1
EXHIBIT 13
GENUINE PARTS COMPANY
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
Net sales $6,614,032 $6,005,245 $5,720,474 $5,261,904 $4,858,415
Cost of goods sold 4,611,525 4,178,642 4,002,971 3,654,703 3,343,699
Selling, administrative and other expenses 1,413,390 1,261,003 1,172,270 1,096,407 1,039,848
Income before income taxes 589,117 565,600 545,233 510,794 474,868
Income taxes 233,323 223,203 215,157 201,626 186,320
Net income $ 355,794 $ 342,397 $ 330,076 $ 309,168 $ 288,548
Average common shares outstanding during
year - assuming dilution* 180,081 180,165 182,189 184,375 186,494
Per common share:*
Diluted net income $ 1.98 $ 1.90 $ 1.81 $ 1.68 $ 1.55
Dividends declared 1.00 .96 .89 .84 .77
December 31 closing stock price 33.44 33.94 29.67 27.33 24.00
Long-term debt, less current maturities 588,640 209,490 110,241 60,607 11,431
Shareholders' equity 2,053,332 1,859,468 1,732,054 1,650,882 1,526,165
Total assets $3,600,380 $2,754,363 $2,521,631 $2,274,132 $2,029,471
==========================================================================
*Adjusted to reflect the three-for-two stock split in 1997
SELECTED RATIO ANALYSIS
YEAR ENDED DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------------
IN % OF NET SALES 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Cost of goods sold 69.72% 69.58% 69.98% 69.46% 68.82%
Selling, administrative and other expenses 21.37 21.00 20.49 20.84 21.40
Income before income taxes 8.91 9.42 9.53 9.71 9.77
Net income 5.38 5.70 5.77 5.88 5.94
Rate earned on shareholders' equity
at the beginning of each year 19.13% 19.77% 19.99% 20.26% 19.97%
================================================================
MARKET AND DIVIDEND INFORMATION
High and Low Sales Price and Dividends per Share of Common Shares Traded on the
New York Stock Exchange.
Adjusted to reflect the three-for-two stock split in
1997.
SALES PRICE OF COMMON SHARES
- ----------------------------------------------------------------------------------------------
QUARTER 1998 1997
- ----------------------------------------------------------------------------------------------
High Low High Low
First $38.25 $32.44 $32.17 $28.67
Second 38.00 32.75 35.44 29.83
Third 35.50 29.88 35.88 30.00
Fourth 33.94 28.25 33.94 30.00
DIVIDENDS DECLARED PER SHARE
- ----------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------
First $.25 $.24
Second .25 .24
Third .25 .24
Fourth .25 .24
Number of Record Holders of Common Stock: 7,449
21
2
GENUINE PARTS COMPANY
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, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 3, 1999
22
3
GENUINE PARTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
December 31, 1998
RESULTS OF OPERATIONS:
Net sales in 1998 increased for the 49th consecutive year to a record high of
$6.6 billion. This was an increase of 10% over the prior year amount of $6.0
billion and compares with increases of 5% in 1997, and 9% in 1996. Sales would
have increased approximately 6% in 1998 excluding acquisitions completed in
1998. Sales for the Automotive Parts Group increased 6% in 1998 versus 2% in
1997, reflecting slightly improved conditions in the automotive aftermarket and
the effect of acquisitions. Price increases for the Automotive Parts Group were
flat in 1998 and .9% in 1997. Sales for the Industrial Parts Group increased 8%
in 1998 versus 10% in 1997, reflecting slowing growth in industrial production
and an overall downturn in the economy in certain industrial markets such as
steel, food and paper. Price increases for the Industrial Parts Group were 1% in
1998 and 1.4% in 1997. Sales for the Office Products Group increased 4% in 1998
and in 1997, reflecting continued consolidation in the office products industry
and very aggressive competition. Price increases for the Office Products Group
were less than 1% in 1998 and in 1997. Price increases for the
Electrical/Electronics Group, which was acquired on July 1, 1998, were less than
1% in 1998.
