1
EXHIBIT 13
SELECTED FINANCIAL DATA
Genuine Parts Company and Subsidiaries
[LOGO]
- ----------------------------------------------------------------------------------------------------------------
(restated to give effect to pooling of interests) Year Ended December 31
- ----------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
================================================================================================================
(in thousands except per share data)
Net sales .................................... $4,858,415 $4,384,294 $4,016,751 $3,763,736 $3,660,443
Cost of goods sold ........................... 3,343,699 3,023,038 2,781,731 2,612,059 2,543,951
Selling, administrative and other expenses ... 1,039,848 935,427 852,610 790,559 755,051
Income before income taxes ................... 474,868 425,829 382,410 361,118 361,441
Income taxes ................................. 186,320 166,961 145,440 137,154 137,718
Net income** ................................. $ 288,548 $ 257,813 $ 236,970 $ 223,964 $ 223,723
Average common shares outstanding during year* 124,041 124,217 124,085 123,980 125,262
Per common share*:
Net income** ......................... $ 2.33 $ 2.08 $ 1.91 $ 1.81 $ 1.79
Dividends declared ................... 1.15 1.06 1.00 .97 .92
December 31 closing stock price ...... 36.00 37.63 34.00 32.50 25.33
Long-term debt, less current maturities ...... 11,431 12,265 13,043 12,658 16,369
Shareholders' equity ......................... 1,526,165 1,445,263 1,316,372 1,211,716 1,122,182
Total assets ................................. $2,029,471 $1,870,756 $1,707,303 $1,577,516 $1,488,412
- ----------------------------------------------------------------------------------------------------------------
*Adjusted to reflect the three-for-two split in 1992.
**Net of cumulative effect of changes in accounting principles of $1,055 in
1993.
SELECTED RATIO ANALYSIS
(restated to give effect to pooling of interests) Year Ended December 31
- ----------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
================================================================================================================
(In % of net sales)
Cost of goods sold .............................. 68.82% 68.95% 69.25% 69.40% 69.50%
Selling, administrative and other expenses ...... 21.40 21.34 21.23 21.00 20.63
Income before income taxes ...................... 9.77 9.71 9.52 9.60 9.87
Net income ...................................... 5.94 5.88 5.90 5.95 6.11
Rate earned on shareholders' equity at the beginning
of each year .................................... 19.97% 19.59% 19.56% 19.96% 21.14%
- ----------------------------------------------------------------------------------------------------------------
MARKET AND DIVIDEND INFORMATION
High and Low Sales Price and Dividends Declared per Share of Common Shares
Traded on the New York Stock Exchange.
Sales Price of Common Shares
- ----------------------------------------------------------------------------------------------------------------
Quarter 1994 1993
================================================================================================================
High Low High Low
- ----------------------------------------------------------------------------------------------------------------
First.............................................. $39.38 $33.75 $37.25 $32.88
Second............................................. 36.88 33.63 37.38 33.50
Third.............................................. 37.38 34.13 38.25 34.50
Fourth............................................. 37.00 33.88 39.00 34.88
Dividends Declared per Share
- ----------------------------------------------------------------------------------------------------------------
1994 1993
================================================================================================================
First ............................................. $.2875 $.265
Second ............................................ .2875 .265
Third ............................................. .2875 .265
Fourth ............................................ .2875 .265
Number of Record Holders of Common Stock........... 7,917
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2
REPORT OF INDEPENDENT AUDITORS
Genuine Parts Company and Subsidiaries
[LOGO] ERNST & YOUNG LLP
Board of Directors
Genuine Parts Company
We have audited the accompanying consolidated balance sheets of Genuine Parts
Company and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1994. 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 generally accepted auditing
standards. 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, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the
Company changed its method of accounting for postretirement benefits and
income taxes.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
February 6, 1995
nineteen
3
CONSOLIDATED BALANCE SHEETS
Genuine Parts Company and Subsidiaries
[LOGO]
- --------------------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------------------
1994 1993
============================================================================================
(dollars in thousands)
ASSETS
- --------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents ....................................... $ 82,410 $ 123,231
Short-term investments, at cost, which
approximates market value ..................................... --- 64,599
Trade accounts receivable ....................................... 487,395 428,911
Merchandise inventories ......................................... 1,004,580 879,154
Prepaid expenses and other current accounts ..................... 21,396 10,299
- --------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,595,781 1,506,194
INVESTMENTS AND OTHER ASSETS (Notes 1 and 8) .................... 175,658 133,364
PROPERTY, PLANT AND EQUIPMENT
Land ............................................................ 32,152 28,109
Buildings, less allowance for depreciation
(1994 - $60,176; 1993 - $56,839)............................... 106,608 103,146
