GENUINE PARTS CO - 10-Q Quarterly Report

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 September 30, 2002		Commission File Number 1-5690

GENUINE PARTS COMPANY

(Exact name of registrant as specified in its charter)


GEORGIA		58-0254510
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2999 CIRCLE 75 PARKWAY, ATLANTA, GEORGIA		30339
(Address of principal executive offices)		(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).

174,655,641
(Shares of Common Stock)

TABLE OF CONTENTS


CONDENSED CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

PART I — FINANCIAL INFORMATION
Item 1 — Financial Statements

GENUINE PARTS COMPANY and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS


ASSETS			Sept. 30,			Dec. 31,
			2002			2001

			(Unaudited)
			(in thousands)
CURRENT ASSETS
Cash and cash equivalents			$	39,600		$	85,770
Trade accounts receivable, less allowance for doubtful accounts (2002 - $24,061; 2001 - $20,368)				1,084,270			1,010,728
Inventories — at lower of cost (substantially last-in, first-out method) or market				1,967,400			1,890,037
Prepaid and other current accounts				65,655			159,677

		TOTAL CURRENT ASSETS		3,156,925			3,146,212
Goodwill and other intangible assets				59,829			442,078
Other assets				310,802			273,224
Total property, plant and equipment, less allowance for depreciation (2002 – $459,570; 2001 - $452,382)				333,003			345,132

TOTAL ASSETS			$	3,860,559		$	4,206,646

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable			$	690,900		$	644,084
Current portion of long-term debt and other borrowings				43,780			57,190
Income taxes				36,692			-0-
Dividends payable				50,657			49,413
Other current liabilities				144,712			168,494

		TOTAL CURRENT LIABILITIES		966,741			919,181
Long-term debt				675,266			835,580
Deferred income taxes				80,847			60,985
Minority interests in subsidiaries				47,276			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 – 174,655,641; 2001 – 173,473,944			174,656			173,474
Accumulated other comprehensive loss				(64,115	)		(46,094	)
Additional paid-in capital				47,949			16,080
Retained earnings				1,931,939			2,201,663

		TOTAL SHAREHOLDERS’ EQUITY		2,090,429			2,345,123

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			$	3,860,559		$	4,206,646

See notes to condensed consolidated financial statements.

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended Sept. 30,				Nine Months Ended Sept. 30,

	2002		2001		2002			2001

	(in thousands, except per share data)
Net sales	$	2,156,759	$	2,099,191	$	6,265,426		$	6,273,139
Cost of goods sold		1,506,966		1,468,879		4,367,432			4,376,691

		649,793		630,312		1,897,994			1,896,448
Selling, administrative & other expenses		494,633		483,286		1,442,220			1,442,820

Income before income taxes		155,160		147,026		455,774			453,628
Income taxes		61,133		58,810		178,673			181,451

Income before cumulative effect of a change in accounting principle		94,027		88,216		277,101			272,177
Cumulative effect of a change in accounting principle		—		—		(395,090	)		—

Net income (loss)	$	94,027	$	88,216	$	(117,989	)	$	272,177

Earnings Per Common Share:
Income before accounting change	$	.54	$	.51	$	1.59		$	1.58
Cumulative effect of a change in accounting principle	$	—	$	—	$	(2.27	)	$	—

Net income (loss) per common share	$	.54	$	.51	$	(.68	)	$	1.58

Earnings Per Common Share – Assuming Dilution:
Income before accounting change	$	.54	$	.51	$	1.58		$	1.57
Cumulative effect of a change in accounting principle	$	—	$	—	$	(2.25	)	$	—

Net income (loss) per common share – assuming dilution	$	.54	$	.51	$	(.67	)	$	1.57

Average common shares outstanding		174,709		173,081		174,347			172,554
Dilutive effect of stock options and non-vested restricted stock awards		542		901		812			847

Average common shares outstanding, assuming dilution		175,251		173,982		175,159			173,401

See notes to condensed consolidated financial statements.

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


				Nine Months
				Ended Sept. 30,

				(in thousands)
				2002			2001

OPERATING ACTIVITIES:
	Net (loss) income			$	(117,989	)	$	272,177
	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		52,997			68,918
			Other		9,696			6,679
			Changes in operating assets and liabilities		(35,540	)		69,313

NET CASH PROVIDED BY OPERATING ACTIVITIES					304,254			417,087
INVESTING ACTIVITIES:
		Purchase of property, plant and equipment			(46,505	)		(35,441	)
		Acquisitions of businesses and other investing activities			(9,904	)		(17,335	)

NET CASH USED IN INVESTING ACTIVITIES					(56,409	)		(52,776	)
FINANCING ACTIVITIES:
			Payments on credit facilities, net of borrowings		(173,750	)		(131,218	)
			Stock options exercised		35,540			7,825
			Dividends paid		(152,979	)		(147,321	)
			Purchase of stock		(2,826	)		(12,421	)

NET CASH USED IN FINANCING ACTIVITIES					(294,015	)		(283,135	)

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS					(46,170	)		81,176
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD					85,770			27,738

CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	39,600		$	108,914

See notes to condensed consolidated financial statements.

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 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 nine months ended September 30, 2002 are not necessarily indicative of results for the entire year.

Note B – Segment Information


			Three month period ended Sept. 30,						Nine month period ended Sept. 30,

			2002			2001			2002			2001

			(in thousands)						(in thousands)
Net sales:
	Automotive		$	1,155,395		$	1,121,211		$	3,302,625		$	3,226,016
	Industrial			571,306			554,401			1,695,094			1,710,444
	Office Products			359,568			343,989			1,048,924			1,047,851
	Electrical/Electronic Materials			79,531			87,614			241,709			309,261
	Other			(9,041	)		(8,024	)		(22,926	)		(20,433	)

		Total net sales	$	2,156,759		$	2,099,191		$	6,265,426		$	6,273,139

Operating profit:
	Automotive		$	107,524		$	105,250		$	300,467		$	297,023
	Industrial			38,955			35,558			125,986			124,827
	Office Products			30,165			29,590			101,093			103,295
	Electrical/Electronic Materials			1,128			25			1,048			6,869

		Total operating profit		177,772			170,423			528,594			532,014
	Interest expense			(14,810	)		(13,956	)		(47,668	)		(44,737	)
	Other, net			(7,802	)		(9,441	)		(25,152	)		(33,649	)

		Income before income taxes and cumulative effect of a change in accounting principle	$	155,160		$	147,026		$	455,774		$	453,628

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.

Note C – Comprehensive (Loss) Income

Total comprehensive (loss) income was $(135,971,000) and $242,720,000 for the nine month periods ended September 30, 2002 and 2001, respectively. The difference between total comprehensive (loss) income and net (loss) income was due to foreign currency translation adjustments and adjustments to the fair value of derivative instruments, as detailed below:


		For the Nine Months Ended Sept. 30,

		2002			2001

		(in thousands)
Net (loss) income		$	(117,949	)	$	272,177
	Foreign currency translation adjustments		(19,279	)		(7,781	)
	Unrealized gain (loss) on derivative instruments, net of taxes		1,257			(21,676	)

	Total other comprehensive loss		(18,022	)		(29,457	)

Comprehensive (loss) income		$	(135,971	)	$	242,720

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 $2.25 loss per share diluted, as of January 1, 2002). 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 nine months ended September 30, 2002, additions to goodwill of $14.7 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		14,267		34		399		—		—			14,700
	Amortization during the period		—		—		—		—		(1,859	)		(1,859	)
	Transitional impairment losses

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