Document
false--12-31Q32019000004098727800062130001698800015057000P1Y12086940001341995000218880003237400076640000.72002.160011450000000450000000145936613145293115145936613145293115480000307900068000405400087000000P1YP5Y6M29D256000078500002592000616600011100000001000000000
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 1-5690
  __________________________________________ 
GENUINE PARTS COMPANY
(Exact name of registrant as specified in its charter)
   __________________________________________ 
GA
 
58-0254510
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
2999 WILDWOOD PARKWAY,
 
30339
ATLANTA,
GA
 
 
(Address of principal executive offices)
 
(Zip Code)
678-934-5000
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $1.00 par value per share
 
GPC
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
  
Accelerated filer
 
 
 
 
 
 
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
 
 
 
Emerging growth company
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
There were 145,293,115 shares of common stock outstanding as of the September 30, 2019.
 

1


Table of Contents
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 (in thousands, except share and per share data)
 
September 30, 2019
 
December 31, 2018
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
451,275

 
$
333,547

Trade accounts receivable, less allowance for doubtful accounts (2019 – $32,374; 2018 – $21,888)
 
2,739,971

 
2,493,636

Merchandise inventories, net
 
3,718,307

 
3,609,389

Prepaid expenses and other current assets
 
1,149,118

 
1,139,118

Total current assets
 
8,058,671

 
7,575,690

Goodwill
 
2,278,066

 
2,128,776

Other intangible assets, less accumulated amortization
 
1,523,656

 
1,411,642

Deferred tax assets
 
30,301

 
29,509

Property, plant and equipment, less accumulated depreciation (2019 – $1,341,995; 2018 – $1,208,694)
 
1,118,912

 
1,027,231

Operating lease assets
 
1,048,462

 

Other assets
 
455,122

 
510,192

Total assets
 
$
14,513,190

 
$
12,683,040

 
 
 
 
 
Liabilities and equity
 
 
 
 
Current liabilities:
 
 
 
 
Trade accounts payable
 
$
4,195,869

 
$
3,995,789

Current portion of debt
 
622,132

 
711,147

Dividends payable
 
110,784

 
105,369

Other current liabilities
 
1,444,028

 
1,088,428

Total current liabilities
 
6,372,813

 
5,900,733

Long-term debt
 
2,795,878

 
2,432,133

Operating lease liabilities
 
797,166

 

Pension and other post–retirement benefit liabilities
 
202,188

 
235,228

Deferred tax liabilities
 
236,064

 
196,843

Other long-term liabilities
 
444,344

 
446,112

Equity:
 
 
 
 
Preferred stock, par value – $1 per share; authorized – 10,000,000 shares; none issued
 



Common stock, par value – $1 per share; authorized – 450,000,000 shares; issued and outstanding – 2019 – 145,293,115 shares; 2018 – 145,936,613 shares
 
145,293

 
145,937

Additional paid-in capital
 
90,560

 
78,380

Retained earnings
 
4,674,918

 
4,341,212

Accumulated other comprehensive loss
 
(1,268,580
)
 
(1,115,078
)
Total parent equity
 
3,642,191

 
3,450,451

Noncontrolling interests in subsidiaries
 
22,546

 
21,540

Total equity
 
3,664,737

 
3,471,991

Total liabilities and equity
 
$
14,513,190

 
$
12,683,040

See accompanying notes to condensed consolidated financial statements.