Machinery and equipment, less allowance for
depreciation (1994 - $131,905; 1993 - $128,262) ............... 119,272 99,943
- --------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 258,032 231,198
- --------------------------------------------------------------------------------------------
$2,029,471 $1,870,756
============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Trade accounts payable .......................................... $ 316,589 $ 258,949
Current maturities on long-term debt ............................ 933 797
Accrued compensation ............................................ 37,790 30,883
Accrued expenses ................................................ 20,368 18,222
Dividends payable ............................................... 35,246 32,933
Income taxes payable ............................................ 11,482 10,167
Deferred income taxes ........................................... --- 1,521
- --------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 422,408 353,472
LONG-TERM DEBT, less current maturities ......................... 11,431 12,265
DEFERRED INCOME TAXES ........................................... 44,540 37,980
MINORITY INTERESTS IN SUBSIDIARIES .............................. 24,927 21,776
SHAREHOLDERS EQUITY (Notes 2, 3, 4 and 6):
Preferred Stock, par value $1 a share-authorized
10,000,000 shares; none issued
Common Stock, par value $1 a share-authorized
450,000,000 shares; issued 122,627,303 shares
in 1994; 124,282,289 shares in 1993 ........................... 122,627 124,282
Additional paid-in capital ...................................... --- 2,566
Retained earnings ............................................... 1,403,538 1,318,415
- --------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,526,165 1,445,263
- --------------------------------------------------------------------------------------------
$2,029,471 $1,870,756
============================================================================================
See accompanying notes.
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CONSOLIDATED STATEMENTS OF INCOME
Genuine Parts Company and Subsidiaries
(LOGO)
- -------------------------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------------------------
1994 1993 1992
=================================================================================================
(dollars in thousands except per share data)
- -------------------------------------------------------------------------------------------------
Net sales ............................................ $4,858,415 $4,384,294 $4,016,751
Cost of goods sold ................................... 3,343,699 3,023,038 2,781,731
- -------------------------------------------------------------------------------------------------
1,514,716 1,361,256 1,235,020
Selling, administrative and other expenses ........... 1,039,848 935,427 852,610
- -------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of
changes in accounting principles ................... 474,868 425,829 382,410
Income taxes (Note 7) ................................ 186,320 166,961 145,440
- -------------------------------------------------------------------------------------------------
Income before cumulative effect of changes in
accounting principles .............................. 288,548 258,868 236,970
Cumulative effect of changes in accounting principles,
net of tax (Note 1) ................................ -- 1,055 --
- -------------------------------------------------------------------------------------------------
NET INCOME ........................................... $ 288,548 $ 257,813 $ 236,970
=================================================================================================
Net income per common share .......................... $ 2.33 $ 2.08 $ 1.91
=================================================================================================
Average common shares outstanding during the year .... 124,041 124,217 124,085
=================================================================================================
See accompanying notes.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Genuine Parts Company and Subsidiaries
(LOGO)
- ---------------------------------------------------------------------------------------------------------
Common Stock Additional Total
------------ Paid-In Retained Shareholders
Shares Amount Capital Earnings Equity
=========================================================================================================
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------
Balance at January 1, 1992 ........ 82,670,204 $ 82,670 $ -- $1,129,046 $1,211,716
Net income ...................... -- -- -- 236,970 236,970
Cash dividends declared ......... -- -- -- (114,508) (114,508)
Three-for-two stock split ....... 41,350,036 41,350 -- (41,395) (45)
Stock options exercised ......... 142,849 143 -- 3,270 3,413
Repurchase of shares by pooled
companies prior to merger ..... -- -- -- (4,895) (4,895)
Cash dividends declared by pooled
companies prior to merger ..... -- -- -- (16,279) (16,279)
- ------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 ...... 124,163,089 124,163 -- 1,192,209 1,316,372
Net income ...................... -- -- -- 257,813 257,813
Cash dividends declared ......... -- -- -- (131,681) (131,681)
Stock options exercised ......... 119,200 119 2,566 74 2,759
- ------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 ...... 124,282,289 124,282 2,566 1,318,415 1,445,263
Net income ...................... -- -- -- 288,548 288,548
Cash dividends declared ......... -- -- -- (142,602) (142,602)
Stock options exercised ......... 192,613 193 4,175 -- 4,368
Purchase of stock ............... (2,011,000) (2,011) (6,741) (61,593) (70,345)
Other ........................... 163,401 163 -- 770 933
- ------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 ...... 122,627,303 $122,627 $ -- $1,403,538 $1,526,165
=========================================================================================================
See accompanying notes.
