Genuine Parts pany(GPC) - 2023 Q4 - Annual Report

PART I Business GPC is a global distributor of automotive and industrial replacement parts, operating through Automotive and Industrial segments - GPC is a global service organization engaged in the distribution of automotive and industrial replacement parts, with over 10,700 locations primarily in North America, Europe, and Australasia[15] - The company is organized into two business segments: the Automotive Parts Group, representing approximately 62% of total net sales, and the Industrial Parts Group, representing approximately 38%[18][21][40] - As of December 31, 2023, the company employed more than 60,000 people worldwide across 17 countries[57] Our Segments GPC's operations are divided into Automotive and Industrial segments, serving distinct customer bases and markets Automotive Distribution Network as of Dec 31, 2023 | | North America | Europe | Australasia | Total | | :--- | :--- | :--- | :--- | :--- | | Distribution Centers | 77 | 81 | 14 | 172 | | Company-Owned Stores | 1,797 | 798 | 551 | 3,146 | | Independently-Owned Stores | 4,961 | 1,698 | — | 6,659 | | Total Automotive Locations | 6,835 | 2,577 | 565 | 9,977 | Industrial Distribution Network as of Dec 31, 2023 | | North America | Australasia | Total | | :--- | :--- | :--- | :--- | | Distribution Centers | 17 | 13 | 30 | | Branches | 503 | 150 | 653 | | Service Centers | 68 | 2 | 70 | | Total Industrial Locations | 588 | 165 | 753 | - The Automotive segment's customer base is approximately 80% do-it-for-me (DIFM) and 20% do-it-yourself (DIY)[22] - The Industrial segment (Motion) serves over 200,000 MRO and OEM customers and has access to a database of over 19 million parts[40][42] Human Capital Management GPC focuses on attracting, retaining, and developing its over 60,000 employees through well-being, development, and DEI initiatives - The company employs over 60,000 people worldwide and operates in 17 countries as of December 31, 2023[57] - GPC periodically conducts global engagement surveys, with recent results indicating employees are proud to work for the company. Action plans are developed based on survey feedback[58] - The company launched three new business resource groups (BRGs) in 2023 to support personal and professional development, networking, and community engagement[62] Risk Factors The company faces strategic, macroeconomic, legal, and operational risks including demand fluctuations, supply chain issues, and cybersecurity threats - Strategic risks include slowing demand for products, disruption of supplier relationships, substantial competition from chains like AutoZone and O'Reilly, and the potential failure to integrate acquisitions successfully[69][71][73] - Cybersecurity is a significant risk, with threats of data breaches, system failures, and cyber-attacks potentially disrupting operations, harming reputation, and leading to legal claims[78][79][81] - Macroeconomic risks include adverse impacts from inflation, fluctuating foreign currency exchange rates, and the effects of high debt levels on cash flow[90][93][95] - Legal and regulatory risks stem from potential climate change regulations affecting vehicle technology, ongoing litigation (including product liability lawsuits), and changes in tax and international trade policies[98][99][102] Unresolved Staff Comments The company reports no unresolved staff comments - Not applicable[106] Cybersecurity GPC's cybersecurity program, led by a CISO and overseen by the Board, follows the NIST framework to manage ongoing threats - The information security program is led by a CISO, with oversight from the CIDO, the Audit Committee, and the Board of Directors[108] - The company's risk management practices are based on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF)[109] - To date, the company has not experienced a material breach of cybersecurity, though it continues to face threats such as phishing attempts and malware[110] Properties As of December 31, 2023, the company operates 4,071 locations, primarily owning distribution centers and leasing retail stores Company-Owned and Operated Locations as of Dec 31, 2023 | | Distribution Centers | Other Locations | | :--- | :--- | :--- | | Automotive: | | | | North America | 77 | 1,797 | | Europe | 81 | 798 | | Australasia | 14 | 551 | | Total Automotive | 172 | 3,146 | | Industrial: | | | | North America | 17 | 571 | | Australasia | 13 | 152 | | Total Industrial | 30 | 723 | | Total | 202 | 3,869 | - The company generally owns its distribution centers and leases its retail stores and branches. Corporate headquarters are in two owned office buildings in Atlanta, Georgia[112] Legal Proceedings Legal proceedings information is incorporated by reference from the Commitments and Contingencies Footnote in Item 8 - Details on legal proceedings are located in the Commitments and Contingencies Footnote within Item 8 of this report[113] Mine Safety Disclosures This item is reported as not applicable - Not applicable[114] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities GPC's common stock trades on the NYSE, with a 67-year dividend increase streak and ongoing share repurchase program - The company has increased its annual dividend for 67 consecutive years through 2023[117] Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Average Price Paid per Share ($) | Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs | | :--- | :--- | :--- | :--- | | Oct 2023 | 534,870 | $140.57 | 8,678,794 | | Nov 2023 | 93,917 | $133.57 | 8,584,877 | | Dec 2023 | 46,832 | $137.92 | 8,538,045 | | Total Q4 | 675,619 | $136.69 (weighted avg) | 8,538,045 | Management's Discussion and Analysis of Financial Condition and Results of Operations GPC achieved 4.5% net sales growth in 2023, driven by strong Industrial segment performance and improved gross margin, while maintaining strong liquidity Consolidated Results of Operations (2023 vs 2022) | (in thousands, except per share data) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $23,090,610 | $22,095,973 | 4.5% | | Gross profit | $8,290,672 | $7,740,104 | 7.1% | | Net income | $1,316,524 | $1,182,701 | 11.3% | | Diluted EPS | $9.33 | $8.31 | 12.3% | | Adjusted EBITDA | $2,157,346 | $1,999,329 | 7.9% | - The Industrial segment profit increased 24.4% to $1.1 billion, with segment margin improving 200 basis points to 12.5%[154] - The Automotive segment profit decreased 1.4% to $1.2 billion, with segment margin decreasing 50 basis points to 8.2%[153] - In February 2024, the company announced a global restructuring expected to incur costs of $100-$200 million in 2024, with anticipated annualized savings of $45-$90 million[151] Liquidity and Capital Resources GPC ended 2023 with strong liquidity of $2.6 billion, supported by operating cash flow and new debt issuances Summary of Cash Flows (in thousands) | | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,435,610 | $1,466,971 | | Net cash used in investing activities | $(705,792) | $(1,684,240) | | Net cash (used in) provided by financing activities | $(292,161) | $205,101 | - The company ended 2023 with $2.6 billion of total liquidity, comprising $1.5 billion availability on its revolving credit facility and $1.1 billion of cash[182] - In November 2023, the company issued $425 million of 6.50% Senior Notes due 2028 and $375 million of 6.88% Senior Notes due 2033[179] Critical Accounting Policies Critical accounting policies involve significant estimates for vendor consideration, goodwill impairment, employee benefits, business combinations, and legal liabilities - Key critical accounting policies include: Consideration Received from Vendors, Impairment of Goodwill, Employee Benefit Plans, Business Combinations, and Legal and Product Liabilities[191] - For 2024 pension income measurement, the expected rate of return on plan assets is 7.61% and the weighted average discount rate was 5.30% at December 31, 2023[196][197] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency fluctuations, interest rate changes, and inflation, with specific impacts quantified for currency and interest rates - A hypothetical 10% shift in exchange rates for the Euro, Canadian dollar, and Australian dollar would have impacted 2023 translated net sales by approximately $797 million[210] - A 100 basis point increase in interest rates would have an immaterial impact on debt but would increase fees on the A/R Sales Agreement by $10 million[211] Financial Statements and Supplementary Data This section presents consolidated financial statements and notes, with an unqualified audit opinion from Ernst & Young LLP on financials and internal controls - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2023[217][218] - The auditor identified 'Loss Contingencies Related to Product Liabilities' as a Critical Audit Matter due to the significant measurement uncertainty and judgment involved in estimating the liability[221][222] Consolidated Balance Sheet Highlights (As of Dec 31) | (In Thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total current assets | $9,605,852 | $8,816,739 | | Total assets | $17,968,454 | $16,495,379 | | Total current liabilities | $7,827,109 | $7,686,110 | | Total liabilities | $13,551,469 | $12,690,932 | | Total equity | $4,416,985 | $3,804,447 | Controls and Procedures Management and auditors concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[386] - Based on the COSO framework, management concluded that internal control over financial reporting was effective as of December 31, 2023[390] - No material changes were made to internal control over financial reporting during the fourth quarter of 2023[391] PART III Directors, Executive Officers and Corporate Governance This section provides executive officer biographies and incorporates director and corporate governance information by reference from the Proxy Statement - Provides biographical details for key executive officers including Paul D. Donahue (Chairman & CEO), William P. Stengel (President & COO), and Bert Nappier (EVP & CFO)[406][407][408] - Additional required information is incorporated by reference from the company's Proxy Statement[414] Executive Compensation All executive compensation information is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement[415] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details equity compensation plan information and incorporates additional security ownership data by reference from the Proxy Statement Equity Compensation Plan Information as of Dec 31, 2023 | Plan Category | Number of Securities to be Issued upon Exercise | Weighted Average Exercise Price ($) | Number of Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity Compensation Plans Approved by Shareholders | 1,208,597 | $94.81 | 6,598,166 | | Equity Compensation Plans Not Approved by Shareholders | 142,651 | n/a | 857,349 | | Total | 1,351,248 | — | 7,455,515 | - Additional information on security ownership is incorporated by reference from the Proxy Statement[416] Certain Relationships and Related Transactions, and Director Independence Information on related person transactions and director independence is incorporated by reference from the Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement[419] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement[420] PART IV Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed with or incorporated by reference into the Form 10-K report - Lists all financial statements, which are incorporated by reference from Item 8[422] - Provides a detailed list of all exhibits filed as part of the report, including articles of incorporation, debt agreements, and management compensation plans[423][425] Form 10-K Summary This item is reported as not applicable - Not applicable[431]