2

Table of Contents

GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands, except per share data)
 
2019
 
2018
 
2019
 
2018
Net sales
 
$
5,015,023

 
$
4,722,922

 
$
14,686,116

 
$
14,131,281

Cost of goods sold
 
3,390,597

 
3,238,687

 
9,954,941

 
9,689,653

Gross profit
 
1,624,426

 
1,484,235

 
4,731,175

 
4,441,628

Operating expenses:
 
 
 
 
 
 
 
 
Selling, administrative and other expenses
 
1,269,893

 
1,119,266

 
3,684,026

 
3,401,254

Depreciation and amortization
 
68,922

 
61,082

 
197,053

 
177,896

Provision for doubtful accounts
 
1,693

 
4,939

 
11,624

 
11,306

Total operating expenses
 
1,340,508

 
1,185,287

 
3,892,703

 
3,590,456

Non-operating (income) expenses:
 
 
 
 
 
 
 
 
Interest expense
 
26,485

 
25,084

 
73,664

 
75,669

Other
 
(47,100
)
 
(17,871
)
 
(53,366
)
 
(45,822
)
Total non-operating (income) expenses
 
(20,615
)
 
7,213

 
20,298

 
29,847

Income before income taxes
 
304,533

 
291,735

 
818,174

 
821,325

Income taxes
 
77,046

 
71,508

 
206,007

 
197,550

Net income
 
$
227,487

 
$
220,227

 
$
612,167

 
$
623,775

Basic net income per common share
 
$
1.56

 
$
1.50

 
$
4.20

 
$
4.25

Diluted net income per common share
 
$
1.56

 
$
1.49

 
$
4.18

 
$
4.23

Dividends declared per common share
 
$
.7625

 
$
.7200

 
$
2.2875

 
$
2.1600

Weighted average common shares outstanding
 
145,572

 
146,763

 
145,875

 
146,746

Dilutive effect of stock options and non-vested restricted stock awards
 
617

 
690

 
654

 
574

Weighted average common shares outstanding – assuming dilution
 
146,189

 
147,453

 
146,529

 
147,320

 
 
 
 
 
 
 
 
 
Net income
 
$
227,487

 
$
220,227

 
$
612,167

 
$
623,775

Other comprehensive loss, net of income taxes:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(126,350
)
 
(26,590
)
 
(88,369
)
 
(147,703
)
Cash flow and net investment hedge adjustments, net of income taxes in 2019 — $16,988 and $15,057; 2018 — $278 and $6,213 respectively
 
45,925

 
752

 
40,704

 
16,797

Pension and postretirement benefit adjustments, net of income taxes in 2019 — $2,592 and $6,166; 2018 — $2,560 and $7,850 respectively
 
7,024

 
6,912

 
16,689

 
21,221

Other comprehensive loss, net of income taxes
 
(73,401
)
 
(18,926
)
 
(30,976
)
 
(109,685
)
Comprehensive income
 
$
154,086

 
$
201,301

 
$
581,191

 
$
514,090

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
 
 
Three Months Ended September 30, 2019
(in thousands, except share and per share data)
 
Common Stock Shares
 
Common Stock Amount
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total Parent Equity
 
Non-controlling Interests in Subsidiaries
 
Total Equity
July 1, 2019
 
146,078,369

 
$
146,078

 
$
83,949

 
$
(1,195,179
)
 
$
4,630,480

 
$
3,665,328

 
$
22,647

 
$
3,687,975

Net income
 

 

 

 

 
227,487

 
227,487

 

 
227,487

Other comprehensive loss, net of tax
 

 

 

 
(73,401
)
 

 
(73,401
)
 

 
(73,401
)
Cash dividends declared, $0.7625 per share
 

 

 

 

 
(110,786
)
 
(110,786
)
 

 
(110,786
)
Share-based awards exercised, including tax benefit of $68
 
2,953

 
4

 
(128
)
 

 

 
(124
)
 

 
(124
)
Share-based compensation
 

 

 
6,739

 

 

 
6,739

 

 
6,739

Purchase of stock
 
(788,207
)
 
(789
)
 

 

 
(72,263
)
 
(73,052
)
 

 
(73,052
)
Noncontrolling interest activities
 

 

 

 

 

 

 
(101
)
 
(101
)
September 30, 2019
 
145,293,115

 
$
145,293

 
$
90,560

 
$
(1,268,580
)
 
$
4,674,918

 
$
3,642,191

 
$
22,546

 
$
3,664,737

 
 
