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, 2020. The results of operations for the three
and nine months ended September 30, 2021 are not necessarily indicative of the
year ended December 31, 2021.
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 expected ability to operate and protect our workforce
during the COVID-19 pandemic, our strategies for growing our automotive and
industrial businesses, the execution and effect of our cost savings initiatives,
our efforts and initiatives to help us emerge from the pandemic well-positioned
to execute our strategy, our ongoing efforts to maintain compliance and
flexibility under our debt covenants, our liquidity position and actions to
maximize cash flow to continue to operate during these highly uncertain times
and plans for future cost savings. 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, the extent and duration
of the disruption to our business operations caused by the global health crisis
associated with the COVID-19 pandemic, 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; disruptions in global supply chains and in our suppliers'
operations, including as a result of the impact of COVID-19 on our suppliers and
our supply chain; 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 and our suppliers and customers; changes in
general economic conditions, including unemployment, inflation (including the
impact of tariffs) or deflation and the United Kingdom's ("U.K.") exit from the
European Union and the unpredictability of the impact following such exit;
changes in tax policies; volatile exchange rates; volatility in oil prices;
significant cost increases, such as rising fuel and freight expenses; 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
2020 Annual Report on Form 10-K (all of which risks may be amplified by the
COVID-19 pandemic) 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.
                                       18
--------------------------------------------------------------------------------
  Table of Contents
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.
The Company's Automotive Parts Group operated in the U.S., Canada, Mexico,
France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Australia
and New Zealand as of September 30, 2021, and accounted for 66% of total revenue
for the nine months ended September 30, 2021. Our Industrial Parts Group
operated in the U.S., Canada, Mexico, Australia, New Zealand, Indonesia and
Singapore. The Industrial Parts Group accounted for 34% of the Company's total
revenue for the nine months ended September 30, 2021.
At Genuine Parts Company, our mission is to be a world-class service
organization and the employer of choice, supplier of choice, valued customer,
good corporate citizen and investment of choice. Our strategic financial
objectives are intended to align with our mission and drive value for all our
stakeholders. Our strategic financial objectives include: (1) top line revenue
growth; (2) improved operating margin; (3) a strong balance sheet and cash
flows; and (4) effective capital allocation.
COVID-19 Pandemic
During the nine months ended September 30, 2021, our business and results of
operations continued to improve relative to the same period of 2020. In
particular, as widespread vaccine distribution continued, we have seen economic
recovery in many of the markets where we operate and a significant uptick in
consumer mobility. However, all regions in which we operate continue to
experience periodic surges in infection rates. As a result, our business
segments continue to face many uncertainties and our operations remain
vulnerable to continuing negative effects caused by the pandemic. However, we
are encouraged to see the impact of the pandemic subsiding as evidenced by the
improving industrial economy, increase in miles driven and overall consumer
activity.
As of September 30, 2021, all our operations are open for business. Our supply
chain partners have been very supportive and accommodating, despite strains on
the supply chain caused by labor shortages, inventory shortages, delays in order
fulfillment and increased backlogs. This has allowed us to continue to provide
quality customer service. We remain in constant communication with our employees
regarding changing conditions and protocol. Based on the length and severity of
the pandemic, we may experience continued volatility in customer demand and
supply chain disruption. We will continue to evaluate the nature and extent of
these potential impacts to our business, consolidated results of operations,
segment results, liquidity and capital resources.
For further information regarding the impact of COVID-19 on our business, please
see "Results of Operations," and Item 1A, "Risk Factors," in this report, which
are incorporated herein by reference.
Key Business Metrics
We consider comparable sales to be a key business metric because management has
evaluated its results of operations using this metric and we believe that this
key indicator provides additional perspective and insights when analyzing the
operating performance of our business from period to period and trends in its
historical operating results. This metric should not be considered superior to,
as a substitute for or as an alternative to, and should be considered in
conjunction with, the GAAP financial measures presented in this report.