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5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Genuine Parts Company and Subsidiaries
[LOGO]
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ----------------------------------------------------------------------------------------------------------------
1994 1993 1992
================================================================================================================
(dollars in thousands)
Operating Activities
Net income ............................................................ $ 288,548 $ 257,813 $ 236,970
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ..................................... 37,374 34,420 31,687
Gain on sale of property, plant and equipment ..................... (158) (1,342) (895)
Provision for deferred taxes ...................................... 6,699 5,990 3,896
Equity in income from investees ................................... (7,224) (4,452) (2,513)
Income applicable to minority interests ........................... 2,373 2,090 1,537
Changes in operating assets and liabilities:
Trade accounts receivable ....................................... (58,484) (25,759) (33,455)
Merchandise inventories ......................................... (125,426) (91,462) (60,614)
Prepaid expenses and other current accounts ..................... (11,097) (1,413) 488
Trade accounts payable .......................................... 57,641 18,319 22,090
Income taxes payable and other current liabilities .............. 8,708 6,367 (12,987)
- ----------------------------------------------------------------------------------------------------------------
(89,594) (57,242) (50,766)
- ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 198,954 200,571 186,204
Investing Activities
Acquisition of Davis & Wilmar, Inc., net of cash acquired of $3,556 ... -- -- (28,444)
Investment in Grupo Auto Todo ......................................... (26,009) -- --
Purchase of property, plant and equipment ............................. (66,002) (57,513) (31,585)
Proceeds from sale of property, plant and equipment ................... 2,885 4,831 3,862
Purchase of short-term investments .................................... -- (64,599) (12,010)
Proceeds from sale and maturity of short-term investments ............. 64,599 12,010 17,698
Other investing activities ............................................ (9,062) (12,962) (9,696)
- ----------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (33,589) (118,233) (60,175)
Financing Activities
Payments on long-term debt ............................................ (698) (804) (5,954)
Stock options exercised ............................................... 4,368 2,759 3,368
Dividends paid ........................................................ (140,289) (129,846) (127,338)
Purchase of stock ..................................................... (70,345) -- (4,896)
Contributions from minority interests ................................. 778 765 822
- ----------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (206,186) (127,126) (133,998)
- ----------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (40,821) (44,788) (7,969)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 123,231 168,019 175,988
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 82,410 $ 123,231 $ 168,019
================================================================================================================
Supplemental disclosure of cash flow information
Cash paid during the year for:
Income taxes ........................................................ $ 178,307 $ 160,944 $ 154,498
================================================================================================================
Interest ............................................................ $ 1,333 $ 1,587 $ 1,890
================================================================================================================
See accompanying notes.
twenty-two
6
Notes to Consolidated Financial Statements
Genuine Parts Company and Subsidiaries
December 31, 1994 GPC(LOGO)
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.
CASH EQUIVALENTS: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
INVESTMENTS: On August 27, 1992, the Company paid approximately $5.5 million to
increase its ownership in UAP Inc., a Canadian automotive parts distributor,
from 20% to 24%. The Company also has a 49% interest in a partnership formed by
the Company and UAP Inc.
On October 1, 1994, the Company paid approximately $26 million to acquire
a 49% interest in Grupo Auto Todo, a partnership formed by the Company and Auto
Todo, a Mexican automotive parts distributor.
These investments are accounted for by the equity method of accounting.
INVENTORIES: Inventories are valued at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for substantially all
automotive parts, and certain industrial parts, and by the first-in, first-out
(FIFO) method for all other inventories. If the FIFO method had been used for
all inventories, cost would have been $102,077,000 and $100,772,000 higher than
reported at December 31, 1994 and December 31, 1993, 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.