Nine Months Ended September 30, 2019
(in thousands, except share and per share data)
 
Common Stock Shares
 
Common Stock Amount
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total Parent Equity
 
Non-controlling Interests in Subsidiaries
 
Total Equity
January 1, 2019
 
145,936,613

 
$
145,937

 
$
78,380

 
$
(1,115,078
)
 
$
4,341,212

 
$
3,450,451

 
$
21,540

 
$
3,471,991

Net income
 

 

 

 

 
612,167

 
612,167

 

 
612,167

Other comprehensive loss, net of tax
 

 

 

 
(30,976
)
 

 
(30,976
)
 

 
(30,976
)
Cash dividends declared, $2.2875 per share
 

 

 

 

 
(333,521
)
 
(333,521
)
 

 
(333,521
)
Share-based awards exercised, including tax benefit of $4,054
 
144,709

 
145

 
(7,640
)
 

 

 
(7,495
)
 

 
(7,495
)
Share-based compensation
 

 

 
19,820

 

 

 
19,820

 

 
19,820

Purchase of stock
 
(788,207
)
 
(789
)
 

 

 
(72,263
)
 
(73,052
)
 

 
(73,052
)
Cumulative effect from adoption of ASU 2018-02 (1)
 

 

 

 
(122,526
)
 
122,526

 

 

 

Cumulative effect from adoption of ASU 2016-02, net of tax (1)
 

 

 

 

 
4,797

 
4,797

 

 
4,797

Noncontrolling interest activities
 

 

 

 

 

 

 
1,006

 
1,006

September 30, 2019
 
145,293,115

 
$
145,293

 
$
90,560

 
$
(1,268,580
)
 
$
4,674,918

 
$
3,642,191

 
$
22,546

 
$
3,664,737

(1)
The Company adopted Accounting Standards Update ("ASU") 2016-02, Leases, and ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, during the first quarter of 2019. Refer to the recent accounting pronouncements footnote for further details.

4

Table of Contents

GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
 
 
Three Months Ended September 30, 2018
(in thousands, except share and per share data)
 
Common Stock Shares
 
Common Stock Amount
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total Parent Equity
 
Non-controlling Interests in Subsidiaries
 
Total Equity
July 1, 2018
 
146,752,732

 
$
146,753

 
$
72,211

 
$
(943,351
)
 
$
4,236,359

 
$
3,511,972

 
$
50,355

 
$
3,562,327

Net income
 

 

 

 

 
220,227

 
220,227

 

 
220,227

Other comprehensive loss, net of tax
 

 

 

 
(18,926
)
 

 
(18,926
)
 

 
(18,926
)
Cash dividends declared, $0.7200 per share
 

 

 

 

 
(105,673
)
 
(105,673
)
 

 
(105,673
)
Share-based awards exercised, including tax benefit of $480
 
25,829

 
25

 
(1,035
)
 

 

 
(1,010
)
 

 
(1,010
)
Share-based compensation
 

 

 
6,382

 

 

 
6,382

 

 
6,382

Purchase of stock
 
(19,288
)
 
(19
)
 

 

 
(1,899
)
 
(1,918
)
 

 
(1,918
)
Noncontrolling interest activities
 

 

 

 

 

 

 
1,670

 
1,670

September 30, 2018
 
146,759,273

 
$
146,759

 
$
77,558

 
$
(962,277
)
 
$
4,349,014

 
$
3,611,054

 
$
52,025

 
$
3,663,079

 
 
Nine Months Ended September 30, 2018
(in thousands, except share and per share data)
 
Common Stock Shares
 
Common Stock Amount
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total Parent Equity
 
Non-controlling Interests in Subsidiaries
 
Total Equity
January 1, 2018
 
146,652,615

 
$
146,653

 
$
68,126

 
$
(852,592
)
 
$
4,049,965

 
$
3,412,152

 
$
52,004

 
$
3,464,156

Net income
 

 