Comparable Sales
Comparable sales refer to period-over-period comparisons of our net sales
excluding the impact of acquisitions, foreign currency and other. We consider
this metric useful to investors because it provides greater transparency into
management's view and assessment of our core ongoing operations. This is a
metric that is widely used by analysts, investors and competitors in our
industry, although our calculation of the metric may not be comparable to
similar measures disclosed by other companies, because not all companies and
analysts calculate this metric in the same manner.
Results of Operations
Overview
As a result of the COVID-19 vaccine distribution and its positive impact on
consumer mobility and demand, we are encouraged by the increase in consumer
activity during the three and nine months ended September 30, 2021 as
                                       19
--------------------------------------------------------------------------------
  Table of Contents
our key markets continue to reopen. In addition, we continue to realize the
benefits of our cost savings initiatives to more effectively leverage our cost
structure in both our Automotive and Industrial Parts Groups. Both our segments
reported improved sales during the three and nine months ended September 30,
2021 when compared to the same prior year periods. The Automotive Parts Group
benefited from the broad economic recovery, an increase in customer mobility and
miles driven, as well as favorable weather trends. The Industrial Parts Group
benefited from the strengthening industrial economy, as evidenced by economic
indicators such as the Manufacturing Industrial Production and the Purchasing
Managers Index, among others. Additionally, the Industrial Parts Group executed
on key operational initiatives, including improved omni-channel capabilities and
the expansion of our services and solutions business.
Sales
Sales for the three months ended September 30, 2021 were $4.8 billion, a 10.3%
increase as compared to $4.4 billion in the same period of the prior year. The
increase in sales is attributable to a 7.6% increase in comparable sales, a 1.8%
benefit from acquisitions and a net favorable impact of foreign currency and
other of 0.9%. Sales for the nine months ended September 30, 2021 were $14.1
billion, a 14.5% increase as compared to $12.3 billion in the same period of the
prior year. The increase in sales is due to a 10.0% comparable sales increase, a
3.2% net favorable impact of foreign currency and other and a 1.3% benefit from
acquisitions. The increases in comparable sales is driven primarily by the
increased consumer activity as our key markets continue to reopen when compared
to the three and nine months ended September 30, 2020. Sales were positively
impacted by price inflation of approximately 3% and 2% for the three and nine
months ended September 30, 2021, respectively.
Sales for the Automotive Parts Group increased 8.2% for the three months ended
September 30, 2021, as compared to the same period in the prior year. This
group's revenue increase for the three months ended September 30, 2021 consisted
of an approximate 4.8% increase in comparable sales, a 2.4% benefit from
acquisitions and a 1.0% net favorable impact of foreign currency and other. This
group's 16.4% revenue increase for the nine months ended September 30, 2021
consisted of an approximate 10.7% increase in comparable sales, a 3.9% net
favorable impact from foreign currency and other and a 1.8% benefit from
acquisitions.
Sales for the Industrial Parts Group increased 14.5% for the three months ended
September 30, 2021, as compared to the same period in 2020. The increase in this
group's revenue reflects an approximate 13.4% increase in comparable sales, a
0.8% favorable foreign currency impact and a 0.3% benefit from acquisitions.
This group's 11.0% sales increase for the nine months ended September 30, 2021
reflects an 8.9% increase in comparable sales, a 1.5% favorable impact from
foreign currency and a 0.6% benefit from acquisitions.
Cost of Goods Sold and Operating Expenses
Cost of goods sold for the three months ended September 30, 2021 was $3.1
billion, a 9.4% increase from $2.8 billion for the same period in 2020. As a
percentage of net sales, cost of goods sold was 64.5% for the three months ended
September 30, 2021, as compared to 65.0% in the same three month period of 2020.
Cost of goods sold for the nine months ended September 30, 2021 was $9.1
billion, a 13.0% increase from $8.1 billion for the same period in 2020. As a
percentage of net sales, cost of goods sold was 64.9% for the nine months ended
September 30, 2021, as compared to 65.8% in the same period of 2020. The
increase in cost of goods sold for the three and nine months ended September 30,
2021 primarily relates to the overall increase in sales volume due to the
increased consumer activity as compared to the same three and nine month periods
of the prior year.
Gross profit as a percentage of net sales may fluctuate based on, among other
things, (i) changes in merchandise costs and related supplier volume incentives
or pricing, (ii) variations in product and customer mix, (iii) price changes in
response to competitive pressures, (iv) physical inventory and LIFO adjustments,
(v) changes in foreign currency exchange rates, (vi) changes in inflation or
