1
EXHIBIT 13
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
GENUINE PARTS COMPANY
We have audited the accompanying consolidated balance sheets of
Genuine Parts Company and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Genuine Parts Company and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
February 4, 2000
2
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
In thousands, except per share data 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Net sales $7,981,687 $6,614,032 $6,005,245 $5,720,474 $5,261,904
Cost of goods sold 5,587,557 4,611,525 4,178,642 4,002,971 3,654,703
Selling, administrative and other expenses 1,766,063 1,413,390 1,261,003 1,172,270 1,096,407
Income before income taxes 628,067 589,117 565,600 545,233 510,794
Income taxes 250,445 233,323 223,203 215,157 201,626
Net income $ 377,622 $ 355,794 $ 342,397 $ 330,076 $ 309,168
Average common shares outstanding during year -
assuming dilution* 179,238 180,081 180,165 182,189 184,375
Per common share:*
Diluted net income $ 2.11 $ 1.98 $ 1.90 $ 1.81 $ 1.68
Dividends declared 1.04 1.00 .96 .89 .84
December 31 closing stock price 24.81 33.44 33.94 29.67 27.33
Long-term debt, less current maturities 702,417 588,640 209,490 110,241 60,607
Shareholders' equity 2,177,517 2,053,332 1,859,468 1,732,054 1,650,882
Total assets $3,929,672 $3,600,380 $2,754,363 $2,521,631 $2,274,132
========================================================================================================================
*Adjusted to reflect the three-for-two stock split in 1997.
SELECTED RATIO ANALYSIS
YEAR ENDED DECEMBER 31,
IN % OF NET SALES 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Cost of goods sold 70.00% 69.72% 69.58% 69.98% 69.46%
Selling, administrative and other expenses 22.13 21.37 21.00 20.49 20.84
Income before income taxes 7.87 8.91 9.42 9.53 9.71
Net income 4.73 5.38 5.70 5.77 5.88
Rate earned on shareholders' equity
at the beginning of each year 18.39% 19.13% 19.77% 19.99% 20.26%
===================================================================================================================
MARKET AND DIVIDEND INFORMATION
High and Low Sales Price and Dividends per Share of Common Shares Traded on the
New York Stock Exchange.
SALES PRICE OF COMMON SHARES
QUARTER 1999 1998
- ---------------------------------------------------------------------------------
HIGH LOW HIGH LOW
First $33.81 $27.81 $38.25 $32.44
Second 35.25 28.06 38.00 32.75
Third 35.75 25.25 35.50 29.88
Fourth 27.50 22.25 33.94 28.25
Dividends Declared Per Share
1999 1998
- ----------------------------------------------------------
First $.26 $.25
Second $.26 $.25
Third $.26 $.25
Fourth $.26 $.25
Number of Record Holders of Common Stock: 7,322
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
December 31, 1999
RESULTS OF OPERATIONS: Net sales in 1999 increased for the 50th
consecutive year to a record high of $7.98 billion. This was an increase of 21%
over the prior year amount of $6.6 billion and compares with increases of 10%
in 1998, and 5% in 1997. Excluding the effect of acquisitions, sales would have
increased approximately 7% in 1999. Sales for the Automotive Parts Group
increased 25% in 1999 versus 6% in 1998, reflecting the full year impact of
acquisitions made in 1998 and 1999 and increased market share. Price increases
for the Automotive Parts Group were flat in 1999 and 1998. Sales for the
Industrial Parts Group increased 7% in 1999 versus 8% in 1998, reflecting
geographic growth through acquisitions, opening new branches and moderate
growth in industrial production. Price increases for the Industrial Parts Group
were 1% in 1999 and 1998. Sales for the Office Products Group increased 9% in
1999 and 4% in 1998, reflecting geographic growth, increased market share,
expanded product offerings and an increased customer base. Price increases for
the Office Products Group were less than 1% in 1999 and 1998. Sales for the
Electrical/Electronic Group which the Company acquired July 1, 1998 reached
$522 million for 1999. Price increases for the Electrical/Electronic Group,
were also less than 1% in 1999 and 1998.
Costs of goods sold was 70.0% of net sales in 1999 compared to 69.7%
in 1998 and to 69.6% in 1997. Selling, administrative and other expenses
increased 25% in 1999 to $1.8 billion versus (8% increase, excluding 1999
acquisitions) a 12% increase in 1998 (8% increase, excluding 1998 acquisitions)
and was 22.1% of net sales in 1999, 21.4% of net sales in 1998, and 21.0% of
net sales in 1997. Selling, administrative and other expenses increased as a
percentage to sales as a result of additional acquisition costs including
interest expense and goodwill amortization. Increased salaries and benefits
plus expenses due to the year 2000 and e-commerce initiatives also contributed
to this increase. The effective income tax rate was 39.9% in 1999 as compared
to 39.6% in 1998 and 39.5% in 1997. The increase in the tax rate in 1999
primarily related to the effect of international operations. Net income as a
percent of net sales was 4.7% in 1999, 5.4% in 1998, and 5.7% in 1997. Net
income in 1999 increased to $377.6 million, reflecting a 6.1% increase over
1998 net income of $355.8 million. Net income in 1998 increased 4% over 1997
net income of $342.4 million. Diluted earnings per share were $2.11 in 1999
compared to $1.98 in 1998 for an increase of 6.6%.
