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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 June 30, 2001 Commission File Number 1-5690
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GENUINE PARTS COMPANY
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(Exact name of registrant as specified in its charter)
GEORGIA 58-0254510
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2999 CIRCLE 75 PARKWAY, ATLANTA, GEORGIA 30339
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770)953-1700
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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).
172,589,263
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(Shares of Common Stock)
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FORM 10-Q
PART I - Financial Information
Item 1 - Financial Statements
GENUINE PARTS COMPANY and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, Dec. 31,
2001 2000
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(Unaudited)
(in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ...................................................... $ 45,685 $ 27,738
Trade accounts receivable, less allowance
for doubtful accounts (2001 - $14,542; 2000 - $7,370) ......................... 1,131,433 1,031,662
Inventories - at lower of cost (substantially last-in,
first-out method) or market .................................................... 1,796,781 1,864,334
Prepaid and other current accounts ............................................. 58,896 95,747
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TOTAL CURRENT ASSETS .................................................. 3,032,795 3,019,481
Goodwill, less accumulated amortization (2001 - $44,113; 2000 - $37,680) ....... 453,448 451,435
Other assets ................................................................... 294,270 275,938
Total property, plant and equipment, less allowance
for depreciation (2001 - $450,490; 2000 - $436,942) ............................ 370,725 395,260
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$ 4,151,238 $ 4,142,114
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................................................... $ 628,618 $ 635,499
Current portion of long-term debt and other borrowings ......................... 198,046 151,452
Income taxes ................................................................... 22,168 37,043
Dividends payable .............................................................. 49,185 47,494
Other current liabilities ...................................................... 81,556 116,825
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TOTAL CURRENT LIABILITIES ............................................. 979,573 988,313
Long-term debt ................................................................. 709,939 770,581
Deferred income taxes .......................................................... 72,859 77,814
Minority interests in subsidiaries ............................................. 45,664 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 - $1 per share
Authorized - 450,000,000 shares
Issued - 2001 - 172,589,263; 2000 - 172,389,688 ......................... 172,589 172,390
Additional paid-in capital ..................................................... 3,836 -0-
Accumulated other comprehensive income ......................................... (20,474) (13,041)
Retained earnings .............................................................. 2,187,252 2,101,457
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TOTAL SHAREHOLDERS' EQUITY ............................................ 2,343,203 2,260,806
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$ 4,151,238 $ 4,142,114
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See notes to condensed consolidated financial statements.
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GENUINE PARTS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
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2001 2000 2001 2000
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(000 omitted except per share data)
Net sales ................................... $2,118,976 $2,129,377 $4,173,948 $4,200,369
Cost of goods sold .......................... 1,475,999 1,479,706 2,907,812 2,930,646
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642,977 649,671 1,266,136 1,269,723
Selling, administrative & other expenses .... 485,164 488,844 959,534 956,167
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Income before income taxes .................. 157,813 160,827 306,602 313,556
Income taxes ................................ 63,125 64,234 122,641 125,234
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NET INCOME .................................. $ 94,688 $ 96,593 $ 183,961 $ 188,322
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Basic net income per common share ........... $ .55 $ .55 $ 1.07 $ 1.07
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Diluted net income per common share ......... $ .55 $ .55 $ 1.06 $ 1.06
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Dividends declared per common share ......... $ .285 $ .275 $ .57 $ .55
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Average common shares outstanding ........... 172,483 176,340 172,286 176,557
Dilutive effect of stock options and
non-vested restricted stock awards ....... 878 369 810 317
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Average common shares outstanding -
assuming dilution ........................ 173,361 176,709 173,096 176,874
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See notes to condensed consolidated financial statements.
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GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
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(000 omitted)
2001 2000
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OPERATING ACTIVITIES:
Net income ............................................................................ $ 183,961 $ 188,322
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ....................................................... 47,142 47,374
Other ............................................................................... 5,858 (829)
Changes in operating assets and liabilities ......................................... (56,672) (29,162)
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NET CASH PROVIDED BY OPERATING ACTIVITIES ................................................ 180,289 205,705
INVESTING ACTIVITIES:
Purchase of property, plant and equipment ............................................. (23,570) (34,388)
Acquisitions of businesses and other investing activities ............................. (17,335) (37,155)
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NET CASH USED IN INVESTING ACTIVITIES .................................................... (40,905) (71,543)
FINANCING ACTIVITIES:
Proceeds from credit facilities, net of payments ...................................... (14,375) 34,644
Stock options exercised ............................................................... 1,539 --
Dividends paid ........................................................................ (96,474) (94,795)
Purchase of stock ..................................................................... (12,127) (66,522)
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NET CASH USED IN FINANCING ACTIVITIES .................................................... (121,437) (126,673)
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NET INCREASE IN CASH AND CASH EQUIVALENTS ................................................ 17,947 7,489
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......................................... 27,738 45,735
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CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................................... $ 45,685 $ 53,224
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See notes to condensed consolidated financial statements.
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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 six months ended June
30, 2001 are not necessarily indicative of results for the entire year.
