<PAGE> 1
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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 June 30, 1999 Commission File Number 1-5690
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GENUINE PARTS COMPANY
---------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-0254510
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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).
179,036,113
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(Shares of Common Stock)
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<PAGE> 2
PART 1 - Financial Information
Item 1 - Financial Statements
GENUINE PARTS COMPANY and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, Dec. 31,
1999 1998
---- ----
(Unaudited)
(in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ..................................................... $ 113,232 $ 84,972
Trade accounts receivable, less allowance
for doubtful accounts (1999 - $7,342; 1998 - $ 5,019) ........................ 1,033,434 907,561
Inventories - at lower of cost (substantially last-in,
first-out method) or market ................................................... 1,678,829 1,660,233
Prepaid and other current accounts ............................................ 32,301 30,591
---------- -----------
TOTAL CURRENT ASSETS ................................................. 2,857,796 2,683,357
Goodwill, less accumulated amortization (1999 - $18,290; 1998 - $12,578) ...... 402,430 344,733
Other assets .................................................................. 197,078 168,282
Total property, plant and equipment, less allowance
for depreciation (1999 - $379,379; 1998 - $355,574) ........................... 416,900 404,008
---------- -----------
$3,874,204 $ 3,600,380
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .............................................................. $ 599,656 $ 509,532
Current portion of long-term debt and other borrowings ........................ 190,116 156,316
Income taxes .................................................................. 19,850 21,837
Dividends payable ............................................................. 46,269 44,776
Other current liabilities ..................................................... 83,420 85,948
---------- -----------
TOTAL CURRENT LIABILITIES ............................................ 939,311 818,409
Long-term debt ................................................................ 666,104 588,640
Deferred income taxes ......................................................... 94,956 94,956
Minority interests in subsidiaries ............................................ 44,597 45,043
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 - 1999 - 179,036,113; 1998 - 179,505,151 ........................ 179,036 179,505
Additional paid-in capital .................................................... 4,635 19,989
Accumulated other comprehensive income ........................................ 3,205 (3,110)
Retained earnings ............................................................. 1,942,360 1,856,948
---------- -----------
TOTAL SHAREHOLDERS' EQUITY ........................................... 2,129,236 2,053,332
---------- -----------
$3,874,204 $ 3,600,380
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 3
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
(000 omitted except per share data)
<S> <C> <C> <C> <C>
Net sales .............................. $2,022,894 $1,619,383 $3,924,251 $3,152,521
Cost of goods sold ..................... 1,432,837 1,141,980 2,783,304 2,228,382
---------- ---------- ---------- ----------
590,057 477,403 1,140,947 924,139
Selling, administrative & other expenses 436,798 335,446 845,194 649,954
---------- ---------- ---------- ----------
Income before income taxes ............. 153,259 141,957 295,753 274,185
Income taxes ........................... 60,690 56,073 117,118 108,303
---------- ---------- ---------- ----------
NET INCOME ............................. $ 92,569 $ 85,884 $ 178,635 $ 165,882
========== ========== ========== ==========
Basic net income per common share ...... $ .52 $ .48 $ 1.00 $ .93
========== ========== ========== ==========
Diluted net income per common share .... $ .52 $ .48 $ .99 $ .92
========== ========== ========== ==========
Dividends declared per common share .... $ .26 $ .25 $ .52 $ .50
========== ========== ========== ==========
Average common shares outstanding ...... 179,032 178,859 179,458 178,840
Dilutive effect of stock options and
non-vested restricted stock awards .. 557 588 563 624
---------- ---------- ---------- ----------
Average common shares outstanding,
assuming dilution ................... 179,589 179,447 180,021 179,464
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------
(000 omitted)
Cash Provided By:
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ...................................................................... $ 178,635 $ 165,882
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................. 42,798 31,618
Other ......................................................................... (446) 2,859
Changes in operating assets and liabilities ................................... (34,460) (64,238)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................................... 186,527 136,121
INVESTING ACTIVITIES:
Purchase of property, plant and equipment ....................................... (38,325) (40,124)
Acquisition of businesses and other investing activities ........................ (103,858) 4,683
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES .............................................. (142,183) (35,441)
FINANCING ACTIVITIES:
Proceeds from lines of credit and other borrowings, net of payments ............. 111,264 (16,000)
Dividends paid .................................................................. (91,195) (88,156)
Purchase of stock ............................................................... (51,104) (20,756)
Other financing activities ...................................................... 14,951 16,249
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................................ (16,084) (108,663)
--------- ---------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ............................... 28,260 (7,983)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................................... 84,972 72,823
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................................... $ 113,232 $ 64,840
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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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. However, in the opinion of management,
all adjustments necessary to 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, 1999, are not
necessarily indicative of results for the entire year.