LIQUIDITY AND SOURCES OF CAPITAL: The ratio of current assets to
current liabilities was 3.2 to 1 at the close of 1999 with current assets
amounting to 73.7% of total assets. Trade accounts receivable and inventories
increased 10.9% and 6.7% respectively, while working capital increased 6.1%.
Excluding the impact of acquisitions made in 1999, the increases in accounts
receivable and inventory would have been 6.4% and 3.4%, respectively. The
increase in working capital has been financed principally from the Company's
cash flow generated by operations. At December 31, 1998, $95 million was
outstanding under an unsecured revolving line of credit with a bank. This line
was canceled during 1999. In 1998, the Company obtained a $200 million
revolving line of credit maturing in December 2003. At December 31, 1999, $200
million was outstanding on this line. Also during 1998, the Company obtained a
$200 million, 364 day line of credit maturing in December, 2000. At December
31, 1999, $16.8 million was outstanding on this line. Interest on these lines
is charged at the one month LIBOR plus .55% (6.37% as of December 31, 1999) and
is reset quarterly based on the Company's leverage ratio. No amounts were
outstanding at December 31, 1998 under these lines of credit.
At December 31, 1999, the Company had the following unsecured term
notes: $50 million, 5.95%, due 2001; $50 million, 5.98%, due 2002; $50 million,
LIBOR plus .25%, due 2005; $50 million, LIBOR plus .25%, due 2008; $231
million, LIBOR plus .55%, due 2003; $49 million, 6.43% due 2000; and $72
million in other borrowings. In addition, the weighted average interest rate on
the Company's outstanding borrowings was approximately 6.3% and 5.7% at
December 31, 1999 and 1998, respectively. Total interest expense for all
borrowings was $41.5 million and $20.1 million in 1999 and 1998 respectively.
In addition, the Company had the following Canadian dollar denominated
borrowings translated into U.S. dollars at December 31, 1999: $100 million line
of credit, banker's acceptance rate plus
EARNINGS PER SHARE* DIVIDENDS PER SHARE*
in dollars in dollars
'90 1.19 '90 .61
'91 1.21 '91 .65
'92 1.27 '92 .67
'93 1.38 '93 .71
'94 1.55 '94 .77
'95 1.68 '95 .84
'96 1.81 '96 .89
'97 1.90 '97 .96
'98 1.98 '98 1.00
'99 2.11 '99 1.04
*Restated to reflect stock splits.
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.55%, due 2004, $22 million outstanding; a line of credit secured by accounts
receivable, $42 million, banker's acceptance rate plus .22%; and $2 million in
other borrowings.
In August 1999, the Company completed the repurchase of 15 million
shares authorized by the Board of Directors in 1994. The Board authorized the
repurchase of an additional 15 million shares on April 19, 1999. Through
December 31, 1999, approximately 1.4 million shares have been repurchased under
this new authorization.
Existing credit facilities, current financial resources and anticipated
funds from operations are expected to meet requirements for working capital in
2000. Capital expenditures during 1999 and 1998 amounted to $88 million compared
to $90 million in 1997. The amounts reflect the Company's continuing geographic
expansion as well as the upgrading of existing facilities. It is anticipated
that capital expenditures in 2000 will be approximately the same as 1999.
The Company manages its exposure to changes in short-term interest
rates, particularly to reduce the impact on its floating-rate term notes, by
entering into interest rate swap agreements. The counterparties to these
contracts are high credit quality commercial banks. Consequently, credit risk,
which is inherent in all swaps, has been minimized to a large extent. Interest
expense is adjusted for the differential to be paid or received as interest
rates change. The effect of such adjustments on interest expense has not been
significant. The level of floating-rate debt not fixed by swap agreements was
approximately $429 million at December 31, 1999. Accordingly, a 1% adverse
change in interest rates would not have a material adverse impact on future
earnings and cash flows of the Company.
IMPACT OF YEAR 2000: In prior years, the Company discussed the nature
and progress of its plans to become Year 2000 ready. In late 1999, the Company
completed its remediation and testing of systems. As a result of those planning
and implementation efforts, the Company experienced no significant disruptions
in mission critical information technology and non-information technology
systems and believes those systems successfully responded to the Year 2000 date
change. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
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
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 herein. 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, 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.
QUARTERLY RESULTS OF OPERATIONS: Miscellaneous year-end adjustments
resulted in increasing net income during the fourth quarter of 1999 and 1998 by
approximately $35.7 million ($.20 per share) and $27.7 million ($.15 per share),
respectively. Miscellaneous year-end adjustments primarily relate to changes in
management's estimates and assumptions related to the valuation of inventory,
the calculation of volume purchasing rebates earned and other adjustments to
judgmental reserves which cannot be accurately determined until the end of the
year.
The following is a summary of the quarterly results of operations for
the years ended December 31, 1999 and 1998.
