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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, 2003   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 o

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

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

173,968,163

(Shares of Common Stock)

 

TABLE OF CONTENTS

PART 1 — FINANCIAL INFORMATION
302 CERT./CEO
302 CERT. / CFO
906 CERT. / CEO
906 CERT. / CFO

Table of Contents

FORM 10-Q

PART 1 — FINANCIAL INFORMATION

Item 1 — Financial Statements

GENUINE PARTS COMPANY and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

                     
        September 30,   December 31,
        2003   2002
       
 
        (Unaudited)        
        (in thousands)
ASSETS
CURRENT ASSETS
                
Cash and cash equivalents
   $ 31,476     $ 19,995  
Trade accounts receivable, less allowance for doubtful accounts (2003 - $23,497; 2002 - $8,228)
     1,132,837       1,039,843  
Inventories — at lower of cost (substantially last-in, first-out method) or market
     2,083,143       2,144,787  
Prepaid expenses and other accounts
     77,885       131,150  
 
    
     
 
   
TOTAL CURRENT ASSETS
     3,325,341       3,335,775  
Goodwill and other intangible assets
     58,163       58,705  
Other assets
     321,685       292,312  
Total property, plant and equipment, less allowance for depreciation (2003 - $486,575; 2002 - $466,080)
     346,960       333,051  
 
    
     
 
TOTAL ASSETS
   $ 4,052,149     $ 4,019,843  
 
    
     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
                
Accounts payable
   $ 667,846     $ 735,183  
Current portion of long-term debt and other borrowings
     30,009       116,905  
Income taxes payable
     41,510       21,366  
Dividends payable
     51,303       50,557  
Other current liabilities
     179,135       145,707  
 
    
     
 
   
TOTAL CURRENT LIABILITIES
     969,803       1,069,718  
Long-term debt
     671,658       674,796  
Deferred income taxes
     102,777       97,912  
Minority interests in subsidiaries
     49,128       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 – 173,968,163; 2002 – 174,380,634
     173,968       174,381  
Accumulated other comprehensive loss
     (10,273 )     (60,522 )
Additional paid-in capital
     29,944       44,371  
Retained earnings
     2,065,144       1,971,779  
 
    
     
 
   
TOTAL SHAREHOLDERS’ EQUITY
     2,258,783       2,130,009  
 
    
     
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   $ 4,052,149     $ 4,019,843  
 
    
     
 

See notes to condensed consolidated financial statements.

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Table of Contents

FORM 10-Q

GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

                                 
    Three Months Ended Sept. 30,   Nine Months Ended Sept. 30,
   
 
    2003   2002   2003   2002
   
 
 
 
    (in thousands, except per share data)
Net sales
   $ 2,189,388     $ 2,156,759     $ 6,364,040     $ 6,265,426  
Cost of goods sold
     1,537,439       1,506,966       4,422,368       4,367,432  
 
    
     
     
     
 
Gross margin
     651,949       649,793       1,941,672       1,897,994  
Selling, administrative & other expenses
     506,903       494,633       1,503,404       1,442,220  
 
    
     
     
     
 
Income before income taxes and cumulative effect of a change in accounting principle
     145,046       155,160       438,268       455,774  
Income taxes
     56,713       61,133       171,363       178,673  
 
    
     
     
     
 
Income before cumulative effect of a change in accounting principle
     88,333       94,027       266,905       277,101  
Cumulative effect of a change in accounting principle
     —       —       (19,541 )     (395,090 )
 
    
     
     
     
 
Net income (loss)
   $ 88,333     $ 94,027     $ 247,364     $ (117,989 )
 
    
     
     
     
 
Basic net income (loss) per common share:
                                
Before cumulative effect of a change in accounting principle
   $ .51     $ .54     $ 1.53     $ 1.59  
Cumulative effect of a change in accounting principle
     —       —       (.11 )     (2.27 )
 
    
     
     
     
 
Basic net income (loss)
   $ .51     $ .54     $ 1.42     $ (.68 )
 
    
     
     
     
 
Diluted net income (loss) per common share:
                                
Before cumulative effect of a change in accounting principle
   $ .51     $ .54     $ 1.53     $ 1.58  
Cumulative effect of a change in accounting principle
     —       —       (.11 )     (2.25 )
 
    
     
     
     
 
Diluted net income (loss)
   $ .51     $ .54     $ 1.42     $ (.67 )
 
    
     
     
     
 
Dividends declared per common share
   $ .295     $ .29     $ .59     $ .58  
 
    
     
     
     
 
Average common shares outstanding
     173,948       174,709       173,995       174,347  
Dilutive effect of stock options and non-vested restricted stock awards
     481       542       492       812  
 
    
     
     
     
 
Average common shares outstanding – assuming dilution
     174,429       175,251       174,487       175,159  
 
    
     
     
     
 

See notes to condensed consolidated financial statements.