 

 

 
623,775

 
623,775

 

 
623,775

Other comprehensive loss, net of tax
 

 

 

 
(109,685
)
 

 
(109,685
)
 

 
(109,685
)
Cash dividends declared, $2.1600 per share
 

 

 

 

 
(316,984
)
 
(316,984
)
 

 
(316,984
)
Share-based awards exercised, including tax benefit of $3,079
 
125,946

 
125

 
(5,985
)
 

 

 
(5,860
)
 

 
(5,860
)
Share-based compensation
 

 

 
15,417

 

 

 
15,417

 

 
15,417

Purchase of stock
 
(19,288
)
 
(19
)
 

 

 
(1,899
)
 
(1,918
)
 

 
(1,918
)
Cumulative effect from adoption of ASU 2014-09, net of tax
 

 

 

 

 
(5,843
)
 
(5,843
)
 

 
(5,843
)
Noncontrolling interest activities
 

 

 

 

 

 

 
21

 
21

September 30, 2018
 
146,759,273

 
$
146,759

 
$
77,558

 
$
(962,277
)
 
$
4,349,014

 
$
3,611,054

 
$
52,025

 
$
3,663,079



See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
Nine Months Ended September 30,
(in thousands)
 
2019
 
2018
Operating activities:
 
 
 
 
Net income
 
$
612,167

 
$
623,775

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
197,053

 
177,896

Share-based compensation
 
19,820

 
15,417

Excess tax benefits from share-based compensation
 
(4,054
)
 
(3,079
)
Other non-operating activities
 
(22,329
)
 

Changes in operating assets and liabilities
 
(57,445
)
 
111,517

Net cash provided by operating activities
 
745,212

 
925,526

Investing activities:
 
 
 
 
Purchases of property, plant and equipment
 
(182,612
)
 
(91,942
)
Proceeds from divestitures of businesses
 
416,784

 

Acquisitions of businesses and other investing activities
 
(625,565
)
 
(153,988
)
Net cash used in investing activities
 
(391,393
)
 
(245,930
)
Financing activities:
 
 
 
 
Proceeds from debt
 
3,928,716

 
3,406,975

Payments on debt
 
(3,749,509
)
 
(3,710,934
)
Share-based awards exercised
 
(7,495
)
 
(5,860
)
Dividends paid
 
(328,106
)
 
(310,310
)
Purchases of stock

(73,052
)
 
(1,918
)
Net cash used in financing activities
 
(229,446
)
 
(622,047
)
Effect of exchange rate changes on cash and cash equivalents
 
(6,645
)
 
(13,343
)
Net increase in cash and cash equivalents
 
117,728

 
44,206

Cash and cash equivalents at beginning of period
 
333,547

 
314,899

Cash and cash equivalents at end of period
 
$
451,275

 
$
359,105

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes required by accounting principles generally accepted in the U.S. ("U.S. GAAP") for complete financial statements. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K of Genuine Parts Company (the “Company,” "we," "our," "us," or "its") for the year ended December 31, 2018. Accordingly, the unaudited interim condensed consolidated financial statements and related disclosures herein should be read in conjunction with the Company’s 2018 Annual Report on Form 10-K.
The preparation of interim financial statements requires management to make estimates and assumptions that affect the amounts reported in the interim condensed consolidated financial statements. Specifically, the Company makes estimates and assumptions in its interim condensed consolidated financial statements for inventory adjustments, the accrual of bad debts, customer sales returns, and volume incentives earned, among others. Inventory adjustments (including adjustments for a majority of inventories that are valued under the last-in, first-out (“LIFO”) method) are accrued on an interim basis and adjusted in the fourth quarter based on the annual book to physical inventory adjustment and LIFO valuation. Reserves for bad debts and customer sales returns are estimated and accrued on an interim basis based upon historical experience. Volume incentives are estimated based upon cumulative and projected purchasing levels. The estimates and assumptions for interim reporting may change upon final determination at year-end, and such changes may be significant.
In the opinion of management, all adjustments necessary for a fair presentation of the Company’s financial results for the interim periods have been made. These adjustments are of a normal recurring nature. The results of operations for the nine months ended September 30, 2019 are not necessarily indicative of results for the entire year. The Company has evaluated subsequent events through the date the condensed consolidated financial statements covered by this quarterly report were issued.
2. Segment Information
The following table presents a summary of the Company's reportable segment financial information:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Net sales:
 