Three Months Ended
- -----------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
- -----------------------------------------------------------------------------------
(in thousands except for per share data)
1999
- ----
Net Sales $1,901,357 $2,022,894 $2,082,229 $1,975,207
Gross Profit 550,890 590,057 603,164 650,019
Net Income 86,066 92,569 90,637 108,350
Basic Net Income per
Common Share .48 .52 .51 .61
Diluted Net Income
per Common Share .48 .52 .51 .61
1998
- ----
Net Sales $1,533,138 $1,619,383 $1,760,102 $1,701,409
Gross Profit 446,736 477,403 514,425 563,943
Net Income 79,998 85,884 86,139 103,773
Basic Net Income per
Common Share .45 .48 .48 .58
Diluted Net Income
per Common Share .45 .48 .48 .58
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SEGMENT DATA
Year Ended December 31,
Dollars in thousands 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Net sales:
Automotive $4,084,775 $3,262,406 $3,071,153 $3,008,105 $2,804,086
Industrial 2,156,134 2,008,789 1,853,270 1,677,859 1,509,566
Office products 1,218,367 1,122,420 1,080,822 1,034,510 948,252
Electrical/electronic material 522,411 220,417 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total net sales $7,981,687 $6,614,032 $6,005,245 $5,720,474 $5,261,904
===========================================================================================================================
Operating profit
Automotive $ 396,871 $ 343,629 $ 325,188 $ 322,956 $ 308,818
Industrial 186,203 176,456 166,367 151,129 133,016
Office products 118,345 113,821 110,793 103,439 93,997
Electrical/electronic materials 23,343 12,030 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total operating profit 724,762 645,936 602,348 577,524 535,831
Interest expense (41,487) (20,096) (13,365) (8,498) (3,419)
Corporate expense (35,324) (32,186) (26,943) (29,057) (25,939)
Equity in (loss) income from investees (3,675) 3,329 6,730 9,398 8,298
Goodwill amortization (12,708) (5,157) (1,624) (1,548) (1,265)
Minority interest (3,501) (2,709) (1,546) (2,586) (2,712)
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 628,067 $ 589,117 $ 565,600 $ 545,233 $ 510,794
===========================================================================================================================
Assets:
Automotive $2,034,417 $1,966,774 $1,623,644 $1,478,023 $1,304,211
Industrial 758,206 671,454 584,356 524,998 479,652
Office products 503,904 442,220 380,804 376,616 357,821
Electrical/electronic materials 174,258 147,074 -- -- --
Corporate 18,588 18,385 18,611 15,662 12,876
Goodwill and equity investments 440,299 354,473 146,948 126,332 119,572
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $3,929,672 $3,600,380 $2,754,363 $2,521,631 $2,274,132
===========================================================================================================================
Depreciation and amortization:
Automotive $ 51,563 $ 43,637 $ 40,675 $ 34,265 $ 29,147
Industrial 10,926 8,619 6,688 5,860 4,985
Office products 8,814 8,391 7,865 7,437 6,705
Electrical/electronic materials 4,173 1,508 -- -- --
Corporate 1,783 1,993 2,015 1,335 1,132
Goodwill 12,708 5,157 1,624 1,548 1,265
- ---------------------------------------------------------------------------------------------------------------------------
Total depreciation and amortization $ 89,967 $ 69,305 $ 58,867 $ 50,445 $ 43,234
===========================================================================================================================
Capital expenditures:
Automotive $ 57,710 $ 69,154 $ 68,305 $ 80,682 $ 67,643
Industrial 11,275 6,972 13,451 7,330 12,132
Office products 16,085 6,901 6,069 5,652 10,587
Electrical/electronic materials 3,113 4,688 -- -- --
Corporate 100 546 2,600 1,494 407
- ---------------------------------------------------------------------------------------------------------------------------
Total capital expenditures $ 88,283 $ 88,261 $ 90,425 $ 95,158 $ 90,769
===========================================================================================================================
Net sales:
United States $7,345,707 $6,535,020 $5,977,012 $5,697,053 $5,241,653
Canada 585,504 79,012 28,233 23,421 20,251
Mexico 50,476 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total net sales $7,981,687 $6,614,032 $6,005,245 $5,720,474 $5,261,904
===========================================================================================================================
Net long-lived assets:
United States $ 620,837 $ 545,452 $ 412,344 $ 366,119 $ 323,167
Canada 207,672 187,951 6,495 6,725 7,576
Mexico 25,333 15,338 15,767 16,196 16,625
- ---------------------------------------------------------------------------------------------------------------------------
Total net long-lived assets $ 853,842 $ 748,741 $ 434,606 $ 389,040 $ 347,368
===========================================================================================================================
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CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
Dollars in thousands 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 45,735 $ 84,972
Trade accounts receivable 1,006,663 907,561
Merchandise inventories 1,771,789 1,660,233
Prepaid expenses and other assets 71,016 30,591
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,895,203 2,683,357
Goodwill, less accumulated amortization (1999--$25,286; 1998--$12,578) 440,299 344,733
Other Assets 180,627 168,282
PROPERTY, PLANT AND EQUIPMENT:
Land 40,912 40,238
Buildings, less allowance for depreciation (1999--$90,305; 1998--$85,107) 138,012 131,712
Machinery and equipment, less allowance for depreciation
(1999--$312,716; 1998--$270,467) 234,619 232,058
- -----------------------------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 413,543 404,008
- -----------------------------------------------------------------------------------------------------------------------------
$3,929,672 $3,600,380
=============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 581,010 $ 509,532
Current portion of long-term debt and other borrowings 133,056 156,316
Accrued compensation 69,956 54,696
Other accrued expenses 58,603 31,252
Dividends payable 45,355 44,776
Income taxes payable 28,032 21,837
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 916,012 818,409
LONG-TERM DEBT 702,417 588,640
DEFERRED INCOME TAXES 87,466 94,956
MINORITY INTERESTS IN SUBSIDIARIES 46,260 45,043
SHAREHOLDERS' 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 177,275,602 shares
in 1999; 179,505,151 shares in 1998 177,276 179,505
Additional paid-in capital -- 19,989
Accumulated other comprehensive income (6,857) (3,110)
Retained earnings 2,007,098 1,856,948
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,177,517 2,053,332
- -----------------------------------------------------------------------------------------------------------------------------
$3,929,672 $3,600,380
=============================================================================================================================
See accompanying notes.