STOCK OPTIONS: Proceeds from the sale of stock under options are credited to
common stock at par value and the excess of the option price over par value is
credited to additional paid-in capital.
INTEREST INCOME: Interest income (1994 - $6,765,000; 1993 - $6,273,000; 1992 -
$7,538,000) has been deducted from selling, administrative and other expenses.
FOREIGN OPERATIONS: Foreign operations represent less than five percent of
consolidated amounts. Translation adjustments are not significant.
ACCOUNTING CHANGES: Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which requires the projected
future costs of providing postretirement benefits, such as health care and
life insurance, be recognized as an expense as employees render service instead
of when benefits are paid. The Company applied the new rules using the
cumulative effect method, resulting in a charge of $5,055,000 (net of income
taxes of $3,095,000) in 1993.
Also effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The cumulative
effect as of January 1, 1993, of adopting Statement 109 increased 1993 net
income by $4,000,000.
The adoption of Statements 106 and 109 did not have a material impact on
the Company's financial statements or results of operations.
NET INCOME PER COMMON SHARE: Net income per common share is based on the
weighted average number of shares of common stock outstanding during each year.
Options outstanding under the Company's stock option plan would not materially
dilute net income per share and, therefore, have not been included in the
computation.
2. ACQUISITIONS
On June 30, 1992, the Company acquired all of the outstanding common stock of
Davis & Wilmar, Inc., an automotive parts distributor, for $32 million. The
acquisition has been recorded using the purchase method of accounting.
On January 29, 1993, the Company completed its merger of Berry Bearing
Company and certain affiliated companies into the Company. The Berry Companies
distribute industrial replacement parts and related supplies throughout the
Midwestern United States. The Company issued 9,586,531 shares of common stock
for all of the outstanding common stock of the Berry Companies. This
transaction has been accounted for as a pooling of interests and, accordingly,
the accompanying financial statements have been retroactively combined to
include the accounts of the pooled companies.
3. STOCK SPLIT
On February 17, 1992, the Board of Directors approved a three-for-two stock
split, effected in the form of a 50% stock dividend, payable to shareholders of
record on March 16, 1992. The par value of the shares issued was charged to
retained earnings.
twenty-three
7
4. SHAREHOLDERS' EQUITY
The Company has a Shareholder Protection Rights Agreement which includes the
distribution of Rights to common shareholders. 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 30% 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, 1994 (in thousands):
1995.......................... $ 48,238
1996.......................... 35,159
1997.......................... 24,534
1998.......................... 17,755
1999.......................... 12,031
Subsequent to 1999............ 24,725
- --------------------------------------------
$162,442
============================================
Rental expense for operating leases was $53,913,000 in 1994; $48,935,000
in 1993; and $47,033,000 in 1992.
6. STOCK OPTIONS
In accordance with stock option plans approved by the shareholders, options are
granted to key personnel for the purchase of the Company's common 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. On April 20, 1992, the shareholders approved the
1992 Stock Option and Incentive Plan which provides for 4,500,000 shares of
common stock to be available for granting of incentive and nonqualified stock
options to key employees. Further information relating to the options is as
follows:
Shares
Option Price --------------------------------------
Per Share 1994 1993 1992
- ---------------------------------------------------------------------------------
Outstanding at
January 1 ........ $22.58 to $37.06 1,496,301 1,432,850 798,556
Granted .......... 30.31 to 37.06 693,000 235,700 858,900
Exercised ........ 22.58 to 31.92 (272,887) (150,749) (206,481)
Cancelled ........ 22.79 to 35.69 (16,337) (21,500) (18,125)
- ---------------------------------------------------------------------------------
Outstanding at
December 31 ...... 23.21 to 37.06 1,900,077 1,496,301 1,432,850
=================================================================================
Exercisable at
December 31 ...... 23.21 to 37.06 770,774 1,014,843 520,316
=================================================================================
Shares available for
future grants .... 2,694,193 3,520,856 3,735,056
=================================================================================
On March 31, 1994, the Company entered into restricted stock agreements
with two officers which provide for the award of up to 100,000 and 50,000
shares, respectively, during the period 1994 - 1998 based on the Company
achieving certain increases in earnings per share and stock price levels, as
defined in the agreements. For the year ended December 31, 1994, the officers
earned 10,000 and 5,000 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 March 31, 2004.
7. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities are as follows:
1994 1993
- ----------------------------------------------------
(in thousands)
Employee and retiree benefits.. $17,301 $15,793
Property, plant and equipment.. 17,231 15,944
Merchandise inventories ....... 6,855 6,243
Other ......................... 3,153 1,521
- ----------------------------------------------------
$44,540 $39,501
====================================================
The components of income tax expense are as follows:
1994 1993 1992
- --------------------------------------------------
(in thousands)
Federal:
Current..... $148,282 $132,298 $116,772
Deferred.... 6,699 5,990 3,896
State ......... 31,339 28,673 24,772
- --------------------------------------------------
$186,320 $166,961 $145,440
==================================================
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 were as follows:
1994 1993 1992
- ---------------------------------------------------------------------
(in thousands)
Statutory rate applied to
pre-tax income ............. $ 166,204 $ 149,040 $ 130,019
Plus state income taxes,
net of Federal tax benefit.. 20,370 18,637 16,350
Other ........................ (254) (716) (929)
- ---------------------------------------------------------------------
$ 186,320 $ 166,961 $ 145,440
=====================================================================
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
twenty-four
8
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.
The following table sets forth the plan's funded status and amounts
recognized in the Company's financial statements at December 31:
1994 1993
- -------------------------------------------------------------------
(in thousands)
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
including vested benefits of $201,029
in 1994 and $202,994 in 1993 ........ $(205,808) $(207,707)
===================================================================
Projected benefit obligation for service
rendered to date ...................... $(315,368) $(339,271)
Plan assets at fair value, primarily
insurance contracts, U.S. Government
securities and equity securities ...... 346,303 344,217
- -------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation .................... 30,935 4,946
Unrecognized prior service cost ......... (26,520) (24,365)
Unrecognized net loss from past
experience different from that
assumed and effects of changes
in assumptions ........................ 51,926 61,307
Unrecognized net transition obligation .. 1,822 2,083
- -------------------------------------------------------------------
Net prepaid pension cost ................ $ 58,163 $ 43,971
===================================================================
Net pension cost (income) included the following components at December 31:
1994 1993 1992
- ---------------------------------------------------------
(in thousands)
Service cost ........ $ 12,247 $ 9,498 $ 10,775
Interest cost ....... 25,002 23,192 23,909
Actual return on plan
assets ............ 3,578 (35,190) (21,080)
Net amortization and
deferral .......... (36,606) 2,353 (5,870)
- ---------------------------------------------------------
Net periodic pension
cost (income) ..... $ 4,221 $ (147) $ 7,734
=========================================================
Effective January 1, 1993, the Company began insuring new long-term
disability claims under a policy separate from the pension plan, resulting in a
decrease in net pension cost of approximately $7,000,000 during 1993.
Assumptions used in the accounting for the defined benefit plan as of
December 31 were:
1994 1993 1992
- -----------------------------------------------------------
Weighted-average
discount rate ............. 8.40% 7.50% 8.75%
Rate of increase in
future compensation
levels .................... 5.00% 5.75% 5.75%
Expected long-term rate
of return on assets.. 9.50% 10.00% 10.00%
The changes in the above assumptions resulted in a net $37,400,000 decrease
in the projected benefit obligation at December 31, 1994.
At December 31, 1994, the plan held 534,997 shares of common stock of the
Company with a market value of $19,259,892.
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 $3,364,000 in 1994, $2,712,000 in 1993, and $2,212,000 in 1992,
respectively.
9. INDUSTRY DATA
The industry data for the past five years presented in the Exhibit on page 27
is an integral part of these financial statements.
The Company is primarily engaged in the distribution of merchandise,
principally automotive and industrial replacement parts, and office supplies.
In the automotive industry, the Company distributes replacement parts (other
than body parts) for substantially all makes and models of domestically
manufactured automobiles, most domestically manufactured trucks and buses, and
most vehicles manufactured outside the United States. 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.