deflation, and (vii) the impact of tariffs. Gross margin improved to 35.5% for
the three months ended September 30, 2021 compared to 35.0% in the same period
of 2020. Gross margin for the nine months ended September 30, 2021 improved to
35.1% from 34.2% for the same nine month period of 2020. The gross margin
improvements primarily reflect the impact of higher levels of supplier
incentives on stronger sales and strategic category management initiatives
including pricing and global sourcing strategies. We have reported improved year
over year gross margin for 16 consecutive quarters.
Total operating expenses increased to $1.4 billion for the three months ended
September 30, 2021 as compared to $1.2 billion for the same three month period
in 2020. As a percentage of net sales, operating expenses increased to 29.4% as
compared to 28.1% in the respective periods. This increase as a percentage of
net sales is primarily due to the benefit of temporary COVID-19 related savings
initiatives in 2020 and a $61.1 million loss on a software disposal in 2021. For
the nine months ended September 30, 2021, operating expenses totaled $4.1
billion as
                                       20
--------------------------------------------------------------------------------
  Table of Contents
compared to $4.0 billion for the same nine month period in 2020. As a percentage
of net sales, operating expenses improved to 29.3% as compared to 32.8% for the
respective periods primarily driven by the non-cash goodwill impairment charge
that occurred in 2020.
Our operating expenses are substantially comprised of compensation and
benefit-related costs for personnel. Other major expense categories include
transportation and delivery costs driven by higher sales, facility occupancy
costs, technology and digital costs, insurance costs, legal and professional
services, and travel and advertising.
Segment Profit
The Automotive Parts Group's segment profit increased 5.6% in the three months
ended September 30, 2021 as compared to the same period of 2020, and its segment
profit margin was 8.8% as compared to 9.0% in the same period of the previous
year. Segment profit margin declined primarily due to the benefit of temporary
COVID-related savings initiatives in 2020. These items were partially offset by
improved leverage from stronger sales, gross margin expansion and incremental
cost control initiatives in 2021. For the nine months ended September 30, 2021,
the Automotive Parts Group's segment profit increased approximately 28.7% and
the segment profit margin improved to 8.6% as compared to 7.8% in the same nine
month period of 2020. This improvement in segment profit margin is primarily due
to sales gains as a result of the increased consumer activity as our key markets
continue to reopen, gross margin improvements, and the leveraging of expenses on
higher sales and ongoing cost control initiatives.
The Industrial Parts Group's segment profit increased 31.9% in the three months
ended September 30, 2021 as compared to the same three month period of 2020, and
the segment profit margin for this group improved to 10.3% compared to 8.9% for
the same period of the previous year. Segment profit for the Industrial Parts
Group improved 26.7% in the nine months ended September 30, 2021 as compared to
the same nine month period of 2020, and the segment profit margin for this group
improved to 9.4% compared to 8.2% for the same period of the previous year. The
improved segment profit margins for both periods reflect the positive impact of
higher sales volumes, gross margin gains and efficiencies in the operating
structure of the Industrial Parts Group. Additionally, the Industrial Parts
Group benefited from the strengthening industrial economy, which is evident in
indicators such as the Purchasing Managers Index and Industrial Production
Index.
Income Taxes
The Company's effective income tax rate was 23.5% for the three months ended
September 30, 2021, compared to 21.8% for the same three month period in 2020.
The effective income tax rate was 24.8% for the nine months ended September 30,
2021, compared to 105.4% for the same period in 2020.
For the three months ended September 30, 2021, the rate increase is primarily
due to income mix shifts and statute related adjustments. For the nine months
ended September 30, 2021, the rate decrease is primarily due to the
non-deductible goodwill impairment charge that occurred in 2020, as described
below. In addition, during the second quarter of 2021, the United Kingdom
enacted legislation raising its corporate tax rate from 19% to 25% effective
April 2023. Accordingly, the Company remeasured its deferred tax assets and
liabilities as of June 30, 2021.
Net Income (Loss) from Continuing Operations
For the three months ended September 30, 2021, the Company recorded net income
from continuing operations of $228.6 million, a decrease of 1.9% as compared to
net income from continuing operations of $232.9 million in the same three month
period of the prior year. On a per share diluted basis, net income was $1.59, a
decrease of 1.2% as compared to net income per diluted share of $1.61 for the
same three month period of 2020. This decrease is primarily related to a loss on
a software disposal of $61.1 million during the three months ended September 30,
2021.

