SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the Quarterly Period Ended June 30, 2002 | Commission File Number 1-5690 |
GENUINE PARTS COMPANY
(Exact name of registrant as specified in its charter)
| GEORGIA (State or other jurisdiction of incorporation or organization) |
58-0254510 (I.R.S. Employer Identification No.) |
|
| 2999 CIRCLE 75 PARKWAY, ATLANTA, GEORGIA (Address of principal executive offices) |
30339 (Zip Code) |
|
| Registrant’s telephone number, including area code | (770)953-1700 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (the close of the period covered by this report).
174,729,053
(Shares of Common Stock)
| PART I — FINANCIAL INFORMATION | ||||||||
| PART II — OTHER INFORMATION | ||||||||
| SIGNATURES | ||||||||
PART I — FINANCIAL INFORMATION
Item 1 — Financial Statements
GENUINE PARTS COMPANY and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| ASSETS | June 30, | Dec. 31, | |||||||||
| 2002 | 2001 | ||||||||||
| (Unaudited) | |||||||||||
| (in thousands) | |||||||||||
CURRENT ASSETS |
|||||||||||
Cash and cash equivalents |
$ | 24,549 | $ | 85,770 | |||||||
Trade accounts receivable, less allowance
for doubtful accounts (2002 - $18,701; 2001 - $9,264) |
1,112,717 | 1,010,728 | |||||||||
Inventories — at lower of cost (substantially last-in,
first-out method) or market |
1,921,481 | 1,890,037 | |||||||||
Prepaid expenses and other accounts |
74,908 | 159,677 | |||||||||
TOTAL CURRENT ASSETS |
3,133,655 | 3,146,212 | |||||||||
Goodwill and other intangible assets |
59,363 | 442,078 | |||||||||
Other assets |
301,885 | 273,224 | |||||||||
Total property, plant and equipment, less allowance
for depreciation (2002 – $456,688; 2001 - $443,847) |
332,577 | 345,132 | |||||||||
| $ | 3,827,480 | $ | 4,206,646 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|||||||||||
CURRENT LIABILITIES |
|||||||||||
Accounts payable |
$ | 689,987 | $ | 644,084 | |||||||
Current portion of long-term debt and other borrowings |
44,782 | 57,190 | |||||||||
Income taxes payable |
34,215 | -0- | |||||||||
Dividends payable |
50,581 | 49,413 | |||||||||
Other current liabilities |
139,918 | 168,494 | |||||||||
TOTAL CURRENT LIABILITIES |
959,483 | 919,181 | |||||||||
Long-term debt |
675,407 | 835,580 | |||||||||
Deferred income taxes |
81,898 | 60,985 | |||||||||
Minority interests in subsidiaries |
46,906 | 45,777 | |||||||||
SHAREHOLDERS’ EQUITY |
|||||||||||
Stated capital: |
|||||||||||
Preferred
Stock, par value — $1 per share Authorized - 10,000,000 shares — None Issued |
-0- | -0- | |||||||||
Common
Stock, par value — $1 per share Authorized - 450,000,000 shares Issued – 2002 – 174,729,053; 2001 – 173,473,944 |
174,729 | 173,474 | |||||||||
Accumulated other comprehensive loss |
(49,700 | ) | (46,094 | ) | |||||||
Additional paid-in capital |
50,178 | 16,080 | |||||||||
Retained earnings |
1,888,579 | 2,201,663 | |||||||||
TOTAL SHAREHOLDERS’ EQUITY |
2,063,786 | 2,345,123 | |||||||||
| $ | 3,827,480 | $ | 4,206,646 | ||||||||
See notes to condensed consolidated financial statements.