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 and
minority interests. Identifiable assets by industry are those assets that are
used in the Company's operations in each industry. Corporate assets are
principally cash, cash equivalents, short-term investments and headquarters'
facilities and equipment.
twenty-five
9
MANAGEMENT'S DISCUSSION AND ANALYIS
Genuine Parts Company and Subsidiaries
(LOGO)
December, 31, 1994
RESULTS OF OPERATIONS:
Net sales in 1994 increased for the 45th consecutive year to a record high of
$4.9 billion. This was an increase of 11% over the prior year and compares
with increases of 9% in 1993, and 7% in 1992. Sales for the Automotive Parts
Group increased 8% in 1994 versus 7% in 1993, reflecting an improved economic
climate and enhanced marketing programs for all segments of the automotive
aftermarket. Sales for the Industrial Parts Group increased 14% in 1994 versus
7% in 1993 as industrial production continues to increase and factory
utilization remains high. Sales for the Office Products Group increased 14% in
1994 compared with 21% in 1993 reflecting geographic expansion, increased
market share and improved service level.
Costs of goods sold remained approximately the same as a percentage of net
sales in each of the past two years. Selling, administrative and other
expenses increased each year, and the percentage to net sales remained
approximately the same. The effective income tax rate was 39.2% in 1994 and in
1993 and 38.0% in 1992. The effective tax rate in 1993 reflects the increase
in the federal tax rate from 34% to 35% effective January 1, 1993.
Consolidated net income in 1994 increased 12% over 1993 net income. Net income
in 1993 increased 9% over 1992.
Effective December 31, 1994, the Company changed the assumptions in the
Pension Plan as follows: weighted average discount rate from 7.50% to 8.40%,
rate of increase in future compensation levels from 5.75% to 5.00%, and the
expected long-term rate of return on assets from 10.00% to 9.50%. The changes
in these assumptions resulted in a net $37,400,000 decrease in the projected
benefit obligation at December 31, 1994.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" which requires the projected future costs of
providing postretirement benefits, such as health care and life insurance, be
recognized as an expense as employees render service instead of when benefits
are paid. The Company has applied the new rules using the cumulative effect
method, resulting in a charge of $5,055,000 (net of income taxes of
$3,095,000).
Also effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The cumulative
effect as of January 1, 1993, of adopting Statement 109 increased net income by
$4,000,000. As permitted by the Statement, prior year financial statements
have not been restated to reflect the change in accounting method.
The adoption of Statements 106 and 109 did not have a material impact on
the Company's financial statements or results of operations.
LIQUIDITY AND SOURCES OF CAPITAL:
The ratio of current assets to current liabilities was 3.8 at the close of 1994
with current assets amounting to 79% of total assets. Trade accounts
receivable and inventories increased 13.6% and 14.3% respectively, while
working capital increased 2%. The increase in working capital has been
financed principally from the Company's cash flow generated by operations.
Working capital only increased a small percentage due to the Company's stock
repurchase program for 1994. At its August 16, 1994 meeting, the Genuine Parts
Company Board of Directors approved a stock repurchase program which authorizes
the Company to reacquire up to 10 million shares of its Common Stock. To date,
approximately 2 million shares have been repurchased. Current financial
resources and anticipated funds from operations are expected to meet
requirements for working capital in 1995. Capital expenditures during 1994
amounted to $66 million compared with $58 million in 1993 and $32 million in
1992. The increase in 1994 and 1993 reflects the Company's continuing
geographic expansion as well as the upgrading of its existing facilities.
Additionally, capital expenditures in 1992 reflected the Company's response to
the difficult business environment and the overall economy. It is anticipated
that capital expenditures in 1995 will be approximately the same as 1994.
On January 29, 1993, 9,586,531 shares of common stock were issued for all
of the outstanding common stock of Berry Bearing Company and certain affiliated
companies. This transaction has been accounted for as a pooling of interests;
and accordingly, the financial statements prior to that date have been
retroactively combined to include the accounts of the pooled companies.
INFLATION:
There were no price increases in the Automotive Parts Group in 1994 as sales
increased 8%. The Industrial Parts Group had a sales increase of 14% and price
increases of approximately 2.9%. The Office Products Group had a sales
increase of 14% and price increases of less than 1%.
Price increases in the Automotive Group were approximately 1% in 1993 as
sales increased 7%. The Industrial Parts Group had a sales increase of 7% and
price increases of approximately 3%. The Office Products Group had a sales
increase of 21% and price increases of less than 1%.
The charges to operations for depreciation represent the allocation of
historical costs incurred over past years and are significantly less than if
they were based on the current cost of productive capacity being consumed.