 
 
 
 
 
 
 
Automotive
 
$
2,790,607

 
$
2,649,716

 
$
8,187,760

 
$
7,950,176

Industrial
 
1,732,831

 
1,577,329

 
5,049,975

 
4,727,938

Business products
 
491,585

 
495,877

 
1,448,381

 
1,453,167

Total net sales
 
$
5,015,023

 
$
4,722,922

 
$
14,686,116

 
$
14,131,281

Operating profit:
 
 
 
 
 
 
 
 
Automotive
 
$
222,100

 
$
226,742

 
$
629,713

 
$
655,059

Industrial
 
137,525

 
119,153

 
394,887

 
356,535

Business products
 
21,611

 
19,846

 
63,727

 
62,869

Total operating profit
 
381,236

 
365,741

 
1,088,327

 
1,074,463

Interest expense, net
 
(24,770
)
 
(21,881
)
 
(70,313
)
 
(70,713
)
Intangible asset amortization
 
(26,224
)
 
(23,593
)
 
(72,725
)
 
(66,802
)
Corporate expense (1)
 
(25,709
)
 
(28,532
)
 
(127,115
)
 
(115,623
)
Income before income taxes
 
$
304,533

 
$
291,735

 
$
818,174

 
$
821,325


(1)
Includes $12,413 of income and $25,809 of expense for the three and nine months ended September 30, 2019, respectively, in certain transaction and other costs related to acquisitions and dispositions. Also includes the realized currency losses incurred on the March 7, 2019 sale of Grupo Auto Todo and the September 30, 2019 sale of EIS Inc. ("EIS"), net of a gain from remeasuring the Company's preexisting 35% equity investment to fair value upon acquiring the remaining equity of Inenco on July 1, 2019. Refer to the acquisitions and divestitures footnote for further details.

7

Table of Contents

Includes $3,104 of income and $19,010 of expense for the three and nine months ended September 30, 2018, respectively, in certain transaction and other costs related to the acquisition of Alliance Automotive Group ("AAG") and the attempted Business Products Group spin-off, net of a $12,000 termination fee received in the third quarter of 2018.
Net sales are disaggregated by geographical region for each of the Company’s reportable segments, as the Company deems this presentation best depicts how the nature, amount, timing and uncertainty of net sales and cash flows are affected by economic factors. The following table presents disaggregated geographical net sales from contracts with customers by reportable segment:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
North America:
 
 
 
 
 
 
 
 
Automotive
 
$
1,942,922

 
$
1,918,814

 
$
5,720,290

 
$
5,646,108

Industrial
 
1,624,303

 
1,577,329

 
4,941,447

 
4,727,938

Business products
 
491,585

 
495,877

 
1,448,381

 
1,453,167

Total North America
 
$
4,058,810

 
$
3,992,020

 
$
12,110,118

 
$
11,827,213

Australasia:
 
 
 
 
 
 
 
 
Automotive
 
295,424

 
298,797

 
866,694

 
903,600

Industrial
 
108,528

 

 
108,528

 

Total Australasia
 
403,952

 
298,797

 
975,222

 
903,600

Europe – Automotive
 
552,261

 
432,105

 
1,600,776

 
1,400,468

Total net sales
 
$
5,015,023

 
$
4,722,922

 
$
14,686,116

 
$
14,131,281


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

 
$
(499,482
)
 