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CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
Dollars in thousands, except per share data 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Net Sales $7,981,687 $6,614,032 $6,005,245
Cost of goods sold 5,587,557 4,611,525 4,178,642
- -------------------------------------------------------------------------------------------------------------------
2,394,130 2,002,507 1,826,603
Selling, administrative and other expenses 1,766,063 1,413,390 1,261,003
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 628,067 589,117 565,600
Income taxes 250,445 233,323 223,203
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 377,622 $ 355,794 $ 342,397
===================================================================================================================
Basic net income per common share $ 2.11 $ 1.98 $ 1.91
===================================================================================================================
Diluted net income per common share $ 2.11 $ 1.98 $ 1.90
===================================================================================================================
Average common shares outstanding 178,746 179,416 179,592
Dilutive effect of stock options and non-vested restricted stock awards 492 665 573
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding--assuming dilution 179,238 180,081 180,165
===================================================================================================================
See accompanying notes.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated
Common Stock Additional Other Total
----------------------- Paid-in Comprehensive Retained Shareholders'
Dollars in thousands Shares Amount Capital Income Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1997 180,048,435 $180,048 $ -- $ -- $1,552,006 $1,732,054
Net income -- -- -- -- 342,397 342,397
----------
Comprehensive income 342,397
----------
Cash dividends declared -- -- -- -- (172,334) (172,334)
Stock options exercised,
including tax benefit 656,443 657 12,270 -- -- 12,927
Purchase of stock (2,427,927) (2,428) (32,784) -- (41,549) (76,761)
Stock issued in connection
with acquisitions 671,025 671 20,514 -- -- 21,185
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 178,947,976 178,948 -- -- 1,680,520 1,859,468
Net income -- -- -- -- 355,794 355,794
Foreign currency translation adjustment -- -- -- (3,110) -- (3,110)
----------
Comprehensive income 352,684
----------
Cash dividends declared -- -- -- -- (179,366) (179,366)
Stock options exercised,
including tax benefit 284,153 284 5,465 -- -- 5,749
Purchase of stock (2,311,580) (2,312) (74,023) -- -- (76,335)
Stock issued in connection
with acquisitions 2,584,602 2,585 88,547 -- -- 91,132
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 179,505,151 179,505 19,989 (3,110) 1,856,948 2,053,332
Net income -- -- -- -- 377,622 377,622
Foreign currency translation adjustment -- -- -- (3,747) -- (3,747)
----------
Comprehensive income 373,875
----------
Cash dividends declared -- -- -- -- (185,870) (185,870)
Stock options exercised 322,003 322 6,168 -- -- 6,490
Purchase of stock (3,863,353) (3,863) (65,663) -- (41,602) (111,128)
Stock issued in connection
with acquisitions 1,311,801 1,312 37,772 -- -- 39,084
Other -- -- 1,734 -- -- 1,734
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 177,275,602 $177,276 $ -- $(6,857) $2,007,098 $2,177,517
==================================================================================================================================
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
Dollars in thousands 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 377,622 $ 355,794 $ 342,397
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 89,967 69,305 58,867
Gain on sale of property, plant and equipment (4,595) (1,664) (5,014)
Provision for deferred taxes 12,347 10,379 13,843
Equity in loss (income) from investees 3,675 (3,329) (6,730)
Income applicable to minority interests 3,501 2,709 1,546
Changes in operating assets and liabilities:
Trade accounts receivable (42,846) (74,165) (63,715)
Merchandise inventories (28,671) (107,290) (87,777)
Trade accounts payable 12,104 14,158 3,299
Other, net (56,857) 18,388 (6,107)
- --------------------------------------------------------------------------------------------------------------------------------
(11,375) (71,509) (91,788)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 366,247 284,285 250,609
INVESTING ACTIVITIES
Purchase of property, plant and equipment (88,283) (88,261) (90,425)
Proceeds from sale of property, plant and equipment 10,254 67,522 11,580
Acquisition of businesses, net of cash acquired (89,272) (310,911) (16,045)
Other 4,848 6,088 (7,870)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (162,453) (325,562) (102,760)
FINANCING ACTIVITIES
Proceeds from credit facilities 2,579,675 1,173,359 949,000
Payments on credit facilities (2,530,429) (874,175) (860,712)
Stock options exercised 6,490 5,749 12,927
Dividends paid (184,247) (178,027) (169,156)
Purchase of stock (111,128) (76,335) (76,761)
Other (3,328) 2,905 2,303
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (242,967) 53,476 (142,399)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (64) (50) --
- --------------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (39,237) 12,149 5,450
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 84,972 72,823 67,373
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 45,735 $ 84,972 $ 72,823
================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 244,250 $ 200,280 $ 212,178
================================================================================================================================
Interest $ 39,888 $ 18,867 $ 12,871
================================================================================================================================
See accompanying notes.