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Table of Contents

FORM 10-Q

GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

                     
        Nine Months
        Ended September 30,
       
        (in thousands)
        2003   2002
       
 
OPERATING ACTIVITIES:
                
 
Net income (loss)
   $ 247,364     $ (117,989 )
 
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
     52,106       52,997  
   
Other
     (32 )     1,890  
   
Changes in operating assets and liabilities
     7,004       (35,540 )
 
    
     
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
     325,983       296,448  
INVESTING ACTIVITIES:
                
 
Purchases of property, plant and equipment
     (63,613 )     (46,505 )
 
Other
     7,237       (2,098 )
 
    
     
 
NET CASH USED IN INVESTING ACTIVITIES
     (56,376 )     (48,603 )
FINANCING ACTIVITIES:
                
 
Net payments on credit facilities
     (90,034 )     (173,750 )
 
Stock options exercised
     2,838       35,540  
 
Dividends paid
     (153,253 )     (152,979 )
 
Purchase of stock
     (17,677 )     (2,826 )
 
    
     
 
NET CASH USED IN FINANCING ACTIVITIES
     (258,126 )     (294,015 )
 
    
     
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
     11,481       (46,170 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
     19,995       85,770  
 
    
     
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
   $ 31,476     $ 39,600  
 
    
     
 

See notes to condensed consolidated financial statements.

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Table of Contents

FORM 10-Q

NOTES TO CONDENSED CONSOLIDATED 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 (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 nine months ended September 30, 2003 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,
       
 
        2003   2002   2003   2002
       
 
 
 
        (in thousands)   (in thousands)
Net sales:
                                
 
Automotive
   $ 1,192,621     $ 1,155,395     $ 3,382,889     $ 3,302,625  
 
Industrial
     556,959       571,306       1,692,501       1,695,094  
 
Office Products
     375,875       359,568       1,095,149       1,048,924  
 
Electrical/Electronic Materials
     74,455       79,531       223,155       241,709  
 
Other
     (10,522 )     (9,041 )     (29,654 )     (22,926 )
 
    
     
     
     
 
   
Total net sales
   $ 2,189,388     $ 2,156,759     $ 6,364,040     $ 6,265,426  
 
    
     
     
     
 
Operating profit:
                                
 
Automotive
   $ 103,007     $ 107,524     $ 290,269     $ 300,467  
 
Industrial
     34,201       38,955       110,620       125,986  
 
Office Products
     30,339       30,165       103,228       101,093  
 
Electrical/Electronic Materials
     1,890       1,128       5,403       1,048  
 
    
     
     
     
 
   
Total operating profit
     169,437       177,772       509,520       528,594  
 
Interest expense
     (12,982 )     (14,810 )     (40,026 )     (47,668 )
 
Other, net
     (11,409 )     (7,802 )     (31,226 )     (25,152 )
 
    
     
     
     
 
   
Income before income taxes and cumulative effect of a change in accounting principle
   $ 145,046     $ 155,160     $ 438,268     $ 455,774  
 
    
     
     
     
 

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.

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Table of Contents

FORM 10-Q

Note C — Comprehensive Income (Loss)

Total comprehensive income (loss) was $297,613,000 and $(136,011,000) for the nine month periods ended September 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):

                     
        For the Nine Months Ended Sept. 30,
       
        2003   2002
       
 
Net Income (Loss)
   $ 247,364     $ (117,989 )
 
Other Comprehensive Income (Loss):
                
   
Foreign currency translation
     42,817       (19,279 )
   
Derivative instruments, net of taxes
     7,432       1,257  
 
    
     
 
   
Total Other Comprehensive Income (Loss)
     50,249       (18,022 )
 
    
     
 
Comprehensive Income (Loss)
   $ 297,613     $ (136,011 )
 
    
     
 

Comprehensive income for the three months ended September 30, 2003 and 2002 totaled $90,399,000 and $79,611,000, respectively.

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. For the nine months ended September 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.

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Table of Contents

FORM 10-Q

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       30,308       2,131       —       4,649       58,705  
 
G