$
(1,115,078
)
Other comprehensive loss before reclassifications

 
54,180

 
(123,070
)
 
(68,890
)
Amounts reclassified from accumulated other comprehensive loss (1)
22,855

 
1,581

 
34,701

 
59,137

Income taxes
(6,166
)
 
(15,057
)
 

 
(21,223
)
Other comprehensive loss, net of income taxes
16,689

 
40,704

 
(88,369
)
 
(30,976
)
Cumulative effect from adoption of ASU 2018-02
(122,526
)
 

 

 
(122,526
)
Ending balance, September 30, 2019
$
(732,159
)
 
$
51,430

 
$
(587,851
)
 
$
(1,268,580
)
(1)
Amount includes realized currency losses of $34,701 that were reclassified out of foreign currency translation into earnings in connection with the March 7, 2019 sale of Grupo Auto Todo and the September 30, 2019 sale of EIS. Refer to the acquisitions and divestitures footnote for further details.

8

Table of Contents

 
Changes in Accumulated Other
Comprehensive Loss by Component
 
Pension and Other Post-Retirement Benefits
 
Cash Flow and Net Investment Hedges
 
Foreign Currency Translation
 
Total
Beginning balance, January 1, 2018
$
(568,957
)
 
$
(17,388
)
 
$
(266,247
)
 
$
(852,592
)
Other comprehensive loss before reclassifications

 
22,124

 
(147,703
)
 
(125,579
)
Amounts reclassified from accumulated other comprehensive loss
29,071

 
886

 

 
29,957

Income taxes
(7,850
)
 
(6,213
)
 

 
(14,063
)
Other comprehensive loss, net of income taxes
21,221

 
16,797

 
(147,703
)
 
(109,685
)
Ending balance, September 30, 2018
$
(547,736
)
 
$
(591
)
 
$
(413,950
)
 
$
(962,277
)

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

9

Table of Contents

Financial Instruments - Credit Losses (Topic 220)

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. Among other things, the ASU and its amendments replace the incurred loss impairment model for receivables and certain other financial instruments with a current expected credit loss model. The new model measures impairment based on expected credit losses over the remaining contractual life of an asset, considering available information about the collectability of cash flows, past events, current conditions, and reasonable and supportable forecasts. Additional quantitative and qualitative disclosures are required. ASU 2016-13 is effective for periods beginning after December 15, 2019, with an option to adopt early. The Company plans to adopt the ASU and its amendments on January 1, 2020, and any changes to allowances for credit losses caused by the adoption will be made through a cumulative effect adjustment to retained earnings as of that date. The 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.
5. Employee Benefit Plans
Net periodic benefit income from the Company's pension plans included the following components for the three months ended September 30:
 
 
Pension Benefits
 
 
2019
 
2018
Service cost
 
$
2,395

 
$
2,584

Interest cost
 
24,362

 
22,044

Expected return on plan assets
 
(38,551
)
 
(38,470
)
Amortization of prior service credit
 
(17
)
 
(37
)
Amortization of actuarial loss
 
7,752

 
9,920

Net periodic benefit income
 
$
(4,059
)
 
$
(3,959
)

Net periodic benefit income from the Company's pension plans included the following components for the nine months ended September 30:
 
 
Pension Benefits
 
 
2019
 
2018
Service cost
 
$
7,164

 
$
7,850

Interest cost
 
73,045

 
66,228

Expected return on plan assets
 
(115,585
)
 
(115,574
)
Amortization of prior service credit
 
(51
)
 
(111
)
Amortization of actuarial loss
 
23,247

 
29,814

Net periodic benefit income
 
$
(12,180
)
 
$
(11,793
)

Service cost is recorded in selling, administrative and other expenses in the condensed consolidated statements of income and comprehensive income while all other components are recorded within other non-operating (income) expenses. Pension benefits also include amounts related to supplemental retirement plans.