27
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts of Genuine Parts Company and all of its subsidiaries (the
"Company"). Income applicable to minority interests is included in other
expenses. Significant intercompany accounts and transactions have been
eliminated in consolidation.
USE OF ESTIMATES The preparation of the consolidated financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect
the amounts reported in the consolidated financial statements and accompanying
notes. Actual results may differ from those estimates.
FOREIGN CURRENCY TRANSLATION The balance sheets and statements of
income of the Company's foreign subsidiaries have been translated into U.S.
dollars at the current and average exchange rates, respectively.
CASH EQUIVALENTS The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
MERCHANDISE INVENTORIES Merchandise inventories are valued at the
lower of cost or market. Cost is determined by the last-in, first-out (LIFO)
method for a majority of automotive parts, electrical/electronic materials, and
industrial parts, and by the first-in, first-out (FIFO) method for office
products and certain other inventories. If the FIFO method had been used for all
inventories, cost would have been $141,041,000 and $134,814,000 higher than
reported at December 31, 1999 and December 31, 1998, respectively.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated
on the basis of cost. Depreciation is determined principally on a straight-line
basis over the estimated useful life of each asset.
GOODWILL Goodwill, which represents the excess of the purchase price
paid over the fair value of the net assets acquired in connection with business
acquisitions, is amortized over a period of 40 years.
LONG-LIVED ASSETS Long-lived assets, including goodwill, are
periodically reviewed for impairment based on an assessment of future
operations. The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
OTHER ASSETS Other assets consists primarily of a prepaid pension
asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount reflected in
the consolidated balance sheets for cash, cash equivalents, accounts receivable,
long-term debt and other borrowings approximate their respective fair values.
Fair values are based primarily on quoted prices for those or similar
instruments.
REVENUE RECOGNITION The Company recognizes revenues from product sales
upon shipment to its customers.
NET INCOME PER COMMON SHARE Basic net income per common share is
computed by dividing net income by the weighted average number of common shares
outstanding during the year. The computation of diluted net income per common
share includes the dilutive effect of stock options and non-vested restricted
stock awards. Options to purchase 4,265,000 shares of common stock at prices
ranging from $26 to $35 per share were outstanding during 1999 but were not
included in the computation of diluted net income per common share because the
options' exercise price was greater than the average market price of the common
shares. The dilutive effect of options to purchase 748,312 shares of common
stock at an average exercise price of approximately $7 per share issued in
connection with a July 1, 1998 acquisition have been included in the computation
of diluted net income per common share since the date of the acquisition.
NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement
No. 133, Accounting for Derivative Instruments and for Hedging Activities. The
statement requires the Company to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives are either offset against the
change in fair value assets, liabilities, or firm commitments through earnings
or recognized in comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company is required to adopt Statement
No. 133 in 2001, however, management does not expect its adoption to have a
significant impact on the Company's financial position or results of operation.
2. ACQUISITIONS
In 1999, the Company acquired certain distributors in 14 separate
transactions. The aggregate purchase price for all 1999 acquisitions was
approximately $126,900,000. Net sales included in the consolidated statement of
income associated with the 1999 transactions totals approximately $311,400,000.
Effective
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July 1, 1999, the Company made an additional $5,300,000 investment in Grupo
Auto Todo, a Mexico-based automotive parts distributor, increasing the
Company's equity ownership to 73%.
On July 1, 1998, the Company acquired EIS, Inc. and subsidiaries
("EIS"), a distributor of electrical/electronic materials for a combination of
cash and stock valued at approximately $180,000,000, which includes certain
non-compete agreements.
On December 1, 1998, the Company acquired the remaining outstanding
shares of UAP Inc., a Montreal, Canada-based automotive parts distributor, for
cash totaling approximately $231,000,000. The Company also made other
individually insignificant acquisitions during 1998.
All 1999 and 1998 acquisitions were accounted for under the purchase
method of accounting. Goodwill, representing the excess of the purchase price
over the fair value of the net assets acquired, totaled approximately
$108,300,000 and $287,799,000 for the 1999 and 1998 acquisitions, respectively.
All acquired businesses are included in the Company's consolidated statements
of income from the dates of acquisition.
The Company's unaudited pro forma results of operations for 1999 and
1998 applicable to 1999 acquisitions is not significantly different from the
Company's actual results of operations. The following table summarizes the
Company's unaudited pro forma results of operations for 1998 and 1997 as if the
1998 acquisitions had occurred on January 1, 1997:
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1998 1997
- --------------------------------------------------------------------------
Pro forma net sales $7,351,037 $7,055,103
Pro forma net income $ 359,133 $ 344,681
Pro forma basic net income
per common share $ 2.00 $ 1.92
Pro forma diluted net income
per common share $ 1.99 $ 1.91
The pro forma results presented above include adjustments to reflect
interest expense on borrowings for the acquisitions, amortization of assets
acquired including intangibles, and the effect on weighted average outstanding
shares of common stock and stock options issued in connection with certain
acquisitions.