Cost of goods sold was 69.7% of net sales in 1998 compared to 69.6% in
1997 and 70.0% in 1996. Selling, administrative and other expenses increased 12%
in 1998 to $1.4 billion (8% increase, excluding 1998 acquisitions) and 8% in
1997 and was 21.4% of net sales in 1998, 21.0% of net sales in 1997, and 20.5%
of net sales in 1996. The effective income tax rate was 39.6% in 1998 and 39.5%
in 1997 and 1996. Net income as a percent of net sales was 5.4% in 1998, 5.7% in
1997, and 5.8% in 1996. Net income in 1998 increased 4% to $355.8 million over
1997 net income of $342.4 million, and net income in 1997 increased 4% over
1996. Diluted earnings per share were $1.98 in 1998 compared to $1.90 in 1997
for an increase of 4%.
On July 1, 1998, the Company acquired EIS, Inc., a distributor of
electrical/electronic materials, for a combination of cash and stock valued at
$180 million. In addition, on December 1, 1998, the Company acquired UAP Inc., a
Montreal, Canada based automotive parts distributor, for $231 million in cash.
Both transactions were accounted for under the purchase method of accounting.
Goodwill related to these acquisitions was approximately $267 million. In
addition, goodwill amortization was $5.1 million for 1998 compared to $1.6
million for 1997.
LIQUIDITY AND SOURCES OF CAPITAL:
The ratio of current assets to current liabilities was 3.3 to 1 at the close of
1998 with current assets amounting to 75% of total assets. Trade accounts
receivable and inventories increased 32% and 26% respectively, while working
capital increased 21%. Excluding the impact of acquisitions made in 1998, the
increases in accounts receivable, inventory and working capital would have been
9%, 4% and 9%, respectively. The increase in working capital has been financed
principally from the Company's cash flows generated by operations. At December
31, 1998, $95 million was outstanding under an unsecured revolving line of
credit with a bank compared to $36 million outstanding at December 31, 1997. At
December 31, 1998, the Company had the following unsecured term notes:$50
million, 5.98%, due 2000; $50 million, 5.95%, due 2001; $50 million, 6.125%, due
2002; $50 million, 5.98%, due 2002; $50 million, LIBOR plus .25%, due 2005; $50
million, LIBOR plus .25%, due 2008; and $231 million, LIBOR plus .55%, due 2003.
In 1998, the Company obtained a $200,000,000 line of credit and a $200,000,000
revolving line of credit each maturing in
EARNINGS PER SHARE*
in dollars
- -------------------------------------------------------------------------------------
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98
- -------------------------------------------------------------------------------------
1.14 1.19 1.21 1.27 1.38 1.55 1.68 1.81 1.90 1.98
*Restated to reflect stock splits
DIVIDENDS PER SHARE*
in dollars
- -------------------------------------------------------------------------------------
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98
- -------------------------------------------------------------------------------------
0.53 0.61 0.65 0.67 0.71 0.77 0.84 0.89 0.96 1.00
*Restated to reflect stock splits
23
4
GENUINE PARTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
December, 2003. Interest on these lines is charged at the one month
LIBOR plus .55%(5.61% as of December 31, 1998) and is reset quarterly based on
the Company's leverage ratio. No amounts were outstanding at December 31, 1998
under these lines of credit. In addition, the weighted average interest rate on
the Company's outstanding borrowings was approximately 5.7% and 6.2% at December
31, 1998 and 1997, respectively. Total interest expense for all borrowings was
$20,096,000 in 1998, $13,365,000 in 1997 and $8,498,000 in 1996.
In addition, the Company had the following significant Canadian dollar
denominated borrowings translated into U.S. dollars at December 31, 1998:line of
credit, 5.62%, due 2003, $47 million outstanding and secured line of credit, $49
million, banker's acceptance rate plus .22%.
On August 16, 1994, the Board of Directors approved a stock repurchase
program which authorized the Company to reacquire up to 15 million shares of its
Common Stock. Through December 31, 1998, approximately 12.6 million shares have
been repurchased. Existing credit facilities, current financial resources and
anticipated funds from operations are expected to meet requirements for working
capital in 1999. Capital expenditures during 1998 amounted to $88 million
compared with $90 million in 1997 and $95 million in 1996. The amounts reflect
the Company's continuing geographic expansion as well as the upgrading of
existing facilities. It is anticipated that capital expenditures in 1999 will be
approximately the same as 1998.
IMPACT OF YEAR 2000:
The Year 2000 problem is the result of computer programs written using two
digits (rather than four) to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in miscalculations
or system failures.
The Company is continuing its assessments of the impact of the Year
2000 across its business and operations, including its customer and vendor base.