10

Table of Contents

6. Guarantees
The Company guarantees the borrowings of certain independently controlled automotive parts stores and businesses (“independents”) and certain other affiliates in which the Company has a noncontrolling equity ownership interest (“affiliates”). Presently, the independents are generally consolidated by unaffiliated enterprises that have controlling financial interests through ownership of a majority voting interest in the independents. The Company has no voting interest or equity conversion rights in any of the independents. The Company does not control the independents or the affiliates, but receives a fee for the guarantees. The Company has concluded that the independents are variable interest entities, but that the Company is not the primary beneficiary. Specifically, the equity holders of the independents have the power to direct the activities that most significantly impact the entities’ economic performance including, but not limited to, decisions about hiring and terminating personnel, local marketing and promotional initiatives, pricing and selling activities, credit decisions, monitoring and maintaining appropriate inventories, and store hours. Separately, the Company concluded that the affiliates are not variable interest entities. The Company’s maximum exposure to loss as a result of its involvement with these independents and affiliates is generally equal to the total borrowings subject to the Company’s guarantees. While such borrowings of the independents and affiliates are outstanding, the Company is required to maintain compliance with certain covenants, including a maximum debt to capitalization ratio and certain limitations on additional borrowings. At September 30, 2019, the Company was in compliance with all such covenants.
As of September 30, 2019, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately $864,398. These loans generally mature over periods from one to six years. In the event that the Company is required to make payments in connection with these guarantees, the Company would obtain and liquidate certain collateral pledged by the independents or affiliates (e.g., accounts receivable and inventory) to recover all or a portion of the amounts paid under the guarantees. When it is deemed probable that the Company will incur a loss in connection with a guarantee, a liability is recorded equal to this estimated loss. To date, the Company has had no significant losses in connection with guarantees of independents’ and affiliates’ borrowings.
As of September 30, 2019, the Company has recognized certain assets and liabilities amounting to $87,000 each for the guarantees related to the independents’ and affiliates’ borrowings. These assets and liabilities are included in other assets and other long-term liabilities in the condensed consolidated balance sheets.
7. Fair Value of Financial Instruments
The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, trade accounts receivable, trade accounts payable, and borrowings under the line of credit and term loan approximate their respective fair values based on the short-term nature of these instruments. As of September 30, 2019, the carrying amount, net of debt issuance costs, and the fair value of fixed rate debt were approximately $1,913,359 and $2,017,415, respectively. The fair value of fixed rate debt is designated as Level 2 in the fair value hierarchy (i.e., significant observable inputs) and is based primarily on the discounted value of future cash flows using current market interest rates offered for debt of similar credit risk and maturity. The carrying amount, net of debt issuance costs, of fixed rate debt of $1,913,359 is included in long-term debt in the condensed consolidated balance sheets. Refer to the derivatives and hedging footnote for information on the fair value of derivative instruments.
8. Credit Facilities
On May 31, 2019, the Company entered into a private placement agreement of 250,000 long-term fixed rate debt. The 250,000 of long-term fixed rate debt includes 50,000, 1.55% Series A Guaranteed Senior Note maturing on May 31, 2029, 100,000, 1.74% Series B Guaranteed Senior Note maturing on May 31, 2031 and 100,000, 1.95% Series C Guaranteed Senior Note maturing on May 31, 2034.
On June 30, 2019, the Company entered into a private placement agreement of Australian dollar ("A$") denominated long-term fixed rate debt of A$310,000. The A$310,000 of long-term fixed rate debt includes A$155,000, 3.10% Series A Guaranteed Senior Note maturing on June 30, 2024 and A$155,000, 3.43% Series B Guaranteed Senior Note maturing on June 30, 2026.
All borrowings require the Company to comply with a financial covenant with respect to a maximum debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio. At September 30, 2019, the Company was in compliance with all such covenants. For information on the Company's other credit facilities please see the Company's 2018 Annual Report on Form 10-K.