These pro forma unaudited results of operations do not purport to
represent what the Company's actual results of operations would have been if
the acquisitions had occurred on January 1, 1997, and should not serve as a
forecast of the Company's operating results for any future periods. The pro
forma adjustments are based solely upon certain assumptions that management
believes are reasonable under the circumstances at this time.
3. CREDIT FACILITIES
Amounts outstanding under the Company's credit facilities consist of
the following:
December 31
IN THOUSANDS 1999 1998
- --------------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED BORROWINGS:
Unsecured revolving line of credit,
$200,000,000, Libor plus .55%
due December 2003 $200,000 $ --
Unsecured 364 day line of credit,
$200,000,000, Libor plus .55%,
due December 2000 16,800 --
Unsecured revolving lines of credit,
$100,000,000, federal funds rate
plus .10%, due May 1999 -- 95,000
Unsecured term notes:
December 27, 1996, 5.95% fixed until
March 2000, then Libor plus .25%
due December 2001 50,000 50,000
October 31, 1997, 5.98% fixed until
October 2000, then the higher of 5.98%
or Libor plus .25%, due October 2002 50,000 50,000
July 1, 1998, Libor plus .25%,
due October 2008 50,000 50,000
October 1, 1998, Libor plus .25%,
due October 2008 50,000 50,000
December 26, 1995, 5.98% fixed,
due December 2000 -- 50,000
September 18, 1997, 6.125% fixed,
due September 2002 -- 50,000
December 1, 1998, Libor plus .55%,
due December 2003 231,367 231,367
December 10, 1999, 6.43% fixed,
due February 2000 49,464 --
Other borrowings 71,858 12,259
CANADIAN DOLLAR DENOMINATED BORROWINGS
TRANSLATED INTO U.S. DOLLARS:
Unsecured revolving lines of credit,
$100,000,000, Banker's Acceptance rate
plus .55%, due January 2004 22,144 47,706
Line of credit, $41,544,000 and $49,013,000
at December 31, 1999 and 1998,
respectively, secured by accounts
receivable, Banker's Acceptance rate
plus .22%, cancelable on 30 days notice
or due March 2003 41,544 49,013
Other borrowings 2,296 --
Unsecured demand loan, Libor plus .25% -- 9,611
- --------------------------------------------------------------------------------
835,473 744,956
Current portion of long-term debt and
other borrowings 133,056 156,316
- --------------------------------------------------------------------------------
$702,417 $588,640
================================================================================
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11
The principal amount of the Company's borrowings subject to variable
rates totaled approximately $674,602,000 and $532,697,000 at December 31, 1999
and 1998, respectively. The weighted average interest rate on the Company's
outstanding borrowings was approximately 6.3% and 5.7% at December 31, 1999 and
1998, respectively.
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. At December 31,
1999, the Company was committed to receive an average variable rate of 5.9% and
pay an average fixed rate of 5.6% on notional amounts of $245,696,000. The
Company's notional amounts of interest rate swaps expire as follows: $27,696,000
in 2003, $100,000,000 in 2008 and $118,000,000 in 2009. The fair value of all
such interest rate swap agreements was approximately $9,500,000 at December 31,
1999.
The Company guaranteed borrowings of affiliates totaling approximately
$62,400,000 at December 31, 1999.
The $231,367,000 term note also contains one restrictive covenant,
whereby the Company must maintain a debt to equity ratio not greater than 50%.
Total interest expense for all borrowings was $41,487,000 in 1999, $20,096,000
in 1998 and $13,365,000 in 1997.
Approximate maturities under the Company's credit facilities are as
follows (in thousands):
2000 $133,056
2001 62,890
2002 62,916
2003 443,906
2004 1,079
Subsequent to 2004 131,626
- ---------------------------------
$835,473
=================================
4. SHAREHOLDERS' EQUITY
The Company has a Shareholder Protection Rights Agreement which
includes the distribution of rights to common shareholders under certain defined
circumstances. The rights entitle the holder, upon occurrence of certain events,
to purchase additional stock of the Company. The rights will be exercisable only
if a person, group or company acquires 20% or more of the Company's common
stock or commences a tender offer that would result in ownership of 20% or more
of the common stock. The Company is entitled to redeem each right for one cent.
5. LEASED PROPERTIES
The Company leases land, buildings and equipment. Certain land and
building leases have renewal options generally for periods ranging from two to
ten years. Future minimum payments, by year and in the aggregate, under the
noncancellable operating leases with initial or remaining terms of one year or
more consisted of the following at December 31, 1999 (in thousands):
2000 $ 83,922
2001 64,724
2002 49,049
2003 35,730
2004 25,634
Subsequent to 2004 101,746
- ---------------------------------
$360,805
=================================
In November 1998, the Company sold land and buildings with a carrying
value of approximately $50,000,000 under a sale leaseback arrangement. A gain of
approximately $10,000,000 was deferred and is being amortized over the term of
the lease. Rental expense for operating leases was $100,546,000 in 1999,
$76,834,000 in 1998, and $65,137,000 in 1997.
