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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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<S> <C>
For the Quarterly Period Ended September 30, 1999 Commission File Number 1-5690
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GENUINE PARTS COMPANY
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(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
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(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).
177,809,538
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(Shares of Common Stock)
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PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
GENUINE PARTS COMPANY and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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<CAPTION>
ASSETS Sept. 30, Dec. 31,
1999 1998
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(Unaudited)
(in thousands)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents .............................................. $ 76,495 $ 84,972
Trade accounts receivable, less allowance
for doubtful accounts (1999 - $11,801; 1998 - $5,019) .................. 1,041,633 907,561
Inventories - at lower of cost (substantially last-in,
first-out method) or market ............................................ 1,698,081 1,660,233
Prepaid and other current accounts ..................................... 41,213 30,591
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TOTAL CURRENT ASSETS .......................................... 2,857,422 2,683,357
Goodwill, less accumulated amortization (1999 - $21,881; 1998 - $12,578) 412,868 344,733
Other assets ........................................................... 193,273 168,282
Total property, plant and equipment, less allowance
for depreciation (1999 - $391,723; 1998 - $355,574) .................... 414,320 404,008
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$3,877,883 $3,600,380
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ....................................................... $ 612,304 $ 509,532
Current portion of long-term debt and other borrowings ................. 157,861 156,316
Income taxes ........................................................... 17,923 21,837
Dividends payable ...................................................... 46,262 44,776
Other current liabilities .............................................. 87,166 85,948
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TOTAL CURRENT LIABILITIES ..................................... 921,516 818,409
Long-term debt ......................................................... 674,625 588,640
Deferred income taxes .................................................. 94,956 94,956
Minority interests in subsidiaries ..................................... 49,451 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 - 177,809,538; 1998 - 179,505,151 ................. 177,810 179,505
Additional paid-in capital ............................................. -0- 19,989
Accumulated other comprehensive income ................................. 3,490 (3,110)
Retained earnings ...................................................... 1,956,035 1,856,948
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TOTAL SHAREHOLDERS' EQUITY .................................... 2,137,335 2,053,332
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$3,877,883 $3,600,380
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</TABLE>
See notes to condensed consolidated financial statements.
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GENUINE PARTS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
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1999 1998 1999 1998
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(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales .................................................. $2,082,229 $1,760,102 $6,006,480 $4,912,623
Cost of goods sold ......................................... 1,479,065 1,245,677 4,262,369 3,474,059
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603,164 514,425 1,744,111 1,438,564
Selling, administrative & other expenses ................... 453,103 371,929 1,298,297 1,021,883
---------- ---------- ---------- ----------
Income before income taxes ................................. 150,061 142,496 445,814 416,681
Income taxes ............................................... 59,424 56,357 176,542 164,660
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NET INCOME ................................................. $ 90,637 $ 86,139 $ 269,272 $ 252,021
========== ========== ========== ==========
Basic net income per common share .......................... $ .51 $ .48 $ 1.50 1.41
========== ========== ========== ==========
Diluted net income per common share ........................ $ .51 $ .48 $ 1.50 1.40
========== ========== ========== ==========
Dividends declared per common share ........................ $ .26 $ .25 $ .78 75
========== ========== ========== ==========
Average common shares outstanding .......................... 178,546 180,392 179,143 179,363
Dilutive effect of stock options and
non-vested restricted stock awards ...................... 480 794 534 641
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Average common shares outstanding,
assuming dilution ....................................... 179,026 181,186 179,677 180,004
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</TABLE>
See notes to condensed consolidated financial statements.
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GENUINE PARTS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
Nine Months
Ended Sept. 30,
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(in thousands)
Cash Provided By:
1999 1998
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OPERATING ACTIVITIES:
Net income ............................................................................ $ 269,272 $ 252,021
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ....................................................... 67,634 47,724
Other ............................................................................... 1,016 4,365
Changes in operating assets and liabilities ......................................... (28,797) (82,925)
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NET CASH PROVIDED BY OPERATING ACTIVITIES ................................................ 309,125 221,185
INVESTING ACTIVITIES:
Purchase of property, plant and equipment ............................................. (59,010) (63,954)
Acquisition of businesses and other investing activities .............................. (116,320) 7,089
Cash paid for EIS, Inc., net of cash acquired 3,017 ................................... -0- (55,763)
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NET CASH USED IN INVESTING ACTIVITIES .................................................... (175,330) (112,628)
FINANCING ACTIVITIES:
Proceeds from revolving line of credit and long-term debt, net ........................ 67,621 95,889
Dividends paid ........................................................................ (138,125) (132,873)
Purchase of stock ..................................................................... (88,773) (64,127)
Other financing activities ............................................................ 17,005 12,844
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NET CASH USED IN FINANCING ACTIVITIES .................................................... (142,272) (88,267)
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ..................................... (8,477) 20,290
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......................................... 84,972 72,823
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CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................................... $ 76,495 $ 93,113
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</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 nine months ended September 30, 1999, are not
necessarily indicative of results for the entire year.