For the nine months ended September 30, 2021, the Company recorded net income
from continuing operations of $642.8 million as compared to net loss from
continuing operations of $8.2 million in the same nine month period of the prior
year. On a per share diluted basis, net income from continuing operations was
$4.44 as compared to net loss per diluted share of $0.06 in the same nine month
period of 2020. The increase in income for the nine month period was primarily
driven by the goodwill impairment charge of $506.7 million that occurred during
the second quarter of 2020. Additionally, we saw higher sales volume as a result
of increased consumer activity as our key markets continue to reopen during the
nine months ended September 30, 2021 .
Further impacting net income from continuing operations during the three and
nine months ended September 30, 2021, the Company incurred $61.1 million and
$138.5 million of adjustments, respectively. These adjustments include the
aforementioned loss related to a software disposal of $61.1 million and $77.4
million related to damages
                                       21
--------------------------------------------------------------------------------
  Table of Contents
reinstated by the Washington Supreme Court order on July 8, 2021 in connection
with a 2017 automotive product liability claim. Refer to the property, plant and
equipment and commitments and contingencies footnotes to the condensed
consolidated financial statements for more information regarding these
adjustments. The Company believes these represent costs that do not arise in the
ordinary course of the Company's business and therefore impact comparability
with prior periods.
During the three and nine months ended September 30, 2020, the Company incurred
$11.3 million and $565.0 million of adjustments, respectively. These adjustments
include a goodwill impairment charge of $506.7 million related to our European
reporting unit and also represents restructuring costs, realized currency
losses, insurance proceeds related to the SPR Fire and transaction and other
costs and income. Transaction and other costs primarily include incremental
costs associated with certain divestitures and COVID-19.
For the three months ended September 30, 2021, the Company's adjusted net income
from continuing operations was $270.5 million, an increase of 14.2% as compared
to adjusted net income from continuing operations of $236.8 million in the same
three month period of the prior year. On a per share basis, adjusted net income
from continuing operations was $1.88 for the three months ended September 30,
2021, an increase of 15.3% as compared to $1.63 for the same period of 2020. For
the nine months ended September 30, 2021, adjusted net income from continuing
operations was $740.8 million, an increase of 36.2% as compared to $544.1
million for the same period of 2020. On a per share diluted basis, adjusted net
income from continuing operations was $5.12 for the nine months ended September
30, 2021, an increase of 36.2% as compared to $3.76 for the same period of the
prior year. The increased adjusted net income from continuing operations for the
three and nine months ended September 30, 2021 reflects the benefits of improved
sales volume related to increased consumer activity as our key markets continue
to reopen, gross margin improvements, improved expense leverage on sales growth
and our ongoing cost control initiatives. Both adjusted net income from
continuing operations and adjusted diluted net income from continuing operations
per common share are non-GAAP measures (see table below for reconciliations to
the most directly comparable GAAP measures).
The following table sets forth a reconciliation of net income (loss) from
continuing operations and diluted net income (loss) from continuing operations
per common share to adjusted net income from continuing operations and adjusted
diluted net income from continuing operations per common share to account for
the impact of these adjustments. The Company believes that the presentation of
adjusted net income from continuing operations and adjusted diluted net income
from continuing operations per common share, which are not calculated in
accordance with GAAP, when considered together with the corresponding GAAP
financial measures and the reconciliations to those measures, provide meaningful
supplemental information to both management and investors that is indicative of
the Company's core operations. The Company considers these metrics useful to
investors because they provide greater transparency into management's view and
assessment of the Company's ongoing operating performance by removing items
management believes are not representative of our continuing operations and may
distort our longer-term operating trends. We believe these measures are useful
and enhance the comparability of our results from period to period and with our
competitors, as well as show ongoing results from operations distinct from items
that are infrequent or not associated with the Company's core operations. The
Company does not, nor does it suggest investors should, consider such non-GAAP
financial measures, as superior to, in isolation from, or as a substitute for,
GAAP financial information.