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10
Industry Data
Genuine Parts Company and Subsidiaries
GPC(LOGO)
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1994 1993 1992 1991 1990
==============================================================================================================
(dollars in thousands)
Net sales
Automotive ........................... $2,693,961 $2,485,267 $2,318,761 $2,188,698 $2,117,464
Industrial ........................... 1,317,495 1,153,371 1,082,428 1,021,019 1,019,227
Office products ...................... 846,959 745,656 615,562 554,019 523,752
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Total net sales ................... $4,858,415 $4,384,294 $4,016,751 $3,763,736 $3,660,443
- --------------------------------------------------------------------------------------------------------------
Operating profit
Automotive ........................... $ 304,164 $ 282,791 $ 262,422 $ 260,818 $ 252,862
Industrial ........................... 111,822 96,727 87,493 76,922 80,578
Office products ...................... 78,206 65,938 50,967 45,112 45,606
- --------------------------------------------------------------------------------------------------------------
Total operating profit ............ 494,192 445,456 400,882 382,852 379,046
Interest expense ....................... (1,321) (1,584) (1,871) (5,434) (5,411)
Corporate expense ...................... (22,854) (20,405) (17,577) (18,662) (14,448)
Equity in income ....................... 7,224 4,452 2,513 4,000 3,814
Minority interests ..................... (2,373) (2,090) (1,537) (1,638) (1,560)
- --------------------------------------------------------------------------------------------------------------
Income before income taxes ........ $ 474,868 $ 425,829 $ 382,410 $ 361,118 $ 361,441
- --------------------------------------------------------------------------------------------------------------
Identifiable assets
Automotive ........................... $1,223,416 $1,152,148 $1,040,191 $ 926,617 $ 875,324
Industrial ........................... 404,647 370,633 354,547 338,054 337,418
Office products ...................... 308,817 283,479 228,802 201,036 186,815
Corporate ............................ 5,950 6,731 27,333 57,197 43,881
Equity investments ................... 86,641 57,765 56,430 54,612 44,974
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Total assets ...................... $2,029,471 $1,870,756 $1,707,303 $1,577,516 $1,488,412
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Depreciation and amortization
Automotive ........................... $ 26,588 $ 24,056 $ 21,905 $ 20,301 $ 19,436
Industrial ........................... 4,640 5,410 5,286 5,732 5,450
Office products ...................... 5,257 4,246 3,752 3,794 3,727
Corporate ............................ 889 708 744 768 964
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Total depreciation and amortization $ 37,374 $ 34,420 $ 31,687 $ 30,595 $ 29,577
- --------------------------------------------------------------------------------------------------------------
Capital expenditures
Automotive ........................... $ 45,921 $ 39,502 $ 24,272 $ 22,381 $ 33,190
Industrial ........................... 4,164 2,779 2,553 2,479 8,586
Office products ...................... 13,547 12,378 3,395 3,055 3,488
Corporate ............................ 2,370 2,854 1,365 358 845
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Total capital expenditures ........ $ 66,002 $ 57,513 $ 31,585 $ 28,273 $ 46,109
- --------------------------------------------------------------------------------------------------------------
Assets acquired in prior years will, of course, be replaced at higher costs, but
this will take place over many years.
Present tax laws do not allow deductions for adjustments for the impact of
inflation. Thus, taxes are levied on the Company at rates which, in real terms,
exceed established statutory rates. In general, during periods of inflation,
this tax policy results in a tax on shareholders' investment in the Company.
QUARTERLY RESULTS OF OPERATIONS:
Miscellaneous year-end adjustments resulted in increasing net income during the
fourth quarter of 1994 and 1993 by approximately $18,353,000 ($.15 per share)
and $16,206,000 ($.13 per share), respectively.
The following is a summary of the quarterly results of operations for the
years ended December 31, 1994 and 1993.
Three Months Ended
- ------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec.31,
- ------------------------------------------------------------------------------------
1994
- ----
Net Sales............... $1,162,075 $1,219,801 $1,268,417 $1,208,122
Gross Profit............ 346,457 362,817 382,280 423,162
Net Income.............. 62,891 71,011 72,924 81,722
Net Income per
Common Share.......... .51 .57 .59 .66
1993
- ----
Net Sales............... $1,037,914 $1,106,176 $1,144,839 $1,095,365
Gross Profit............ 310,421 326,282 347,399 377,154
Net Income.............. 55,336 65,905 63,019 73,553
Net Income per
Common Share.......... .45 .53 .51 .59
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