11

Table of Contents

9. Derivatives and Hedging
The Company is exposed to various risks arising from business operations and market conditions, including fluctuations in interest rates and certain foreign currencies. When deemed appropriate, the Company uses derivative and non-derivative instruments as risk management tools to mitigate the potential impact of interest rate and foreign exchange rate risks. The objective of using these tools is to reduce fluctuations in the Company’s earnings and cash flows associated with changes in these rates. Derivative financial instruments are not used for trading or other speculative purposes. The Company has not historically incurred, and does not expect to incur in the future, any losses as a result of counterparty default related to derivative instruments.
The Company formally documents relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking cash flow hedges to specific forecasted transactions or variability of cash flow to be paid. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the designated derivative and non-derivative instruments that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items. When a designated instrument is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, hedge accounting is discontinued prospectively.
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:
 
 
 
 
September 30, 2019
 
December 31, 2018
Instrument
 
Balance sheet location
 
Notional
 
Balance
 
Notional
 
Balance
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Other current liabilities
 
$
800,000

 
$
29,832

 
$
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

 
$
55,050

 

 

Foreign currency debt
 
Long-term debt
 
700,000

 
$
765,870

 
700,000

 
$
801,010


The 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.
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.

12

Table of Contents

The table below presents 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
 
2019
 
2018
Three Months Ended September 30,
 
 
 
 
 
 
 
 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
Interest rate contract
 
$
(3,766
)
 
$
1,079

 
$

 
$

Net Investment Hedges:
 
 
 
 
 
 
 
 
Cross-currency swap
 
$

 
$
(6,536
)
 
$

 
$
3,256

Forward contracts
 
35,796

 

 
5,596

 

Foreign currency debt
 
30,030

 
5,600

 

 

Total
 
$
62,060

 
$
143

 
$
5,596

 
$
3,256

Nine Months Ended September 30,
 
 
 
 
 
 
 
 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
Interest rate contract
 
$
(25,332
)
 
$
1,079

 
$

 
$

Net Investment Hedges:
 
 
 
 
 
 
 
 
Cross-currency swap
 
$
2,936

 
$
(6,536
)
 
$
2,294

 
$
3,256

Forward contracts
 
41,436

 

 
12,220

 

Foreign currency debt
 
35,140

 
27,581

 

 

Total
 
$
54,180

 
$
22,124

 
$
14,514

 
$
3,256


Amounts reclassified from accumulated other comprehensive loss to interest expense for the periods presented were not material.
10. Leased Properties
The Company primarily leases real estate for certain retail stores, distribution centers, office space and land. The Company also leases equipment (primarily vehicles).
Most real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term from one to 20 years. The exercise of lease renewal options is at the Company's discretion. The Company evaluates renewal options at lease inception and on an ongoing basis, and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.
The table below presents the locations of the operating lease assets and liabilities on the condensed consolidated balance sheets as of September 30, 2019:
 
 
Balance Sheet Line Item
 
September 30, 2019
Operating lease assets
 
Operating lease assets
 
$
1,048,462

 
 
 
 
 
Operating lease liabilities:
 
 
 
 
Current operating lease liabilities
 
Other current liabilities
 
$
274,687

Noncurrent operating lease liabilities
 
Operating lease liabilities
 
797,166

Total operating lease liabilities
 
 
 
$
1,071,853

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.

13

Table of Contents

The Company's weighted average remaining lease term and weighted average discount rate for operating leases as of September 30, 2019 are:
Weighted average remaining lease term (in years)
 
5.58

Weighted average discount rate
 
3.21
%

The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liabilities recognized on the condensed consolidated balance sheets as of September 30, 2019:
October 1, 2019 through December 31, 2019
$
77,339

2020
296,219

2021
230,421

2022
173,932

2023
122,529

Thereafter
276,067

Total undiscounted future minimum lease payments
1,176,507

Less: Difference between undiscounted lease payments and discounted operating lease liabilities
104,654

Total operating lease liabilities
$