6. STOCK OPTIONS AND RESTRICTED STOCK AWARDS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
In 1999, the Company authorized the grant of options of up to 9,000,000
shares of common stock. In accordance with stock option plans approved by
shareholders, options are granted to key personnel for the purchase of the
Company's stock at prices not less than the fair market value of the shares on
the dates of grant. Most options may be exercised not earlier than twelve months
nor later than ten years from the date of grant.
Pro forma information regarding net income and earnings per share is
required by Statement 123 determined as if the Company had accounted for its
employee stock options granted subsequent to December 31, 1994 under the fair
value method of that Statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1999 and 1997, respectively:
risk-free interest rates of 5.5% and 6.4%; dividend yield of 3.5% and 2.5%;
volatility factor of the expected market price of the Company's common stock of
.07 and .12, and an expected life of the option of 7.1 years and 5.4 years. No
options were granted during 1998.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have
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no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including
the expected stock price volatility. Because the company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except per share amounts):
1999 1998 1997
- --------------------------------------------------------------------------------------------
Pro forma net income........................................ $374,801 $351,875 $338,978
Pro forma basic net income per common share................. $ 2.10 $ 1.96 $ 1.89
Pro forma diluted net income per common share............... $ 2.09 $ 1.95 $ 1.88
A summary of the Company's stock option activity and related information
are as follows:
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000's) Price (000's) Price (000's) Price
- -----------------------------------------------------------------------------------------------------------
Outstanding at beginning of year............. 3,827 $26 3,588 $29 2,743 $23
Granted...................................... 2,046 32 -- -- 1,790 35
Issued in connection with acquisitions....... -- -- 748 7 -- --
Exercised.................................... (430) 23 (413) 24 (907) 20
Forfeited.................................... (55) 33 (96) 35 (38) 21
------ ------ ------
Outstanding at end of year................... 5,388 $28 3,827 $26 3,588 $29
====== ====== ======
Exercisable at end of year................... 2,715 $27 2,792 $26 1,363 $24
====== ====== ======
Weighted-average fair value of options
granted during the year.................... $ 3.78 $ -- $ 6.13
====== ====== ======
Shares available for future grants........... 8,735 1,726 1,572
====== ====== ======
Exercise prices for options exercised during 1999 ranged from approximately
$17 to $35. Exercise prices for options outstanding as of December 31, 1999
ranged from approximately $18 to $35, except for 748,312 options granted in
connection with the 1998 acquisition of EIS discussed in Note 2 for which the
range is approximately $0.54 to $16. The weighted-average remaining contractual
life of those options is approximately 6 years.
On February 25, 1999, the Company entered into restricted stock agreements
with two officers which provide for the award of up to 150,000 and 75,000
shares, respectively, during the period 1999 through 2003 based on the Company
achieving certain increases in net income per common share and stock price
levels. Through December 31, 1999, the two officers have earned 15,000 and 7,500
shares, respectively. The Company recognizes compensation expense equal to the
fair market value of the stock on the award date over the remaining vesting
period which expires on February 25, 2009.
7. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:
In thousands 1999 1998
- --------------------------------------------------------------------------------
Deferred tax assets related to:
Expenses not yet deducted for tax purposes................ $ 48,249 $ 47,545
Other..................................................... 3,324 1,104
- ------------------------------------------------------------------------ -------
51,573 48,649
Deferred tax liabilities related to:
Employee and retiree benefits............................. 69,489 64,261
Inventory................................................. 41,980 40,704
Property and equipment.................................... 26,156 26,049
Other..................................................... 16,881 16,412
- ------------------------------------------------------------------------ -------
154,506 147,426
Net deferred tax liability.................................. 102,933 98,777
Current portion of deferred tax liability (included in
income taxes payable)..................................... 15,467 3,821
- --------------------------------------------------------------------------------
Non-current deferred tax liability......................... $ 87,466 $ 94,956
================================================================================
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of income tax expense are as follows:
In thousands 1999 1998 1997
- ------------------------------------------------------------------------
Current:
Federal $200,188 $184,397 $171,676
State 37,910 38,547 37,684
Deferred 12,347 10,379 13,843
- ------------------------------------------------------------------------
$250,445 $233,323 $223,203
========================================================================
The reasons for the difference between total tax expense and the amount
computed by applying the statutory Federal income tax rate to income before
income taxes are as follows:
In thousands 1999 1998 1997
- -------------------------------------------------------------------------
Statutory rate applied to
pre-tax income $219,824 $206,191 $197,960
Plus state income taxes,
net of Federal tax benefit 24,641 25,056 24,494
Other 5,980 2,076 749
- -------------------------------------------------------------------------
$250,445 $233,323 $223,203
=========================================================================
8. EMPLOYEE BENEFIT PLANS
The Company's noncontributory defined benefit pension plan covers
substantially all of its employees. The benefits are based on an average of the
employees' compensation during five of their last ten years of credited service.
The Company's funding policy is to contribute amounts deductible for income tax
purposes. Contributions are intended to provide not only for benefits attributed
for service to date but also for those expected to be earned in the future.
Pension benefits include amounts related to a supplemental retirement plan.