The Company has substantially completed its identification of information
technology systems that are not Year 2000 compliant and is in the process of
implementing a comprehensive initiative to make its information technology
systems ("IT systems") and its non-information technology systems ("non-IT
systems"), including embedded electronic circuits in equipment, building
security, product handling and environmental controls, Year 2000 compliant. The
initiative covers the following three phases:(1) identification of all IT and
non-IT systems and an assessment of repair requirements, (2) repair of the
identified IT and non-IT systems, and (3) testing of the IT and non-IT systems
repaired to determine correct manipulation of dates and date-related data. As of
December 31, 1998, the Company has substantially completed phase (1) of its
initiative and has begun phases (2) and (3). The Company anticipates that it
will substantially complete phase (2) by the end of the second quarter of fiscal
1999 at which time it will complete its final testing phase. The Company expects
the final testing phase to be complete by the end of the third quarter of 1999.
To date, the Company has not identified any IT or non-IT system that
presents a material risk of not being Year 2000 ready or for which a suitable
alternative cannot be implemented. However, as the initiative moves further into
the testing phase, it is possible that the Company may identify potential risks
of Year 2000 disruption. It is also possible that such a disruption could have a
material adverse effect on the financial condition and results of operations. In
addition, if any third parties who provide goods or services or that are
customers that are critical to the Company's business activities fail to
appropriately address their Year 2000 issues, there could be a material adverse
effect on the Company's financial condition and results of operations. The
Company is still in the process of modifying or replacing certain time-sensitive
software programs and other date sensitive devices to avoid a potential
inability to process transactions or engage in other normal business activities.
The Company has initiated formal communications with all of its
significant business partners to evaluate their Year 2000 compliance plans and
status of readiness, including upgrading of embedded technology devices in
products the Company purchases. These communications include determining the
extent to which the Company is vulnerable to those third parties' failure to
remedy their own Year 2000 conversion issues. However, there can be no guarantee
that the systems of other companies on which the Company's system rely will be
timely converted or that a failure to convert by another company or a conversion
that is incompatible with the Company's systems would not have a material
adverse effect on the Company.
The Company is in the process of identifying and prioritizing any
embedded technology devices which may be deemed to be mission critical or that
tend to have a significant impact on normal operations. The Company has
developed a separate plan to upgrade these higher priority embedded technology
devices. Management currently expects these activities to be substantially
complete by mid 1999.
The Company could potentially experience disruptions to some aspects of
its various activities and operations as a result of non-compliant systems
utilized by the Company or unrelated third parties. Contingency plans are,
therefore, under develop
24
5
GENUINE PARTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ment to mitigate the extent of any such potential disruption to business
operations.
The Company is utilizing both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. The
total estimated cost of the Year 2000 project is estimated between $7 million
and $10 million and is being funded through operating cash flows. These costs
are not expected to be material to the Company's consolidated results of
operations. Of the total project cost, approximately $3 million is attributable
to the purchase of new software or equipment, which will be capitalized. The
remaining $4 million to $7 million will be expensed as incurred during the
current fiscal year and next fiscal year. To date, the Company has expensed
approximately $3 million related to the assessment of and preliminary efforts in
connection with its Year 2000 project. The costs attributable to the Year 2000
exclude costs incurred by the Company for replacement of hardware and
implementation of new systems which were undertaken for operating reasons. The
implementation of new systems has been in progress for the past three to five
years.
The costs of the Year 2000 project and the date which the Company plans
to complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. There can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
plans. Specific factors that might cause such material differences include, but
are not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
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,
the Company's ability to discover and correct potential Year 2000 issues and the
ability of third parties to appropriately address their Year 2000 issues,
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 1998 and 1997 by approximately $27.7 million ($.15 per share)
and $26.2 million ($.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, 1998 and 1997.
