GENUINE PARTS CO - 10-Q Quarterly Report

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of June 30, 2003.


					June 30,			December 31,
					2003				2002

					(Unaudited)
					(in thousands)
				ASSETS
CURRENT ASSETS
Cash and cash equivalents					$	21,942			$	19,995
Trade accounts receivable, less allowance for doubtful accounts (2003 — $17,367; 2002 — $8,228)						1,138,389				1,039,843
Inventories — at lower of cost (substantially last-in, first-out method) or market						2,044,336				2,144,787
Prepaid expenses and other accounts						84,776				131,150

		TOTAL CURRENT ASSETS				3,289,443				3,335,775
Goodwill and other intangible assets						58,297				58,705
Other assets						334,771				292,312
Total property, plant and equipment, less allowance for depreciation (2003 — $486,935; 2002 — $466,080)						338,982				333,051

TOTAL ASSETS					$	4,021,493			$	4,019,843

			LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable					$	624,476			$	735,183
Current portion of long-term debt and other borrowings						130,818				116,905
Income taxes payable						24,105				21,366
Dividends payable						51,297				50,557
Other current liabilities						150,392				145,707

		TOTAL CURRENT LIABILITIES				981,088				1,069,718
Long-term debt						671,682				674,796
Deferred income taxes						100,597				97,912
Minority interests in subsidiaries						48,559				47,408
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 — 2003 — 173,935,633; 2002 — 174,380,634					173,936				174,381
Accumulated other comprehensive loss						(12,339	)			(60,522	)
Additional paid-in capital						29,846				44,371
Retained earnings						2,028,124				1,971,779

		TOTAL SHAREHOLDERS’ EQUITY				2,219,567				2,130,009

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY					$	4,021,493			$	4,019,843


	Three Months Ended June 30,				Six Months Ended June 30,

	2003		2002		2003			2002

	(in thousands, except per share data)
Net sales	$	2,152,794	$	2,130,924	$	4,174,652		$	4,108,667
Cost of goods sold		1,501,411		1,486,692		2,884,929			2,860,466

Gross margin		651,383		644,232		1,289,723			1,248,201
Selling, administrative & other expenses		503,356		486,520		996,501			947,587

Income before income taxes and cumulative effect of a change in accounting principle		148,027		157,712		293,222			300,614
Income taxes		57,879		61,665		114,650			117,540

Income before cumulative effect of a change in accounting principle		90,148		96,047		178,572			183,074
Cumulative effect of a change in accounting principle		—		—		(19,541	)		(395,090	)

Net income (loss)	$	90,148	$	96,047	$	159,031		$	(212,016	)

Basic net income (loss) per common share:
Before cumulative effect of a change in accounting principle	$	.52	$	.55	$	1.03		$	1.05
Cumulative effect of a change in accounting principle		—		—		(.12	)		(2.27	)

Basic net income (loss)	$	.52	$	.55	$	.91		$	(1.22	)

Diluted net income (loss) per common share:
Before cumulative effect of a change in accounting principle	$	.52	$	.55	$	1.02		$	1.05
Cumulative effect of a change in accounting principle		—		—		(.11	)		(2.26	)

Diluted net income (loss)	$	.52	$	.55	$	.91		$	(1.21	)

Dividends declared per common share	$	.295	$	.29	$	.59		$	.58

Average common shares outstanding		173,895		174,445		174,019			174,163
Dilutive effect of stock options and non-vested restricted stock awards		565		903		498			945

Average common shares outstanding — assuming dilution		174,460		175,348		174,517			175,108


			Six Months
			Ended June 30,

			2003			2002

			(in thousands)
OPERATING ACTIVITIES:
	Net income (loss)		$	159,031		$	(212,016	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Cumulative effect of a change in accounting principle		19,541			395,090
		Depreciation and amortization		35,771			36,299
		Other		(2,242	)		6,538
		Changes in operating assets and liabilities		(66,186	)		(20,509	)