                                       22

--------------------------------------------------------------------------------

Table of Contents


                                                 Three Months Ended

September 30, Nine Months Ended September 30, (in thousands)

                                       2021                2020               2021                2020
GAAP net income (loss) from continuing
operations                                       $  228,585          $ 232,918          $  642,791          $  (8,237)

Adjustments:
Loss on software disposal (1)                        61,063                  -              61,063                  -
Product liability damages award (2)                       -                  -              77,421                  -
Goodwill impairment charge (3)                            -                  -                   -            506,721
Restructuring costs (4)                                   -             10,968                   -             39,009
Realized currency loss (5)                                -                  -                   -             11,356
Gain on insurance proceeds related to SPR
Fire (6)                                                  -                  -                   -            (13,448)
Transaction and other costs (7)                           -                288                   -             21,392
Total adjustments                                    61,063             11,256             138,484            565,030
Tax impact of adjustments                           (19,167)            (7,423)            (40,489)           (12,733)
Adjusted net income from continuing
operations                                       $  270,481          $ 236,751          $  740,786          $ 544,060


                                       23

--------------------------------------------------------------------------------
  Table of Contents
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)                 2021                2020                   2021                  2020
GAAP net income (loss) from continuing
operations                                       $      1.59          $     1.61          $          4.44          $    (0.06)

Adjustments:
Loss on software disposal (1)                           0.42                   -                     0.42                   -
Product liability damages award (2)                        -                   -                     0.54                   -
Goodwill impairment charge (3)                             -                   -                        -                3.51
Restructuring costs (4)                                    -                0.07                        -                0.26
Realized currency loss (5)                                 -                   -                        -                0.08
Gain on insurance proceeds related to SPR
Fire (6)                                                   -                   -                        -               (0.09)
Transaction and other costs (7)                            -                   -                        -                0.15
Total adjustments                                       0.42                0.07                     0.96                3.91
Tax impact of adjustments                              (0.13)              (0.05)                   (0.28)              (0.09)
Adjusted diluted net income from
continuing operations per common share           $      1.88          $     1.63          $          5.12          $     3.76
Weighted average common shares outstanding
- assuming dilution                                  143,589             145,035                  144,622             144,528

The table below clarifies where the items that have been adjusted above to improve comparability of the financial information from period to period are presented in the condensed consolidated statements of income (loss).


                                                 Three Months Ended September 30,       Nine Months Ended September 30,
(in thousands)                                       2021                2020               2021                2020
Line item:
Cost of goods sold                               $        -          $     604          $        -          $  13,495
Selling, administrative and other expenses           61,063                  -             138,484              8,213
Goodwill impairment charge                                -                  -                   -            506,721
Restructuring costs                                       -             10,968                   -             39,009
Non-operating (income) expenses: Other                    -               (316)                  -             (2,408)
Total adjustments                                $   61,063          $  11,256          $  138,484          $ 565,030