Three Months Ended
- -------------------------------------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
- -------------------------------------------------------------------------------------------------------------------
1998 (in thousands except for per share data)
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
1997
Net Sales $1,457,646 $1,510,456 $1,555,776 $1,481,367
Gross Profit 429,267 445,120 463,967 488,249
Net Income 76,595 83,741 83,712 98,349
Basic Net Income per
Common Share .43 .47 .47 .55
Diluted Net Income
per Common Share .42 .46 .47 .55
25
6
GENUINE PARTS COMPANY
SEGMENT DATA
YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Net sales:
Automotive $3,262,406 $3,071,153 $3,008,105 $2,804,086 $2,693,961
Industrial 2,008,789 1,853,270 1,677,859 1,509,566 1,317,495
Office products 1,122,420 1,080,822 1,034,510 948,252 846,959
Electrical/electronic materials 220,417 -- -- -- --
----------------------------------------------------------------------------------
Total net sales $6,614,032 $6,005,245 $5,720,474 $5,261,904 $4,858,415
==================================================================================
Operating profit:
Automotive $ 343,629 $ 325,188 $ 322,956 $ 308,818 $ 304,979
Industrial 176,456 166,367 151,129 133,016 111,855
Office products 113,821 110,793 103,439 93,997 78,291
Electrical/electronic materials 12,030 -- -- -- --
----------------------------------------------------------------------------------
Total operating profit 645,936 602,348 577,524 535,831 495,125
Interest expense (20,096) (13,365) (8,498) (3,419) (1,321)
Corporate expense (32,186) (26,943) (29,057) (25,939) (22,854)
Equity in income from investees 3,329 6,730 9,398 8,298 7,224
Goodwill amortization (5,157) (1,624) (1,548) (1,265) (933)
Minority interests (2,709) (1,546) (2,586) (2,712) (2,373)
----------------------------------------------------------------------------------
Income before income taxes $ 589,117 $ 565,600 $ 545,233 $ 510,794 $ 474,868
==================================================================================
Assets:
Automotive $1,966,774 $1,623,644 $1,478,023 $1,304,211 $1,205,981
Industrial 671,454 584,356 524,998 479,652 404,131
Office products 442,220 380,804 376,616 357,821 307,585
Electrical/electronic materials 147,074 -- -- -- --
Corporate 18,385 18,611 15,662 12,876 5,950
Goodwill and equity investments 354,473 146,948 126,332 119,572 105,824
----------------------------------------------------------------------------------
Total assets $3,600,380 $2,754,363 $2,521,631 $2,274,132 $2,029,471
==================================================================================
Depreciation and amortization:
Automotive $ 43,637 $ 40,675 $ 34,265 $ 29,147 $ 25,773
Industrial 8,619 6,688 5,860 4,985 4,607
Office products 8,391 7,865 7,437 6,705 5,172
Electrical/electronic materials 1,508 -- -- -- --
Corporate 1,993 2,015 1,335 1,132 889
Goodwill 5,157 1,624 1,548 1,265 933
----------------------------------------------------------------------------------
Total depreciation and amortization $ 69,305 $ 58,867 $ 50,445 $ 43,234 $ 37,374
==================================================================================
Capital expenditures:
Automotive $ 69,154 $ 68,305 $ 80,682 $ 67,643 $ 45,921
Industrial 6,972 13,451 7,330 12,132 4,164
Office products 6,901 6,069 5,652 10,587 13,547
Electrical/electronic materials 4,688 -- -- -- --
Corporate 546 2,600 1,494 407 2,370
----------------------------------------------------------------------------------
Total capital expenditures $ 88,261 $ 90,425 $ 95,158 $ 90,769 $ 66,002
==================================================================================
Net sales:
United States $6,535,020 $5,977,012 $5,697,053 $5,241,653 $4,841,294
Canada 79,012 28,233 23,421 20,251 17,121
----------------------------------------------------------------------------------
Total net sales $6,614,032 $6,005,245 $5,720,474 $5,261,904 $4,858,415
==================================================================================
Net property, plant and equipment:
United States $ 345,049 $ 370,751 $ 344,002 $ 301,418 $ 256,338
Canada 58,959 1,763 1,993 1,821 1,694
----------------------------------------------------------------------------------
Total net property, plant
and equipment $ 404,008 $ 372,514 $ 345,995 $ 303,239 $ 258,032
==================================================================================
26
7
GENUINE PARTS COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 84,972 $ 72,823
Trade accounts receivable 907,561 686,551
Merchandise inventories 1,660,233 1,321,597
Prepaid expenses and other current accounts 30,591 12,580
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,683,357 2,093,551
Goodwill, less accumulated amortization (1998--$12,578; 1997--$7,421) 344,733 62,091
Other assets 168,282 226,207
PROPERTY, PLANT AND EQUIPMENT:
Land 40,238 49,025
Buildings, less allowance for depreciation (1998--$85,107; 1997--$72,569) 131,712 138,263
Machinery and equipment, less allowance for depreciation
(1998--$270,467; 1997--$186,065) 232,058 185,226
- ---------------------------------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 404,008 372,514
----------------------------
$3,600,380 $2,754,363
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 509,532 $ 405,141
Current portion of long-term debt and other borrowings 156,316 36,670
Accrued compensation 54,696 38,967
Other accrued expenses 31,252 18,352
Dividends payable 44,776 43,436
Income taxes payable 21,837 14,372
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 818,409 556,938
LONG-TERM DEBT 588,640 209,490
DEFERRED INCOME TAXES 94,956 89,049
MINORITY INTERESTS IN SUBSIDIARIES 45,043 39,418
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 179,505,151 shares
in 1998; 178,947,976 shares in 1997 179,505 178,948
Additional paid-in capital 19,989 --
Accumulated other comprehensive income (3,110) --
Retained earnings 1,856,948 1,680,520
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,053,332 1,859,468
----------------------------
$3,600,380 $2,754,363
============================
See accompanying notes.