Pension Benefits Other Postretirement Benefits
In thousands 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
CHANGES IN BENEFIT OBLIGATION
Net benefit obligation at beginning of year $566,868 $454,083 $1,427 $ 2,999
Service cost 21,564 16,427 118 (76)
Interest cost 40,332 34,629 (11) 138
Plan participants' contributions -- -- 2,716 2,359
Actuarial (gain) loss (36,608) 82,711 (266) (711)
Gross benefits paid (17,660) (20,982) (3,564) (3,282)
- -------------------------------------------------------------------------------------------------------------------------
Net benefit obligation at end of year $574,496 $566,868 $ 420 $ 1,427
=========================================================================================================================
CHANGES IN PLAN ASSETS
Fair value of plan assets at beginning of year $647,439 $590,733 $ -- $ --
Actual return on plan assets 30,220 69,848 -- --
Employer contributions 10,492 7,840 848 924
Plan participants' contribution -- -- 2,716 2,358
Gross benefits paid (17,660) (20,982) (3,564) (3,282)
- ------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $670,491 $647,439 $ -- $ --
========================================================================================================================
The follow table sets forth the funded status of the plans and the
amount recognized in the balance sheet at December 31.
Pension Benefits Other Postretirement Benefits
In thousands 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Funded status at end of year $ 95,995 $ 80,571 $ (420) $(1,427)
Unrecognized net actuarial loss 72,740 76,434 (2,614) (2,799)
Unrecognized prior service cost (14,702) (18,020) -- --
Unrecognized net transition obligation 521 781 -- --
- ----------------------------------------------------------------------------------------------------------------------
Net amount recognized at end of year $154,554 $139,766 $(3,034) $(4,226)
======================================================================================================================
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Net pension cost (income) included the following components:
Pension Benefits Other Postretirement Benefits
In thousands 1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
Service cost $ 21,564 $ 16,427 $15,631 $118 $ (76) $ (48)
Interest cost 40,332 34,629 31,650 (11) 138 242
Expected return on plan assets (64,146) (59,123) (47,957) -- -- --
Amortization of unrecognized transition obligation 260 260 260 -- -- --
Amortization of prior service cost (2,840) (2,865) (2,409) -- -- --
Amortization of actuarial loss (gain) 499 471 1,214 237 (180) (140)
- ---------------------------------------------------------------------------------------------------------------------
Net periodic pension (income) cost $ (4,331) $(10,201) $(1,611) $344 $(118) $ 54
=====================================================================================================================
The assumptions used in the accounting for the defined benefit plans
and postretirement plan are as follows:
Pension Benefits Other Postretirement Benefits
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Weighted-average discount rate 7.75% 7.10% 7.75% 7.10%
Rate of increase in future compensation levels 4.15% 4.15% -- --
Expected long-term rate of return on assets 10.00% 10.00% -- --
Health care cost trend on covered charges -- -- 8.00% 8.25%
- -------------------------------------------------------------------------------------------------------------------
The effect of a one percentage point change in the 1999 assumed health
care cost trend is as follows:
In thousands Decrease Increase
- ----------------------------------------------------------------------------
Total service and interest cost components
on net periodic postretirement health care
benefit cost $ (127) $ 185
Accumulated postretirement benefit
obligation for health care benefits (1,254) 1,786
- ----------------------------------------------------------------------------
At December 31, 1999, the Company sponsored pension plan held 870,369
shares of common stock of the Company with a market value of approximately
$21,600,000. Dividend payments received by the plan on Company stock totaled
approximately $901,000 and $840,000 in 1999 and 1998, respectively. Fees paid
during the year for services rendered by parties-in-interest were based on
customary and reasonable rates for such services.
The Company has a defined contribution plan which covers substantially
all of its employees. The Company's contributions are determined based on 20%
of the first 6% of the covered employee's salary. Total plan expense was
approximately $4,599,000 in 1999, $4,491,000 in 1998, and $3,953,000 in 1997.
9. SEGMENT DATA
The segment data for the past five years presented on page 24 is an
integral part of these financial statements.
The Company is primarily engaged in the distribution of merchandise,
principally automotive and industrial replacement parts, office supplies, and
electrical/electronic materials throughout the United States, Canada and Mexico.
In the automotive segment, the Company distributes replacement parts
(other than body parts) for substantially all makes and models of automobiles,
trucks and buses. In addition, this segment of the business includes the
rebuilding of some automotive parts and the distribution of replacement parts
for certain types of farm equipment, motorcycles, motorboats and small engines.
The Company's industrial segment distributes a wide variety of
industrial bearings, mechanical and fluid power transmission equipment,
including hydraulic and pneumatic products, material handling components, and
related parts and supplies.
The Company's office products segment distributes a wide variety of
office products, computer supplies, office furniture and business electronics.
The Company's electrical/electronic materials segment distributes a
wide variety of electrical/electronic materials, including insulating and
conductive materials for use in electronic and electrical apparatus.
Intersegment sales are not significant. Operating profit for each
industry segment is calculated as net sales less operating expenses excluding
general corporate expenses, interest expense, equity in income from investees,
goodwill amortization and minority interests. Net long-lived assets by country
relate directly to the Company's operations in the respective country.
Corporate assets are principally cash, cash equivalents and headquarters'
facilities and equipment.
33