2
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
| (000 omitted except per share data) | ||||||||||||||||
Net sales |
$ | 2,130,924 | $ | 2,118,976 | $ | 4,108,667 | $ | 4,173,948 | ||||||||
Cost of goods sold |
1,486,692 | 1,475,999 | 2,860,466 | 2,907,812 | ||||||||||||
| 644,232 | 642,977 | 1,248,201 | 1,266,136 | |||||||||||||
Selling, administrative & other expenses |
486,520 | 485,164 | 947,587 | 959,534 | ||||||||||||
Income before income taxes |
157,712 | 157,813 | 300,614 | 306,602 | ||||||||||||
Income taxes |
61,665 | 63,125 | 117,540 | 122,641 | ||||||||||||
Income before cumulative effect of a change in
accounting principle |
96,047 | 94,688 | 183,074 | 183,961 | ||||||||||||
Cumulative effect of a change in
accounting principle |
— | — | (395,090 | ) | — | |||||||||||
Net income (loss) |
$ | 96,047 | $ | 94,688 | $ | (212,016 | ) | $ | 183,961 | |||||||
Earnings Per Common Share: |
||||||||||||||||
Income (loss) before accounting change |
$ | .55 | $ | .55 | $ | 1.05 | $ | 1.07 | ||||||||
Cumulative effect of a change in accounting principle |
$ | — | $ | — | $ | (2.27 | ) | $ | — | |||||||
Net income per common share |
$ | .55 | $ | .55 | $ | (1.22 | ) | $ | 1.07 | |||||||
Earnings Per Common Share – Assuming Dilution: |
||||||||||||||||
Income (loss) before accounting change |
$ | .55 | $ | .55 | $ | 1.05 | $ | 1.06 | ||||||||
Cumulative effect of a change in accounting principle |
$ | — | $ | — | $ | (2.26 | ) | $ | — | |||||||
Net income per common share – assuming dilution |
$ | .55 | $ | .55 | $ | (1.21 | ) | $ | 1.06 | |||||||
Average common shares outstanding |
174,445 | 172,483 | 174,163 | 172,286 | ||||||||||||
Dilutive effect of stock options and
non-vested restricted stock awards |
903 | 878 | 945 | 810 | ||||||||||||
Average common shares outstanding –
assuming dilution |
175,348 | 173,361 | 175,108 | 173,096 | ||||||||||||
See notes to condensed consolidated financial statements.
3
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months | ||||||||||
| Ended June 30, | ||||||||||
| (000 omitted) | ||||||||||
| 2002 | 2001 | |||||||||
OPERATING ACTIVITIES: |
||||||||||
Net (loss) income |
$ | (212,016 | ) | $ | 183,961 | |||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||||
Cumulative effect of a change in accounting principle |
395,090 | -0- | ||||||||
Depreciation and amortization |
36,299 | 47,142 | ||||||||
Other |
6,538 | 5,858 | ||||||||
Changes in operating assets and liabilities |
(20,509 | ) | (56,672 | ) | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
205,402 | 180,289 | ||||||||
INVESTING ACTIVITIES: |
||||||||||
Purchase of property, plant and equipment |
(25,982 | ) | (23,570 | ) | ||||||
Other |
-0- | (17,335 | ) | |||||||
NET CASH USED IN INVESTING ACTIVITIES |
(25,982 | ) | (40,905 | ) | ||||||
FINANCING ACTIVITIES: |
||||||||||
Payments on credit facilities, net of proceeds |
(173,421 | ) | (14,375 | ) | ||||||
Stock options exercised |
35,291 | 1,539 | ||||||||
Dividends paid |
(102,236 | ) | (96,474 | ) | ||||||
Purchase of stock |
(275 | ) | (12,127 | ) | ||||||
NET CASH USED IN FINANCING ACTIVITIES |
(240,641 | ) | (121,437 | ) | ||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
(61,221 | ) | 17,947 | |||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
85,770 | 27,738 | ||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 24,549 | $ | 45,685 | ||||||
See notes to condensed consolidated financial statements.
4
NOTES TO FINANCIAL STATEMENTS
Note A — Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K of Genuine Parts Company for the year ended December 31, 2001. Accordingly, the quarterly condensed consolidated financial statements and related disclosures should be read in conjunction with the 2001 Annual Report on Form 10-K.
The preparation of interim financial statements requires management to make estimates and assumptions for the amounts reported in the condensed consolidated financial statements. Specifically, the Company makes estimates in its interim financial statements for the accrual of bad debts, certain inventory adjustments and volume rebates earned. Bad debts are accrued based on a percentage of sales and volume rebates are estimated based upon cumulative and projected purchasing levels. Inventory adjustments are estimated on an interim basis and adjusted in the fourth quarter to reflect year-end valuation and book to physical results. The estimates for interim reporting may change upon final determination at year-end, and such changes may be significant.
In the opinion of management, all adjustments necessary for a fair statement of the operations of the interim period have been made. These adjustments are of a normal recurring nature. The results of operations for the six months ended June 30, 2002 are not necessarily indicative of results for the entire year.