27
8
GENUINE PARTS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
Net sales $6,614,032 $6,005,245 $5,720,474
Cost of goods sold 4,611,525 4,178,642 4,002,971
------------------------------------------
2,002,507 1,826,603 1,717,503
Selling, administrative and other expenses 1,413,390 1,261,003 1,172,270
------------------------------------------
Income before income taxes 589,117 565,600 545,233
Income taxes 233,323 223,203 215,157
------------------------------------------
NET INCOME $ 355,794 $ 342,397 $ 330,076
==========================================
Basic net income per common share $ 1.98 $ 1.91 $ 1.82
==========================================
Diluted net income per common share $ 1.98 $ 1.90 $ 1.81
==========================================
Average common shares outstanding 179,416 179,592 181,567
Dilutive effect of stock options and non-vested restricted stock awards 665 573 622
------------------------------------------
Average common shares outstanding--assuming dilution 180,081 180,165 182,189
==========================================
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, 1996 121,913,040 $ 121,913 $ -- $ -- $ 1,528,969 $ 1,650,882
Net income -- -- -- -- 330,076 330,076
-----------
Comprehensive income -- -- -- -- -- 330,076
-----------
Cash dividends declared -- -- -- -- (162,070) (162,070)
Stock options exercised,
including tax benefit 293,795 294 7,587 -- -- 7,881
Purchase of stock (2,174,545) (2,175) (7,587) -- (84,953) (94,715)
Three-for-two stock split 60,016,145 60,016 -- -- (60,016) --
---------------------------------------------------------------------------------------
Balance at December 31, 1996 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
=======================================================================================
See accompanying notes.
28
9
GENUINE PARTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $355,794 $342,397 $330,076
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 69,305 58,867 50,445
Gain on sale of property, plant and equipment (1,664) (5,014) (786)
Provision for deferred taxes 10,379 13,843 13,930
Equity in income of investees (3,329) (6,730) (9,398)
Income applicable to minority interests 2,709 1,546 2,586
Changes in operating assets and liabilities:
Trade accounts receivable (74,165) (63,715) (57,531)
Merchandise inventories (107,290) (87,777) (106,364)
Other current assets (3,372) 1,033 13,333
Trade accounts payable 14,158 3,299 70,138
Other current liabilities 21,760 (7,140) 21,586
- --------------------------------------------------------------------------------------------------------------------------------
(71,509) (91,788) (2,061)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 284,285 250,609 328,015
INVESTING ACTIVITIES
Purchase of property, plant and equipment (88,261) (90,425) (95,158)
Proceeds from sale of property, plant and equipment 67,522 11,580 4,385
Acquisition of businesses, net of cash acquired (310,911) (16,045) (413)
Other investing activities 6,088 (7,870) (22,893)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (325,562) (102,760) (114,079)
FINANCING ACTIVITIES
Proceeds from lines of credit and other borrowings 841,000 849,000 566,808
Payments on lines of credit and other borrowings (782,000) (860,000) (564,808)
Proceeds from long-term debt 332,359 100,000 50,000
Payments on long-term debt (92,175) (712) (324)
Stock options exercised 5,749 12,927 7,881
Dividends paid (178,027) (169,156) (160,214)
Purchase of stock (76,335) (76,761) (94,715)
Contributions from minority interests 2,905 2,303 4,555
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 53,476 (142,399) (190,817)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (50) -- --
----------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 12,149 5,450 23,119
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 72,823 67,373 44,254
----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 84,972 $ 72,823 $ 67,373
========================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $200,280 $212,178 $187,809
========================================
Interest $ 18,867 $ 12,871 $ 8,405
========================================
See accompanying notes.
29
10
GENUINE PARTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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
generally accepted accounting principles 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.
Investments
The Company has a 49% interest in Grupo Auto Todo, a partnership formed by the
Company and Auto Todo, a Mexican automotive parts distributor. This investment
is accounted for by the equity method of accounting and is not material in
relation to the Company's consolidated financial statements. This investment is
included in other assets in the accompanying consolidated balance sheets. Until
December 1, 1998, the Company had approximately a 23% ownership interest in UAP
Inc., a Canadian automotive parts distributor, and 51% and 49% ownership
interests in two separate partnerships formed by the Company and UAP Inc. On
December 1, 1998, the Company acquired the remaining stock of UAP Inc. See Note
2.
Inventories
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 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 $152,032,000 and
$154,461,000 higher than reported at December 31, 1998 and December 31, 1997,
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 of a prepaid pension asset, equity investments, and other
prepaid expenses.
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.
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
1,790,000 shares of common stock at $35 per share were outstanding during 1998
and the second half of 1997 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. 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 share since the date of the
acquisition.
Comprehensive Income
As of January 1, 1998, the Company adopted Financial Accounting Standards Board
("FASB") Statement 130, Reporting Comprehensive Income. Statement 130
establishes new rules for the reporting and display of comprehensive income and
its components. Statement 130 requires foreign currency translation adjustments
and other items to be included in other comprehensive income. There were no
significant differences between net income and comprehensive income in 1997 and
1996.
Segment Information
On December 31, 1998, the Company adopted FASB Statement 131, Disclosures About
Segments of an Enterprise and Related
30
11
GENUINE PARTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information. The new rules establish revised standards for public companies
relating to the reporting of financial and descriptive information about their
operating segments in financial statements. The adoption of Statement 131 did
not affect the Company's primary financial statements.
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 plans to adopt Statement No. 133 in 2000, however,
management does not expect its adoption to have a significant impact on the
Company's financial position or results of operations.
2. ACQUISITIONS
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. Both transactions 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 $266,782,000.
The Company also made other individually insignificant acquisitions
during 1998 which were accounted for under the purchase method and resulted in
goodwill totaling approximately $21,017,000. The purchase price allocation for
all such acquisitions is preliminary. All acquired businesses are included in
the Company's consolidated statements of income from the dates of acquisition.
The following table summarizes the Company's unaudited pro forma
results of operations 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
In 1998, the Company obtained a $200,000,000 line of credit and a $200,000,000
revolving line of credit each maturing in December, 2003. Interest on these
lines is charged at the one month Libor plus .55% (5.61% as of December 31,
1998) and is reset quarterly based on the Company's leverage ratio. No amounts
were outstanding at December 31, 1998 under these lines of credit.
Amounts outstanding under the Company's other credit facilities consist
of the following:
December 31
IN THOUSANDS 1998 1997
- --------------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED BORROWINGS:
Unsecured revolving lines of credit,
$100,000,000, federal funds rate plus
.10%, due May 1999 $ 95,000 $ 36,000
Unsecured term notes:
December 26, 1995, 5.98% fixed,
due December 2000 50,000 50,000
December 27, 1996, 5.95% fixed
until March 2000, then variable,
due December 2001 50,000 50,000
September 18, 1997, 6.125% fixed,
due September 2002 50,000 50,000
October 31, 1997, 5.98% fixed,
due October 2002 50,000 50,000
July 1, 1998, Libor plus .25%,
due July 2005 50,000 --
October 1, 1998, Libor plus .25%,
due October 2008 50,000 --
December 1, 1998, Libor plus .55%,
due December 2003 231,367 --
Other borrowings 12,259 10,160
CANADIAN DOLLAR DENOMINATED BORROWINGS
TRANSLATED INTO U.S. DOLLARS:
Unsecured revolving lines of credit,
$130,700,000, 5.62% average rate,
due May 2003 47,706 --
Unsecured demand loan, Libor plus .25% 9,611 --
Line of credit, $49,013,000, secured by
accounts receivable, Banker's Acceptance
rate plus .22%, cancelable on 30 days
notice or due March 2003 49,013 --
----------------------
744,956 246,160
Current portion of long-term debt
and other borrowings 156,316 36,670
----------------------
$588,640 $209,490
======================
The principal amount of the Company's borrowings which were subject to
variable rates totaled approximately $532,697,000 and $36,000,000 at December
31, 1998 and 1997,
31
12
GENUINE PARTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
respectively. In addition, the weighted average interest rate on the Company's
outstanding borrowings was approximately 5.7% and 6.2% at December 31, 1998 and
1997, respectively.
Amounts outstanding under the Company's $130,700,000 unsecured
revolving lines of credit are subject to interest rate swap agreements in the
notional amount of approximately $45,700,000 at December 31, 1998. In the
aggregate, such interest rate swap agreements have a weighted average fixed rate
of 5.67% and maturity dates from 1999 to 2003.
Any differences paid or received on interest rate swap agreements are
recognized as adjustments to interest expense over the life of each swap,
thereby adjusting the effective rate on the underlying obligation. The fair
value of these interest rate swap agreements, which is based on quoted prices
for those or similar instruments, is not material at December 31, 1998.
Interest is paid monthly on the term notes. The 1997 term notes contain
provisions whereby the rates may become variable (Libor plus .25%) in the year
2000, if such variable rates are higher. The $231,367,000 term note also
contains various restrictive covenants including, among other items, a provision
whereby the Company must maintain a debt to equity ratio not greater than 50%.
Total interest expense for all borrowings was $20,096,000 in 1998; $13,365,000
in 1997 and $8,498,000 in 1996.
Approximate maturities under the Company's credit facilities are as
follows (in thousands):
1999 $156,316
2000 53,000
2001 53,000
2002 103,000
2003 279,640
Subsequent to 2003 100,000
--------
$744,956
========
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 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, 1998 (in thousands):
1999 $ 79,695
2000 62,463
2001 45,543
2002 33,795
2003 23,651
Subsequent to 2003 91,557
--------
$336,704
========
In November 1998, the Company sold land and buildings with a carrying
value of approximately $50,000,000 under a sale leaseback arrangement. The
annual payment associated with the corresponding lease is $6,660,000. 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 $76,834,000 in 1998;
$65,137,000 in 1997; and $61,259,000 in 1996.
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.
The Company has authorized the grant of options of up to 6,750,000
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, which also requires that the information be
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 1997 and 1996, respectively: risk-free interest rates of 6.4%
and 6.3%; dividend yield of 2.5% and 3%; volatility factor of the expected
market price of the Company's common stock of .12, and a weighted-average
expected life of the option of 5.4 years and 7.3 years. No options were granted
during 1998.
32
13
GENUINE PARTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have 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):
1998 1997 1996
- -----------------------------------------------------------------------------------------------
Pro forma net income $351,875 $338,978 $329,387
Pro forma basic net income per common share $ 1.96 $ 1.89 $ 1.81
Pro forma diluted net income per common share $ 1.95 $ 1.88 $ 1.81
A summary of the Company's stock option activity and related
information are as follows:
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
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 3,588 $ 29 2,743 $23 3,318 $23
Granted -- -- 1,790 35 18 31
Issued in connection with acquisitions 748 7 -- -- -- --
Exercised (413) 24 (907) 20 (555) 19
Forfeited (96) 35 (38) 21 (38) 21
----- ----- -----
Outstanding at end of year 3,827 $ 26 3,588 $29 2,743 $23
===== ===== =====
Exercisable at end of year 2,792 $ 26 1,363 $24 2,106 $23
===== ===== =====
Weighted-average fair value of options
granted during the year $ -- $ 6.13 $ 6.31
===== ===== =====
Shares available for future grants 1,726 1,572 3,324
===== ===== =====
Exercise prices for options exercised during 1998 ranged from
approximately $21 to $26. Exercise prices for options outstanding as of December
31, 1998 ranged from approximately $17 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 $0.54 to $16. The weighted-average remaining contractual life
of those options is approximately 7 years.
On March 31, 1994, 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 1994 through 1998 based on the Company
achieving certain increases in net income per common share and stock price
levels. Through December 31, 1998, the two officers have earned 84,000 and
42,000 shares, respectively. 99,000 shares which were forfeited under this plan
became available for grants under the Company's 1992 Stock Option and Incentive
Plan in 1998. 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 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:
IN THOUSANDS 1998 1997
- --------------------------------------------------------------
Employee and retiree benefits $57,642 $53,228
Property, plant and equipment 25,728 25,704
Other 11,586 10,117
---------------------
$94,956 $89,049
=====================
33
14
GENUINE PARTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of income tax expense are as follows:
IN THOUSANDS 1998 1997 1996
- --------------------------------------------------------------
Federal:
Current $184,397 $171,676 $164,585
Deferred 10,379 13,843 13,930
State 38,547 37,684 36,642
--------------------------------
$233,323 $223,203 $215,157
================================
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 1998 1997 1996
- -------------------------------------------------------------------------
Statutory rate applied to
pre-tax income $206,191 $197,960 $190,831
Plus state income taxes, net
of Federal tax benefit 25,056 24,494 23,818
Other 2,076 749 508
---------------------------------------
$233,323 $223,203 $215,157
=======================================
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 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
CHANGES IN BENEFIT OBLIGATION
Net benefit obligation at beginning of year $ 454,083 $ 433,625 $ 2,999 $ 3,821
Service cost 16,427 15,631 (76) (48)
Interest cost 34,629 31,650 138 242
Plan participants' contributions -- -- 2,359 2,100
Plan amendments -- (9,241) -- --
Actuarial loss (gain) 82,711 (445) (711) --
Gross benefits paid (20,982) (17,137) (3,282) (3,116)
----------------------------------------------------------
Net benefit obligation at end of year $ 566,868 $ 454,083 $ 1,427 $ 2,999
==========================================================
CHANGES IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 590,733 $ 487,753 $ -- $ --
Actual return on plan assets 69,848 97,277 -- --
Employer contributions 7,840 22,840 924 1,016
Plan participants' contribution -- -- 2,358 2,100
Gross benefits paid (20,982) (17,137) (3,282) (3,116)
----------------------------------------------------------
Fair value of plan assets at end of year $ 647,439 $ 590,733 $ -- $ --
==========================================================
The following 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 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------
Funded status at end of year $ 80,572 $ 136,608 $(1,427) $(2,999)
Unrecognized net actuarial loss 76,433 4,796 (2,799) (2,269)
Unrecognized prior service cost (18,020) (20,885) -- --
Unrecognized net transition obligation 781 1,041 -- --
-----------------------------------------------------------
Net amount recognized at end of year $ 139,766 $ 121,560 $(4,226) $(5,268)
===========================================================
Net pension cost (income) included the following components:
Pension Benefits Other Postretirement Benefits
IN THOUSANDS 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Service cost $ 16,427 $ 15,631 $ 13,991 $ (76) $ (48) $ 55
Interest cost 34,629 31,650 29,548 138 242 452
Expected return on plan assets (59,123) (47,957) (41,806) -- -- --
Amortization of unrecognized transition obligation 260 260 260 -- -- --
Amortization of prior service cost (2,865) (2,409) (2,018) -- -- --
Amortization of actuarial loss (gain) 471 1,214 1,711 (180) (140) --
-------------------------------------------------------------------------
Net periodic pension (income) cost $(10,201) $ (1,611) $ 1,686 $(118) $ 54 $507
=========================================================================
34
15
GENUINE PARTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Assumptions used in the accounting for the defined benefit plans and
postretirement plan are as follows:
Pension Benefits Other Postretirement Benefits
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------
Weighted-average discount rate 7.10% 7.40% 7.10% 7.40%
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 -- -- 8.25% 8.75%
Effect of a one percentage point change in the 1998 assumed health care
cost trend:
Decrease Increase
- -----------------------------------------------------------------------------
Total service and interest cost components
on net periodic postretirement health care
benefit cost $ (116) $ 49
Accumulated postretirement benefit
obligation for health care benefits (1,164) 1,606
The increase in the net benefit obligation at the end of the year was
primarily due to the decrease in the weighted-average discount rate from 7.4% to
7.1%.
At December 31, 1998, the Company sponsored pension plan held 863,995
shares of common stock of the Company with a market value of $28,889,830.
Dividend payments received by the plan on Company stock totaled $840,000 and
$797,000 in 1998 and 1997, 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 $4,491,000 in 1998, $3,953,000 in 1997, and $3,743,000 in 1996,
respectively.
9. SEGMENT DATA
The segment data for the past five years presented on page 26 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 property, plant and equipment
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.
35