Note B - Segment Information
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<CAPTION>
Three month period ended September 30, Nine month period ended September 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net sales:
Automotive $1,091,015 $ 869,396 $3,090,847 $2,462,691
Industrial 541,622 488,476 1,607,917 1,497,223
Office Products 316,156 287,681 916,650 838,160
Electrical/Electronic Materials 133,436 114,549 391,066 114,549
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Total net sales $2,082,229 $1,760,102 $6,006,480 $4,912,623
======================================== ===================================
Operating profit:
Automotive $ 104,258 $ 90,806 $ 295,798 $ 249,281
Industrial 38,929 35,872 126,581 119,785
Office Products 27,560 26,420 87,411 83,299
Electrical/Electronic Materials 6,107 5,325 17,487 5,325
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Total operating profit 176,854 158,423 527,277 457,690
Interest expense (13,683) (6,007) (39,501) (13,334)
Other, net (13,110) (9,920) (41,962) (27,675)
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Income before income taxes $ 150,061 $ 142,496 $ 445,814 $ 416,681
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</TABLE>
Note C - Comprehensive Income
Total comprehensive income was $275,872,000 and $249,688,500 for the nine month
periods ended September 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
third quarter of 1999. Sales for the quarter were $2.1 billion, up 18% over the
same period in 1998. Net income in the quarter advanced 5% over the third
quarter of 1998 to $90.6 million. On a per-share diluted basis, net income in
the quarter was $.51 versus $.48 in the same quarter of the prior year, an
increase of 6%.
For the nine months ended September 30, 1999, sales totaled $6.0 billion, up 22%
over the same period in 1998, while net income was $269.3 million, an increase
of 7%. Diluted earnings per share were $1.50 for the first nine months of 1999
and $1.40 for the same period in 1998, an increase of 7%.
Sales would have increased 7% in the third quarter of 1999, over the third
quarter of 1998, if the impact of acquisitions made after September 30, 1998 is
excluded. Sales for the Automotive Parts Group increased 25% for the quarter and
increased 3%, if the impact of acquisitions in 1999 is excluded. The sales
increase is reflective of the U.S. automotive aftermarket's continued pattern
of slow growth. Sales for the Industrial Parts Group increased 11% for the
quarter showing a gradual improvement in the market environment. The Office
Products Group increased sales by 10% for the quarter; and EIS, the
Electrical/Electronic Materials Group acquired on July 1, 1998, reported a
strong 16% improvement in sales. 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 22% for the quarter (8% increase
excluding acquisitions) and the percentage of selling,
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administrative and other expenses to net sales increased slightly, due mostly to
increased salaries, interest expense, acquisition costs and costs of
upgrading/improving facilities.
The ratio of current assets to current liabilities remains very good at 3.10 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 September 30, 1999,
the Company has substantially completed phase (1), phase (2) and phase (3) of
its initiative.
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 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 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 developed a separate plan to upgrade these higher
priority embedded technology devices. Management 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 $8.5 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 has been capitalized. The remaining $5.5 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 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.
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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 5. Other Information
Acquisition Announcement
On October 1, 1999, the Company acquired all of the outstanding stock of
Brittain Brothers, Inc., in exchange for a combination of cash and Genuine Parts
Company common stock, totaling approximately $17.6 million. Brittain Brothers,
based in Oklahoma, is an independent distributor of NAPA automotive parts and
accessories.
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 September 30, 1999.
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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 November 1, 1999 /s/ Jerry W. Nix
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Jerry W. Nix
Senior Vice President - Finance
/s/ George W. Kalafut
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George W. Kalafut
Executive Vice President - Finance and
Administration (Principal Financial and
Accounting Officer)
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GENUINE PARTS COMPANY FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 76,495
<SECURITIES> 0
<RECEIVABLES> 1,041,633
<ALLOWANCES> 11,801
<INVENTORY> 1,698,081
<CURRENT-ASSETS> 2,857,422
<PP&E> 414,320
<DEPRECIATION> 391,723
<TOTAL-ASSETS> 3,877,883
<CURRENT-LIABILITIES> 921,516
<BONDS> 674,625
0
0
<COMMON> 179,810
<OTHER-SE> 1,959,525
<TOTAL-LIABILITY-AND-EQUITY> 3,877,883
<SALES> 6,006,480
<TOTAL-REVENUES> 6,006,480
<CGS> 4,262,369
<TOTAL-COSTS> 1,298,297
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,501
<INCOME-PRETAX> 445,814
<INCOME-TAX> 176,542
<INCOME-CONTINUING> 269,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 269,272
<EPS-BASIC> 1.50
<EPS-DILUTED> 1.50
</TABLE>
