564,747 | $ | 526,181 | $ | 1,634,649 | $ | 1,506,004 | ||||||||||||||||||
(1) Amounts are the same as adjustments included within the adjusted net income table above.
(2) These represent costs for certain functions, including cybersecurity and product liability litigation that were transferred to Corporate beginning in 2023 to be streamlined and centrally managed. We presented the 2022 comparative period to reflect how management manages these costs in 2023 and going forward.
Financial Condition
Our cash balance was $655 million as of September 30, 2023, an increase of $1.2 million from December 31, 2022. For the nine months ended September 30, 2023, we had net cash provided by operating activities of $1.1 billion, net cash used in investing activities of $473 million and net cash used in financing activities of $599 million.
The cash provided by operating activities decreased $162 million compared to the prior year period. The decrease is driven by a $200 million benefit in the prior year from increasing the facility limit of our A/R Sales Agreement. We had $473 million in net cash used for investing activities, primarily for capital expenditures and acquisitions, and other investing activities of $561 million, partially offset by $80 million related to cash proceeds from the sale of our remaining investment in S.P. Richards and other investments. The financing activities consisted primarily of $393 million for dividends paid to our shareholders and $172 million of stock repurchases. Total debt of $3.3 billion at September 30, 2023 decreased $11 million, or 0.3%, from December 31, 2022.
Liquidity and Capital Resources
We ended the quarter with $2.2 billion of total liquidity (comprising $1.5 billion availability on the revolving credit facility and $655 million of cash and cash equivalents). From time to time, we may enter into other credit facilities or financing arrangements to provide additional liquidity and to manage against foreign currency risk. We currently believe that the existing lines of credit and cash generated from operations will be sufficient to fund our ongoing operating activities and our anticipated cash commitments for investing and financing activities, such as capital expenditures and potential acquisitions, future debt obligations, and dividends.
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We have a strong cash position and solid financial strength to pursue strategic growth opportunities through disciplined, strategic capital deployment. Our key priorities include the reinvestment in our businesses through capital expenditures, mergers and acquisitions, the dividend and share repurchases. We have plans for additional investments in our businesses to drive growth, improve efficiencies and productivity, and drive shareholder value.
We expect to be able to continue to borrow funds at reasonable rates over the long term. At September 30, 2023, our total average cost of debt was 2.33%, and we remain in compliance with all covenants connected with our borrowings.
On March 14, 2023, we entered into a second amendment to our syndicated facility agreement dated October 30, 2020 to replace the benchmark rate, the 1-month London Inter Bank Offered Rate, with the 1-month Secured Overnight Financing Rate for borrowings denominated in U.S. Dollar.
Any failure to comply with our debt covenants or restrictions could result in a default under our financing arrangements or could require us to obtain waivers from our lenders for failure to comply with these restrictions. The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could create cross defaults under other debt arrangements and have a material adverse effect on our business, financial condition, results of operations and cash flows.
On February 21, 2023, we announced a 6% increase in the regular quarterly cash dividend for 2023. Our Board of Directors increased the cash dividend payable to an annual rate of $3.80 per share compared with the prior year dividend of $3.58 per share. We have paid a cash dividend every year since going public in 1948, and 2023 marks the 67th consecutive year of increased dividends paid to shareholders.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, refer to “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II of our 2022 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2022.
Item 4. Controls and Procedures
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed by us in the reports that we file or furnish under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 of the SEC that occurred during our last quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to our legal proceedings may be found in the Commitments and Contingencies Footnote in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I, which is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2022 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about the purchases of shares of our common stock during the three months ended September 30, 2023:
ISSUER PURCHASES OF EQUITY SECURITIES
| Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| July 1, 2023 through July 31, 2023 | 86,951 | $162.74 | 86,951 | 9,365,468 | ||||||||||||||||||||||
| August 1, 2023 through August 31, 2023 | 120,355 | $155.12 | 104,746 | 9,260,722 | ||||||||||||||||||||||
| September 1, 2023 through September 30, 2023 | 48,709 | $150.28 | 47,058 | 9,213,664 | ||||||||||||||||||||||
| Totals | 256,015 | $156.79 | 238,755 | 9,213,664 | ||||||||||||||||||||||
(1)Includes shares surrendered by employees to satisfy tax withholding obligations in connection with the vesting of shares of restricted stock, the exercise of share appreciation rights and/or tax withholding obligations.
(2)On August 21, 2017, the Board of Directors announced that it had authorized the repurchase of 15 million shares. The authorization for the repurchase continues until all such shares have been repurchased or the repurchase plan is terminated by action of the Board of Directors. Approximately 9.2 million shares authorized remain available to be repurchased. There were no other repurchase plans announced as of September 30, 2023.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the fiscal quarter ended September 30, 2023, none of the Company’s directors or executive officers adopted terminated
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Item 6. Exhibits
(a) The following exhibits are filed or furnished as part of this report:
| Exhibit 3.1 | ||||||||
| Exhibit 3.2 | ||||||||
| Exhibit 31.1 | ||||||||
| Exhibit 31.2 | ||||||||
| Exhibit 32 | ||||||||
| 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 | |||||||
| Exhibit 104 | The cover page from this Quarterly Report on Form 10-Q for the period ended September 30, 2023 formatted in Inline XBRL | |||||||
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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 thereunto duly authorized.
| Genuine Parts Company (Registrant) | ||||||||
| Date: October 19, 2023 | /s/ Bert Nappier | |||||||
| Bert Nappier | ||||||||
| Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) | ||||||||
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