Note B – Segment Information
| Three month period ended June 30, | Six month period ended June 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||
Net sales: |
||||||||||||||||||
Automotive |
$ | 1,148,572 | $ | 1,121,981 | $ | 2,147,230 | $ | 2,104,805 | ||||||||||
Industrial |
572,618 | 572,114 | 1,123,788 | 1,156,043 | ||||||||||||||
Office Products |
336,599 | 333,143 | 689,356 | 703,862 | ||||||||||||||
Electrical/Electronic Materials |
80,558 | 96,962 | 162,178 | 221,647 | ||||||||||||||
Other |
(7,423 | ) | (5,224 | ) | (13,885 | ) | (12,409 | ) | ||||||||||
Total net sales |
$ | 2,130,924 | $ | 2,118,976 | $ | 4,108,667 | $ | 4,173,948 | ||||||||||
Operating profit: |
||||||||||||||||||
Automotive |
$ | 108,648 | $ | 109,807 | $ | 192,943 | $ | 191,774 | ||||||||||
Industrial |
44,502 | 44,047 | 87,031 | 89,269 | ||||||||||||||
Office Products |
29,854 | 30,073 | 70,928 | 73,705 | ||||||||||||||
Electrical/Electronic Materials |
600 | 1,639 | (80 | ) | 6,844 | |||||||||||||
Total operating profit |
183,604 | 185,566 | 350,822 | 361,592 | ||||||||||||||
Interest expense |
(16,409 | ) | (15,097 | ) | (32,858 | ) | (30,782 | ) | ||||||||||
Other, net |
(9,483 | ) | (12,656 | ) | (17,350 | ) | (24,208 | ) | ||||||||||
Income before income taxes
and cumulative effect of a
change in accounting principle |
$ | 157,712 | $ | 157,813 | $ | 300,614 | $ | 306,602 | ||||||||||
For management purposes, net sales by segment excludes the effect of certain discounts, incentives and freight billed to customers. The line item “other” represents the net effect of the discounts, incentives and freight billed to customers, which are reported as a component of net sales in the Company’s consolidated statements of income.
5
Note C – Comprehensive (Loss) Income
Total comprehensive (loss) income was $(215,622,000) and $176,528,000 for the six month periods ended June 30, 2002 and 2001, respectively. The difference between total comprehensive income and net income was due to foreign currency translation adjustments and adjustments to the fair value of derivative instruments, as summarized below:
| For the Six Months Ended June 30, | |||||||||
| 2002 | 2001 | ||||||||
| (in thousands) | |||||||||
Net (Loss) Income |
$ | (212,016 | ) | $ | 183,961 | ||||
Foreign currency translation |
(7,122 | ) | 2,203 | ||||||
Unrealized gain (loss) on derivative instruments,
net of taxes |
3,516 | (9,636 | ) | ||||||
Total other comprehensive loss |
(3,606 | ) | (7,433 | ) | |||||
Comprehensive (loss) income |
$ | (215,622 | ) | $ | 176,528 | ||||
Note D – New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement No. 141 (“SFAS 141”) “Business Combinations,” and Statement No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 141 prospectively prohibits the pooling of interests method of accounting for business combinations initiated after June 30, 2001. Effective January 1, 2002, SFAS 142 requires that goodwill resulting from prior acquisitions no longer be amortized and establishes a new method for testing goodwill for impairment on an annual basis (or an interim basis if an event occurs that might reduce the fair value of a reporting unit below its carrying value). SFAS 142 also requires that an identifiable intangible asset that is determined to have a finite life continue to be amortized and separately tested for impairment using an undiscounted cash flows approach.
Within the reportable segments, the Company identified reporting units as defined in SFAS 142. The reporting units’ goodwill was tested for impairment during the first quarter of 2002 as required by SFAS 142 upon adoption based upon the expected present value of future cash flows approach. As a result of this valuation process as well as the application of the remaining provisions of SFAS 142, the Company recorded a transitional impairment loss of $395.1 million ($2.27 loss per share basic and $2.26 loss per share diluted). This write-off was reported as a cumulative effect of a change in accounting principle in the Company’s consolidated statement of income as of January 1, 2002. None of this write-off is deductible for tax purposes. For the six months ended June 30, 2002, additions to goodwill of $13.7 million relate to additional consideration for earnouts on prior acquisitions. The Company also assessed the finite-lived, identifiable intangible assets for impairment under the undiscounted cash flows approach and concluded there was no impairment.
The changes in the carrying amount of goodwill during the period by reportable segment are summarized as follows (in thousands):
| Goodwill | |||||||||||||||||||||||||
| Electrical/ | Identifiable | ||||||||||||||||||||||||
| Electronic | Intangible | ||||||||||||||||||||||||
| Automotive | Industrial | Office Products | Materials | Assets | Total | ||||||||||||||||||||
Balance as of Dec. 31, 2001 |
$ | 221,752 | $ | 50,304 | $ | 8,297 | $ | 155,611 | $ | 6,114 | $ | 442,078 | |||||||||||||
Goodwill acquired during the
period |
13,267 | ||||||||||||||||||||||||