Note B - Segment Information
<TABLE>
<CAPTION>
Three month period ended June 30, Six month period ended June 30,
1999 1998 1999 1998
--------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Net sales:
Automotive $ 1,058,482 $ 849,696 $ 1,999,832 $ 1,593,295
Industrial 543,792 509,062 1,066,295 1,008,747
Office Products 290,491 260,625 600,494 550,479
Electrical/Electronic Materials 130,129 -- 257,630 --
----------------------------- -----------------------------
Total net sales $ 2,022,894 $ 1,619,383 $ 3,924,251 $ 3,152,521
============================= =============================
Operating profit:
Automotive $ 107,947 $ 89,336 $ 191,540 $ 158,475
Industrial 43,797 41,318 87,652 83,913
Office Products 24,868 23,654 59,851 56,879
Electrical/Electronic Materials 5,740 -- 11,380 --
----------------------------- -----------------------------
Total operating profit 182,352 154,308 350,423 299,267
Interest expense (13,375) (3,409) (25,818) (7,327)
Other, net (15,718) (8,942) (28,852) (17,755)
----------------------------- -----------------------------
Income before income taxes $ 153,259 $ 141,957 $ 295,753 $ 274,185
============================= =============================
</TABLE>
Note C - Comprehensive Income
Total comprehensive income was $184,950,586 and $164,327,010 for the six month
periods ended June 30, 1999 and 1998, respectively.
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Genuine Parts Company (the "Company") reported record sales and earnings in the
second quarter of 1999. Sales for the quarter were $2.0 billion, up 25% over the
same period in 1998. Net income in the quarter advanced 8% to $92.6 million. On
a per-share diluted basis, net income in the quarter was $.52 versus $.48 in the
same quarter of the prior year, an increase of 8%.
For the six months ended June 30, 1999, sales totaled $3.9 billion, up 24% over
the first half of 1998, while net income was $178.6 million, an increase of 8%.
Diluted earnings per share were $.99 for the first six months of 1999 and $.92
for the same period in 1998, an increase of 8%.
Sales would have increased 6% in the second quarter of 1999, over the second
quarter of 1998, if the impact of acquisitions made after June 30, 1998 is
excluded. Sales for the Automotive Parts Group increased 25% for the quarter and
increased 4%, if the impact of acquisitions in 1999 is excluded. The sales
increase is reflective of the general softness in the automotive aftermarket.
Sales for the Industrial Parts Group increased 7% for the quarter reflecting
continued slight improvement in the overall industrial market. The Office
Products Group was up 11% for the quarter reflecting steady sales progress in a
very competitive environment. EIS, the Electrical/Electronic Materials Group
acquired on July 1,1998, had sales of $258 million for the six months ended June
30, 1999. Cost of goods sold increased slightly as a percentage of net sales
compared to the same quarter of the prior year. Selling, administrative and
other expenses increased 30% for the quarter (8% increase
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excluding acquisitions) and the percentage of selling, administrative and other
expenses to net sales increased slightly, reflecting increased salaries,
acquisition costs and costs of upgrading/improving facilities.
The ratio of current assets to current liabilities remains very good at 3.04 to
1 and the Company's cash position is excellent.
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 June 30, 1999, the
Company has substantially completed phase (1) and phase (2) of its initiative
and has begun phase (3). The Company anticipates that it will substantially
complete phase (3) by the end of the third quarter of fiscal 1999 at which time
it will complete its final testing phase.