(1)Adjustment reflects a loss on an internally developed software project that
was disposed of due to a change in management strategy related to advances in
alternative technologies. Refer to the property, plant and equipment footnote to
the condensed consolidated financial statements for more information.
(2)Adjustment reflects damages reinstated by the Washington Supreme Court order
on July 8, 2021 in connection with a 2017 automotive product liability claim.
Refer to the commitments and contingencies footnote to the condensed
consolidated financial statements for more information.
(3)Adjustment reflects the 2020 goodwill impairment charge related to the
Company's European reporting unit.
(4)Adjustment reflects restructuring costs related to the execution of the 2019
Cost Savings Plan. The costs are primarily associated with severance and other
employee costs, including a voluntary retirement program, and facility and
closure costs related to the consolidation of operations.
(5)Adjustment reflects realized currency losses related to divestitures.
(6)Adjustment reflects insurance recoveries in excess of losses incurred on
inventory, property, plant and equipment and other fire-related costs related to
the S.P. Richards Headquarters and Distribution Center.
                                       24
--------------------------------------------------------------------------------
  Table of Contents
(7)Adjustment reflects $8.5 million of incremental costs associated with
COVID-19 for the nine months ended September 30, 2020 and costs associated with
certain divestitures. COVID-19 related costs include incremental costs incurred
relating to fees to cancel marketing events and increased cleaning and
sanitization materials, among other things.
Financial Condition
The Company's cash balance of $919.1 million at September 30, 2021 decreased
$71.1 million, or 7.2%, from December 31, 2020. For the nine months ended
September 30, 2021, the Company had net cash provided by operating activities of
$1,008.2 million, net cash used in investing activities of $239.9 million and
net cash used in financing activities of $818.7 million. The cash provided by
operating activities of $1,008.2 million reflects strong earnings and effective
working capital management. This amount decreased $419.0 million from $1,427.2
million for the nine months ended September 30, 2020 primarily driven by the
$500 million benefit to operating cash flow in 2020 as a result of the Company
entering into the A/R Sales Agreement to sell receivables. The investing
activities consisted primarily of $142.6 million in acquisitions and other
investing activities and $138.2 million in capital expenditures, slightly offset
by $40.9 million in proceeds from divestitures and the sale of property, plant
and equipment. The financing activities consisted primarily of $349.3 million
for dividends paid to the Company's shareholders, $283.9 million paid for share
repurchases and $160.8 million net payments on debt.
Accounts receivable increased $331.3 million, or 21.3%, from December 31, 2020
primarily due to higher sales volumes. Inventory increased $242.1 million, or
6.9%, due to increased economic activity and related product demand. Accounts
payable increased $691.0 million, or 16.7%, from December 31, 2020 due to
increased purchasing related to sales volume and extended payment terms with
certain suppliers. Total debt of $2.4 billion at September 30, 2021 decreased
$0.2 billion, or 9.1%, from December 31, 2020.
We continue to negotiate extended payment terms with our suppliers. Our current
payment terms with the majority of our suppliers range from 30 to 360 days.
Several global financial institutions offer voluntary supply chain finance
("SCF") programs which enable our suppliers, at their sole discretion, to sell
their receivables from the Company 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. The SCF program is primarily available to suppliers of
goods and services included in cost of goods sold in our condensed consolidated
statements of income (loss). The Company 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. The suppliers sell goods or services, as applicable, to the Company
and they issue the associated invoices to the Company 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 the Company or any of our
subsidiaries on third-party performance under the SCF program; however, the
Company guarantees 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. All activity related to
amounts due to suppliers that elected to participate in the SCF program is
reflected in cash flows from operating activities in our condensed consolidated
statements of cash flows. As of September 30, 2021 and December 31, 2020, the
outstanding payment obligations to the financial institutions are $2.6 billion
and $1.8 billion, respectively. The amount settled through the SCF program was
$2.3 billion and $1.9 billion for the nine months ended September 30, 2021 and
September 30, 2020, respectively.
Liquidity and Capital Resources
We ended the quarter with $2.4 billion of total liquidity (comprising $1.5
billion availability on the Unsecured Revolving Credit Facility, defined below,
and $0.9 billion 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 anticipated operations for the foreseeable future.
On September 30, 2021, we entered into the first amendment to the Syndicated
Facility Agreement (the "Unsecured Revolving Credit Facility"), dated as of
October 30, 2020. The interest rates were amended to reduce the applicable rate
by 12.5 basis points (resulting in a rate of LIBOR + 112.5 basis points) and the
LIBOR floor from 0.5% to 0.0%. The amendment also extended the maturity by one
year to September 30, 2026.
                                       25
--------------------------------------------------------------------------------
  Table of Contents
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.
On February 16, 2021, we announced a 3% increase in the regular quarterly cash
dividend for 2021. The Board of Directors increased the cash dividend payable to
an annual rate of $3.26 per share compared with the previous dividend of $3.16
per share. GPC has paid a cash dividend every year since going public in 1948,
and 2021 marks the 65th consecutive year of increased dividends paid to
shareholders.
We expect to be able to continue to borrow funds at reasonable rates over the
long term. At September 30, 2021, the Company's total average cost of debt was
2.34%, and the Company remained in compliance with all covenants connected with
its borrowings. Such covenants include, among others, a financial covenant to
maintain a certain leverage ratio of consolidated debt to consolidated adjusted
EBITDA under our credit facility.
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.
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 2020 Annual Report on Form 10-K. Our exposure to market risk has not
changed materially since December 31, 2020.
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 the Company's management,
including the Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO"), of the effectiveness of the Company's disclosure controls and
procedures. Based on that evaluation, the Company's CEO and CFO concluded that
the Company's 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 the Company in the reports that it files
or furnishes 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 the Company's 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 the Company's 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 the Company's last quarter ended
September 30, 2021 that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
                                       26

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses