GENUINE PARTS CO — Interim / Quarterly Report 2001

Oct 26, 2001

10-Q 1 g72226e10-q.htm GENUINE PARTS COMPANY e10-q PAGEBREAK

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2001 Commission File Number 1-5690

GENUINE PARTS COMPANY

(Exact name of registrant as specified in its charter)

GEORGIA	58-0254510
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2999 CIRCLE 75 PARKWAY, ATLANTA, GEORGIA	30339
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code	(770) 953-1700

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 [X] No [ ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (the close of the period covered by this report).

173,212,546

(Shares of Common Stock)

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link1 "PART I — FINANCIAL INFORMATION"

PART I — FINANCIAL INFORMATION

Form 10-Q

Item 1 — Financial Statements link1 " CONDENSED CONSOLIDATED BALANCE SHEETS"

GENUINE PARTS COMPANY and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS	Sept. 30,	Dec. 31,
	2001	2000
	(Unaudited)
	(in thousands)
CURRENT ASSETS
Cash and cash equivalents	$ 108,914	$	27,738
Trade accounts receivable, less allowance
for doubtful accounts (2001 – $20,368;
2000 – $7,370)	1,085,419		1,031,662
Inventories – at lower of cost (substantially last-in,
first-out method) or market	1,763,518		1,864,334
Prepaid and other current accounts	53,016		95,747
TOTAL CURRENT ASSETS	3,010,867		3,019,481
Goodwill,
less accumulated amortization (2001 – $47,239; 2000 – $37,680)	451,191		451,435
Other assets	281,694		275,938
Total property, plant and equipment, less allowance
for depreciation (2001 – $452,382; 2000 – $436,942)	359,872		395,260
TOTAL ASSETS	$ 4,103,624	$	4,142,114
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$ 606,129	$	635,499
Current portion of long-term debt and other borrowings	163,883		151,452
Income taxes	91,164		37,043
Dividends payable	49,345		47,494
Other current liabilities	94,370		116,825
TOTAL CURRENT LIABILITIES	1,004,891		988,313
Long-term debt	627,259		770,581
Deferred income taxes	58,176		77,814
Minority interests in subsidiaries	46,305		44,600
SHAREHOLDERS’ EQUITY
Stated capital:
Preferred
Stock, par value – $1 per share
Authorized – 10,000,000 shares – None Issued	-0-		-0-
Common
Stock, par value – $1 per share
Authorized – 450,000,000 shares Issued – 2001 – 173,212,546; 2000 – 172,389,688	173,213		172,390
Additional paid-in capital	10,126		-0-
Accumulated other comprehensive loss	(42,498	)	(13,041	)
Retained earnings	2,226,152		2,101,457
TOTAL SHAREHOLDERS’ EQUITY	2,366,993		2,260,806
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 4,103,624	$	4,142,114

See notes to condensed consolidated financial statements.

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FORM 10-Q link1 " CONSOLIDATED STATEMENTS OF INCOME"

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended Sept. 30, — 2001	2000	Nine Months Ended Sept. 30, — 2001	2000
	(in
thousands except per share data)
Net sales	$ 2,099,191	$ 2,150,572	$ 6,273,139	$ 6,350,941
Cost of goods sold	1,468,879	1,494,775	4,376,691	4,425,421
	630,312	655,797	1,896,448	1,925,520
Selling, administrative & other expenses	483,286	502,403	1,442,820	1,458,570
Income before income taxes	147,026	153,394	453,628	466,950
Income taxes	58,810	61,665	181,451	186,899
NET INCOME	$ 88,216	$ 91,729	$ 272,177	$ 280,051
Basic net income per common share	$ .51	$ .53	$ 1.58	$ 1.59
Diluted net income per common share	$ .51	$ .53	$ 1.57	$ 1.59
Dividends declared per common share	$ .285	$ .275	$ .855	$ .825
Average common shares outstanding	173,081	174,192	172,554	175,763
Dilutive effect of stock options and
non-vested restricted stock awards	901	267	847	331
Average common shares outstanding,
assuming dilution	173,982	174,459	173,401	176,094

See notes to condensed consolidated financial statements.

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FORM 10-Q link1 " CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS"

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months
	Ended Sept. 30,
	(in thousands)
	2001	2000
OPERATING ACTIVITIES:
Net income	$ 272,177	$	280,051
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	68,918		69,760
Other	6,679		4,418
Changes in operating assets and liabilities	69,313		(11,113	)
NET CASH PROVIDED BY OPERATING ACTIVITIES	417,087		343,116
INVESTING ACTIVITIES:
Purchase of property, plant and equipment	(35,441	)	(52,043	)
Acquisitions of businesses and other investing activities	(17,335	)	(43,468	)
NET CASH USED IN INVESTING ACTIVITIES	(52,776	)	(95,511	)
FINANCING ACTIVITIES:
Proceeds from credit facilities, net of payments	(131,218	)	(4,757	)
Stock options exercised	7,825		—
Dividends paid	(147,321	)	(143,210	)
Purchase of stock	(12,421	)	(104,445	)
NET CASH USED IN FINANCING ACTIVITIES	(283,135	)	(252,412	)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS	81,176		(4,807	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	27,738		45,735
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$ 108,914	$	40,928

See notes to condensed consolidated financial statements.

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FORM 10-Q link1 "NOTES TO FINANCIAL STATEMENTS"

NOTES TO FINANCIAL STATEMENTS

Note A — 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 necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. 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 for the year ended December 31, 2000. Accordingly, the quarterly financial statements and related disclosures should be read in conjunction with the 2000 Annual Report on Form 10-K.

The preparation of interim financial statements requires management to make estimates and assumptions for the amounts reported in the condensed consolidated financial statements. Specifically, the Company makes estimates in its interim financial statements for certain inventory adjustments and volume rebates earned. Volume rebates are estimated based upon cumulative and projected purchasing levels. Inventory adjustments are estimated on an interim basis and adjusted in the fourth quarter to reflect year-end valuation and book to physical results. The estimates 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 to a fair statement of the operations of the interim period have been made. These adjustments are of a normal recurring nature. The results of operations for the nine months ended September 30, 2001 are not necessarily indicative of results for the entire year.

Note B – Segment Information

	Three month period ended Sept. 30, — 2001	2000		2001		2000
(in thousands)				(in thousands)
Net sales:
Automotive	$ 1,121,211	$	1,078,221	$	3,226,016	$	3,169,367
Industrial	554,401		594,589		1,710,444		1,779,353
Office Products	343,989		345,893		1,047,851		1,002,927
Electrical/Electronic Materials	87,614		141,237		309,261		421,799
Other	(8,024	)	(9,368	)	(20,433	)	(22,505	)
Total net sales	$ 2,099,191	$	2,150,572	$	6,273,139	$	6,350,941
Operating profit:
Automotive	$ 105,250	$	103,157	$	297,023	$	292,603
Industrial	35,558		41,105		124,827		138,947
Office Products	29,590		29,979		103,295		96,092
Electrical/Electronic Materials	25		7,426		6,869		20,697
Total operating profit	170,423		181,667		532,014		548,339
Interest expense	(13,956	)	(16,123	)	(44,737	)	(47,306	)
Other, net	(9,441	)	(12,150	)	(33,649	)	(34,083	)
Income before income taxes	$ 147,026	$	153,394	$	453,628	$	466,950

In connection with a 2000 management reporting change, certain corporate expenses were reclassified to the Automotive segment for 2000. Additionally, for management purposes, net sales by segment excludes the effect of certain discounts, incentives and freight billed to customers. The line item “Other” represents the net effect of certain discounts, incentives and freight billed to customers, which are reported as a component of net sales in the Company’s consolidated statements of income.

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FORM 10-Q

Note C – Comprehensive Income

Total comprehensive income was $242,720,000 and $273,822,000 for the nine month periods ended September 30, 2001 and 2000, respectively. The difference between total comprehensive income and net income was due to foreign currency translation adjustments and adjustments to the fair value of derivative instruments resulting from the adoption of SFAS 133 (See Note D – New Accounting Pronouncements), as detailed below:

	For the Nine Months Ended Sept. 30, — 2001	2000
	(in thousands)
Net Income	$ 272,177	$	280,051
Foreign currency translation, net of taxes	(7,781	)	(6,229	)
Unrealized loss on derivative instruments, net of taxes	(21,676	)	—
Total other comprehensive loss	(29,457	)	(6,229	)
Comprehensive income	$ 242,720	$	273,822

Note D – New Accounting Pronouncements

The Company enters into interest rate swap agreements to manage interest rate risk, thereby reducing exposure to future interest rate movements. Under interest rate swap agreements, the parties agree to exchange, at specific intervals, the difference between the fixed rate and floating rate interest amounts calculated by reference to an agreed notional amount.

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). This statement requires the fair value of derivatives to be recorded as assets or liabilities. Gains or losses resulting from changes in the fair values of derivatives would be accounted for currently in earnings or comprehensive income depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment. The Company adopted SFAS 133 on January 1, 2001. The adoption resulted in a $6,226,000 charge to other comprehensive income, net of tax, from a cumulative effect of a change in accounting principle, and a corresponding decrease in shareholders’ equity in the Company’s financial statements as of January 1, 2001. This adoption had no significant effect on net income.

The fair value of the liability for all such interest rate swap agreements was approximately $9,579,000 on January 1, 2001 and $36,004,000 at September 30, 2001.

In 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements”, (“SAB 101”). SAB 101, which was required to be adopted in the fourth quarter of 2000, had no impact on the Company’s revenue recognition policies.

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations (“SFAS 141”), and No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests in accordance with SFAS 141 and SFAS 142. Other intangible assets will continue to be amortized over their useful lives. The Company will apply SFAS 141 and SFAS 142 on accounting for goodwill and other intangible assets beginning in the first quarter of 2002 and, during 2002, will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002. The Company is reviewing the SFAS 141 and SFAS 142 to determine their effect.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Sales for the quarter were $2.1 billion, down 2% over the comparable period in 2000. Net income for the quarter was $88.2 million, a decrease of 4%. On a per-share diluted basis, net income in the quarter was $.51 versus $.53 in the same quarter of the prior year, a decrease of 4%.

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FORM 10-Q

For the nine months ended September 30, 2001, sales totaled $6.3 billion, down 1% over the comparable period in 2000, while net income was $272.2 million, a decrease of 3%. Diluted earnings per share were $1.57 for the first nine months of 2001 and $1.59 for the same period in 2000, a decrease of 1%.

Sales for the Automotive Parts Group increased 4% during the quarter. This sales increase is a combination of the overall improvement in the aftermarket industry and the continued effectiveness of this group’s sales and marketing programs. Sales for the Office Products Group were down 1% for the quarter, indicative of the intense competition and economic slowdown in this industry. The reduction in industrial activity continues to affect Motion Industries, our Industrial Products Group, and EIS, our Electrical/Electronic Materials Group. Motion’s sales were down 7%, and EIS reported a 38% decrease for the quarter. Cost of goods sold increased slightly as a percentage of net sales as compared to the same quarter of the prior year. Selling, administrative and other expenses decreased 4% for the quarter; and the percentage of selling, administrative and other expenses to net sales decreased slightly representing headcount reduction and tight expense controls.

The Company is currently a party to several interest rate swap agreements. The change on the fair value of these agreements in the first nine months of 2001 was $26.5 million.

The ratio of current assets to current liabilities is 3.0 to 1 and the Company’s cash position is excellent.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or verbal forward-looking statements, including statements contained in our Company’s filings with the Securities and Exchange Commission and in our reports to shareholders. All statements which address future operating performance, events or developments that we expect or anticipate will occur in the future, including statements relating to revenue, market share and net income growth, or statements expressing general optimism about future operating results, are forward-looking statements within the meaning of the Act. The forward-looking statements are and will be based on management’s then current views and assumptions regarding future events and operating performance. There are many factors which could cause actual results to differ materially from those anticipated by statements made in this report. Such factors include, but are not limited to, changes in general economic conditions, the growth rate of the market for the Company’s products and services, the ability to maintain favorable supplier arrangements and relationships, competitive product and pricing pressures, the effectiveness of the Company’s promotional, marketing and advertising programs, electronic marketing, changes in laws and regulations, including changes in accounting and taxation guidance, the uncertainties of litigation, as well as other risks and uncertainties discussed from time to time in the Company’s filings with the Securities and Exchange Commission. link1 "PART II — OTHER INFORMATION"

PART II — OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) The following exhibits are filed as part of this report:

| Exhibit 3.1 | Restated Articles of Incorporation of the Company
(incorporated herein by reference from the Company’s Annual Report on
Form 10-K, dated March 3, 1995) |
| --- | --- |
| Exhibit 3.2 | Bylaws of the Company, as amended (incorporated herein by
reference from the Company’s Annual Report on Form 10-K, dated March
12, 2001) |

(b) No reports on Form 8-K were filed by the registrant during the quarter ended September 30, 2001.

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FORM 10-Q link1 "SIGNATURES"

SIGNATURES

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

	Genuine Parts Company (Registrant)
Date October 26, 2001	/s/ Jerry W. Nix Jerry W. Nix Executive Vice President - Finance (Principal Financial and Accounting Officer)

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