Note B - Segment Information
Three month period ended June 30, Six month period ended June 30,
2001 2000 2001 2000
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(in thousands) (in thousands)
Net sales:
Automotive ........................ $ 1,121,981 $ 1,085,836 $ 2,104,805 $ 2,091,146
Industrial ........................ 572,114 590,416 1,156,043 1,184,764
Office Products ................... 333,143 319,450 703,862 657,034
Electrical/Electronic Materials ... 96,962 139,800 221,647 280,562
Other ............................. (5,224) (6,125) (12,409) (13,137)
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Total net sales ............... $ 2,118,976 $ 2,129,377 $ 4,173,948 $ 4,200,369
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Operating profit:
Automotive ........................ $ 109,807 $ 104,455 $ 191,774 $ 189,445
Industrial ........................ 44,047 48,028 89,269 97,842
Office Products ................... 30,073 28,040 73,705 66,113
Electrical/Electronic Materials ... 1,639 6,938 6,844 13,271
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Total operating profit ........ 185,566 187,461 361,592 366,671
Interest expense .................. (15,097) (16,023) (30,782) (31,182)
Other, net ........................ (12,656) (10,611) (24,208) (21,933)
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Income before income taxes .... $ 157,813 $ 160,827 $ 306,602 $ 313,556
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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 the 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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Note C - Comprehensive Income
Total comprehensive income was $176,528,000 and $185,060,000 for the six month
periods ended June 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 Six Months Ended June 30,
2001 2000
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(in thousands)
Net Income $ 183,961 $ 188,322
Foreign currency translation, net of taxes 2,203 (3,262)
Unrealized loss on derivative instruments, net of taxes (9,636) --
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Total other comprehensive loss (7,433) (3,262)
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Comprehensive income $ 176,528 $ 185,060
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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 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities". 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 $16,060,000 at June 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, and No. 142,
Goodwill and Other Intangible Assets, 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 the Statements. Other intangible
assets will continue to be amortized over their useful lives. The Company will
apply the new rules 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 will be reviewing the statements 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, essentially flat as compared to the
same period in 2000. Net income in the quarter was $94.7 million, a decrease of
2%. On a per-share diluted basis, net income in the quarter was $.55, even with
the same quarter of the prior year.
For the six months ended June 30, 2001, sales totaled $4.2 billion, down 1% as
compared to the first half of 2000, while net income was $184.0 million, a
decrease of 2%. Diluted earnings per share were $1.06 for the first six months
of 2001, even with the same period in 2000.
Sales for the Automotive Parts Group increased 3% for the quarter and 1% for the
six months. This increase follows three quarters of flat or negative growth for
this Group, and this quarter reflects the results of an overall improvement in
the aftermarket industry. Sales for the Industrial Parts Group decreased 3% for
the quarter and 2% for the six months, and EIS reported a 31% decrease for the
quarter and 21% for the six-month period. These sales decreases are the result
of reduced plant activity among manufacturers across the U.S. and Canada. EIS
was more severely impacted with its large OEM customer segment in the electrical
and electronics industry. The Office Products Group was up 4% for the quarter
and 7% for the six months. S. P. Richards' growth rate slowed in the quarter due
to an expected slowing in the industry. This Group's
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performance is strong relative to the industry due to strong marketing programs,
continued expansion of product lines and emphasis on sales initiatives. Cost of
goods sold increased slightly as a percentage of net sales compared to the same
quarter of the prior year. Selling, administrative and other expenses decreased
1% for the quarter and the percentage of selling, administrative and other
expenses to net sales decreased slightly, reflecting improved operating
efficiencies.
The Company is currently a party to several interest rate swap agreements. The
change in the fair value of these agreements in the first half of 2001 was $6.48
million.
The ratio of current assets to current liabilities remains very good at 3.1 to 1
and the Company's cash position is good.
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,
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.
PART II - OTHER INFORMATION
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2001 Annual Meeting of Shareholders of the Company was held on April 16,
2001, pursuant to notice given to shareholders of record on February 8, 2001, at
which date there were 171,987,550 shares of Common Stock outstanding. At the
Annual Meeting, the shareholders elected four Class III directors with terms to
expire at the 2003 Annual Meeting. As to the following named individuals, the
holders of 150,379,097 shares of the Company's Common Stock voted as follows:
Class III For Withhold Authority
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Jean Douville 148,440,549 1,938,548
Michael M. E. Johns, M.D. 148,385,158 1,993,939
J. Hicks Lanier 145,950,022 4,429,075
Alana S. Shepherd 148,349,536 2,029,561
The following individuals' term of office as a director continued after the
Annual Meeting:
Class I Class II
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Bradley Currey, Jr. Richard W. Courts II
Robert P. Forrestal Larry L. Prince
Thomas C. Gallagher James B. Williams
Lawrence G. Steiner
The shareholders also ratified the selection of Ernst & Young LLP as independent
auditors of the Company for 2001. The holders of 146,221,153 shares of Common
Stock voted in favor of the ratification, holders of 3,555,218 shares voted
against, holders of 602,726 shares abstained, and there were no broker
non-votes.
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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 June 30, 2001.
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
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(Registrant)
Date July 31, 2001 /s/ Jerry W. Nix
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Jerry W. Nix
Executive Vice President - Finance
(Principal Financial and Accounting Officer)
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