NET CASH PROVIDED BY OPERATING ACTIVITIES				145,915			205,402
INVESTING ACTIVITIES:
	Purchases of property, plant and equipment			(37,188	)		(25,982	)
	Other			(863	)		-0-

NET CASH USED IN INVESTING ACTIVITIES				(38,051	)		(25,982	)
FINANCING ACTIVITIES:
	Net proceeds (payments) on credit facilities			10,999			(173,421	)
	Stock options exercised			1,401			35,291
	Dividends paid			(101,946	)		(102,236	)
	Purchase of stock			(16,371	)		(275	)

NET CASH USED IN FINANCING ACTIVITIES				(105,917	)		(240,641	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				1,947			(61,221	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				19,995			85,770

CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	21,942		$	24,549

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 (the “Company”) for the year ended December 31, 2002. Accordingly, the quarterly condensed consolidated financial statements and related disclosures should be read in conjunction with the 2002 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 income for 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, 2003 are not necessarily indicative of results for the entire year.


			Three month period ended June 30,						Six month period ended June 30,

			2003			2002			2003			2002

			(in thousands)						(in thousands)
Net sales:
	Automotive		$	1,167,797		$	1,148,572		$	2,190,268		$	2,147,230
	Industrial			565,912			572,618			1,135,542			1,123,788
	Office Products			355,448			336,599			719,274			689,356
	Electrical/Electronic Materials			73,283			80,558			148,700			162,178
	Other			(9,646	)		(7,423	)		(19,132	)		(13,885	)

		Total net sales	$	2,152,794		$	2,130,924		$	4,174,652		$	4,108,667

Operating profit (loss):
	Automotive		$	103,832		$	108,648		$	187,262		$	192,943
	Industrial			33,232			44,502			76,419			87,031
	Office Products			31,333			29,854			72,889			70,928
	Electrical/Electronic Materials			1,916			600			3,513			(80	)

		Total operating profit		170,313			183,604			340,083			350,822
	Interest expense			(13,350	)		(16,409	)		(27,044	)		(32,858	)
	Other, net			(8,936	)		(9,483	)		(19,817	)		(17,350	)

		Income before income taxes and cumulative effect of a change in accounting principle	$	148,027		$	157,712		$	293,222		$	300,614

For management purposes, net sales by segment exclude 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.

Total comprehensive income (loss) was $207,214,000 and $(215,622,000) for the six month periods ended June 30, 2003 and 2002, respectively. The difference between total comprehensive income and net income (loss) was due to foreign currency translation adjustments and adjustments to the fair value of derivative instruments, as summarized below (in thousands):

Comprehensive income for the three months ended June 30, 2003 and 2002 totaled $118,567,000 and $89,479,000, respectively.

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. For the six months ended June 30, 2003, additions to goodwill of $.9 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 as of December 31, 2002 and 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 January 1, 2002		$	221,752			$	50,304		$	8,297		$	155,611		$	6,114		$	442,078
	Goodwill acquired during the year		13,266				31			400			—			956			14,653
	Amortization during the year		—				—			—			—			(2,421	)		(2,421	)
	Other impairment charges		—				(515	)		—			—			—			(515	)
	Transitional impairment losses		(213,401	)			(19,512	)		(6,566	)		(155,611	)		—			(395,090	)

Balance as of Dec. 31, 2002			21,617		&nb


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)


CONDENSED CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SECTION 302 CERTIFICATION OF THE CEO
SECTION 302 CERTIFICATION OF THE CFO
SECTION 906 CERTIFICATION OF THE CEO
SECTION 906 CERTIFICATION OF THE CFO


		For the Six Months Ended June 30,

		2003		2002

Net Income (Loss)		$	159,031	$	(212,016	)
	Foreign currency translation		44,147		(7,122	)
	Derivative instruments, net of taxes		4,036		3,516

	Total other comprehensive income (loss)		48,183		(3,606	)

Comprehensive income (loss)		$	207,214	$	(215,622	)

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x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the Quarterly Period Ended June 30, 2003		Commission File Number 1-5690


Registrant’s telephone number, including area code		(770) 953-1700