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 and substantially completed formal communications with
substantially 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 has identified and prioritized 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 has completed these
activities as of June 30, 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 development 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 is expensed as incurred. To date, the Company has expensed approximately
$5.5 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
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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.
PART II - OTHER INFORMATION
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1999 Annual Meeting of Shareholders of the Company was held on April 19,
1999, pursuant to notice given to shareholders of record on February 11, 1999,
at which date there were 179,536,256 shares of Common Stock outstanding. At the
Annual Meeting, the shareholders elected four Class I directors with terms to
expire at the 2002 Annual Meeting and one Class III director with a term to
expire at the 2001 Annual Meeting. As to the following named individuals, the
holders of 159,816,880 shares of the Company's Common Stock voted as follows:
<TABLE>
<CAPTION>
Class I For Withhold Authority
- ------- --- ------------------
<S> <C> <C>
Bradley Currey, Jr. 158,499,155 1,317,725
Robert P. Forrestal 158,487,239 1,329,641
Thomas C. Gallagher 158,483,190 1,333,690
Lawrence G. Steiner 158,471,186 1,345,694
Class III
- ---------
Stephen R. Kendall 158,510,220 1,306,660
</TABLE>
The following individuals' term of office as a director continued after the
Annual Meeting:
<TABLE>
<CAPTION>
Class II Class III
- -------- ---------
<S> <C>
Richard W. Courts, II Jean Douville
Larry L. Prince J. Hicks Lanier
James B. Williams Alana S. Shepherd
</TABLE>
The shareholders also voted on the adoption of the 1999 Long-Term Incentive
Plan. The holders of 139,356,240 shares of Common Stock voted in favor of the
adoption, holders of 8,202,372 shares voted against, holders of 721,166 shares
abstained, and there were 11,537,102 broker non-votes.
The shareholders also approved the adoption of the Genuine Parts Company 1999
Annual Incentive Bonus Plan. The holders of 155,946,820 shares voted for
adoption of the plan, holders of 3,089,430 shares voted against, and holders of
780,630 shares abstained, and there were no broker non-votes.
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<PAGE> 8
The shareholders also ratified the selection of Ernst & Young LLP as independent
auditors of the Company for 1999. The holders of 159,123,681 shares of Common
Stock voted in favor of the ratification, holders of 194,392 shares voted
against, holders of 498,807 shares abstained, and there were no broker
non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
Exhibit 3.1 Restated Articles of Incorporation of the Company
(incorporated herein by reference from the Company's
Annual Report on Form 10-K, dated March 3, 1995).
Exhibit 3.2 Bylaws of the Company, as amended (incorporated herein
by reference from the Company's Annual Report on Form
10-K, dated March 5, 1993).
Exhibit 27 Financial Data Schedule (for SEC use only).
(b) No reports on Form 8-K were filed by the registrant during the quarter
ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Genuine Parts Company
----------------------------------------
(Registrant)
Date July 30, 1999 /s/ Jerry W. Nix
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Jerry W. Nix
Senior Vice President - Finance
/s/ George W. Kalafut
----------------------------------------
George W. Kalafut
Executive Vice President - Finance and
Administration (Principal Financial and
Accounting Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GENUINE PARTS COMPANY FOR THE SIX MONTHS ENDED JUNE 30,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 113,232
<SECURITIES> 0
<RECEIVABLES> 1,033,434
<ALLOWANCES> 7,342
<INVENTORY> 1,678,829
<CURRENT-ASSETS> 2,857,796
<PP&E> 416,900
<DEPRECIATION> 379,379
<TOTAL-ASSETS> 3,874,204
<CURRENT-LIABILITIES> 939,311
<BONDS> 666,104
0
0
<COMMON> 179,036
<OTHER-SE> 1,950,200
<TOTAL-LIABILITY-AND-EQUITY> 3,874,204
<SALES> 3,924,251
<TOTAL-REVENUES> 3,924,251
<CGS> 2,783,304
<TOTAL-COSTS> 845,194
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,276
<INCOME-PRETAX> 295,753
<INCOME-TAX> 117,118
<INCOME-CONTINUING> 178,635
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178,635
<EPS-BASIC> 1.00
<EPS-DILUTED> .99
</TABLE>
