XNYS:GPC Genuine Parts Company Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

GPC Fair Value Estimate
Premium
GPC Consider Buying
Premium
GPC Consider Selling
Premium
GPC Fair Value Uncertainty
Premium
GPC Economic Moat
Premium
GPC Stewardship
Premium
 

 

 

UNITED STATES

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, 2012

OR

 

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

For the transition period from              to             

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, GA   30339
(Address of principal executive offices)   (Zip Code)

(770) 953-1700

(Registrant’s telephone number, including area code)

 

 

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

  

Outstanding at June 30, 2012

Common Stock, $1.00 par value per share

  

155,100,768 Shares

 

 

 


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     June 30,
2012
    December 31,
2011
 
     (unaudited)        
    

(in thousands, except share

and per share data)

 

ASSETS

    

CURRENT ASSETS

    

Cash and cash equivalents

   $ 171,577      $ 525,054   

Trade accounts receivable, less allowance for doubtful accounts (2012 – $26,152; 2011 – $16,916)

     1,605,696        1,461,011   

Merchandise inventories, net – at lower of cost or market

     2,333,592        2,261,997   

Prepaid expenses and other current assets

     312,510        328,534   
  

 

 

   

 

 

 

TOTAL CURRENT ASSETS

     4,423,375        4,576,596   

Goodwill and other intangible assets, less accumulated

amortization

     498,288        279,775   

Deferred tax assets

     240,261        250,906   

Other assets

     455,992        272,110   

Property, plant and equipment, less allowance for depreciation (2012 – $792,216; 2011 – $732,390)

     567,013        500,204   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 6,184,929      $ 5,879,591   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

CURRENT LIABILITIES

    

Trade accounts payable

   $ 1,599,695      $ 1,440,762   

Income taxes payable

     32,789        35,267   

Dividends payable

     77,081        70,021   

Other current liabilities

     268,691        266,023   
  

 

 

   

 

 

 

TOTAL CURRENT LIABILITIES

     1,978,256        1,812,073   

Long-term debt

     500,000        500,000   

Pension and other post–retirement benefit liabilities

     485,317        493,721   

Other long-term liabilities

     289,534        280,978   

EQUITY:

    

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 – 2012 – 155,100,768; 2011 – 155,651,116

     155,101        155,651   

Retained earnings

     3,225,152        3,109,622   

Accumulated other comprehensive loss

     (458,444     (482,038
  

 

 

   

 

 

 

TOTAL PARENT EQUITY

     2,921,809        2,783,235   

Noncontrolling interests in subsidiaries

     10,013        9,584   
  

 

 

   

 

 

 

TOTAL EQUITY

     2,931,822        2,792,819   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 6,184,929      $ 5,879,591   
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

2


GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2011      2012      2011  
     (unaudited)  
     (in thousands, except per share data)  

Net sales

   $ 3,337,836       $ 3,184,984       $ 6,519,124       $ 6,159,182   

Cost of goods sold

     2,365,550         2,268,870         4,627,727         4,394,274   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     972,286         916,114         1,891,397         1,764,908   

Operating expenses:

           

Selling, administrative & other expenses

     680,246         651,635         1,348,204         1,285,904   

Depreciation and amortization

     24,735         22,928         47,720         45,473   
  

 

 

    

 

 

    

 

 

    

 

 

 
     704,981         674,563         1,395,924         1,331,377   

Income before income taxes

     267,305         241,551         495,473         433,531   

Income taxes

     98,687         89,739         180,600         155,204   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 168,618       $ 151,812       $ 314,873       $ 278,327   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic net income per common share

   $ 1.08       $ .97       $ 2.02       $ 1.77   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income per common share

   $ 1.08       $ .96       $ 2.01       $ 1.76   
  

 

 

    

 

 

    

 

 

    

 

 

 

Dividends declared per common share

   $ .495       $ .45       $ .99       $ .90   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding

     155,753         157,248         155,781         157,439   

Dilutive effect of stock options and non- vested restricted stock awards

     1,019         995         1,073         988   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding – assuming dilution

     156,772         158,243         156,854         158,427   
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income

   $ 163,693       $ 163,361       $ 338,467       $ 318,199   
  

 

 

    

 

 

    

 

 

    

 

 

 

See notes to condensed consolidated financial statements.

 

3


GENUINE PARTS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    

Six Months

Ended June 30,

 
     2012     2011  
     (unaudited)  
     (in thousands)  

OPERATING ACTIVITIES:

    

Net income

   $ 314,873      $ 278,327   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     47,720        45,473   

Share-based compensation

     5,099        4,023   

Excess tax benefits from share-based compensation

     (7,174     (1,802

Other

     (703     (594

Changes in operating assets and liabilities

     61,498        (75,476
  

 

 

   

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

     421,313        249,951   

INVESTING ACTIVITIES:

    

Purchases of property, plant and equipment

     (51,368     (41,748

Acquisition of businesses and other investing activities

     (525,901     (38,126
  

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

     (577,269     (79,874

FINANCING ACTIVITIES:

    

Proceeds from line of credit

     550,000        —     

Payments on line of credit

     (550,000     —     

Stock options exercised

     (2,903     1,302   

Excess tax benefits from share-based compensation

     7,174        1,802   

Dividends paid

     (147,187     (135,550

Purchase of stock

     (55,015     (55,416
  

 

 

   

 

 

 

NET CASH USED IN FINANCING ACTIVITIES

     (197,931     (187,862

EFFECT OF EXCHANGE RATE CHANGES ON CASH

     410        4,545   

NET DECREASE IN CASH AND CASH EQUIVALENTS

     (353,477     (13,240

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

     525,054        529,968   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 171,577      $ 516,728   
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

4


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 required by accounting principles generally accepted in the United States for complete financial statements. 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, 2011. Accordingly, the unaudited interim condensed consolidated financial statements and related disclosures herein should be read in conjunction with the Company’s 2011 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 and assumptions in its interim consolidated financial statements for inventory adjustments, the accrual of bad debts, and volume incentives earned, among others. Inventory adjustments (including adjustments for a majority of inventories that are valued under the last-in, first-out (“LIFO”) method) are accrued on an interim basis and adjusted in the fourth quarter based on the annual book to physical inventory adjustment and LIFO valuation, which can only be performed at year-end. Bad debts are accrued based on a percentage of sales. Volume incentives are estimated based upon cumulative and projected purchasing levels. The estimates and assumptions 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 presentation of the Company’s financial results for the interim periods have been made. These adjustments are of a normal recurring nature. The results of operations for the six month period ended June 30, 2012 are not necessarily indicative of results for the entire year. The Company has evaluated subsequent events through the date the financial statements covered by this quarterly report were issued.

Note B – Segment Information

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2012     2011     2012     2011  
     (in thousands)     (in thousands)  

Net sales:

        

Automotive

   $ 1,644,902      $ 1,585,074      $ 3,138,401      $ 2,989,939   

Industrial

     1,138,724        1,051,258        2,259,947        2,051,029   

Office products

     413,340        417,989        839,493        850,655   

Electrical/electronic materials

     149,440        136,780        296,556        276,594   

Other

     (8,570     (6,117     (15,273     (9,035
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

   $ 3,337,836      $ 3,184,984      $ 6,519,124      $ 6,159,182   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit:

        

Automotive

   $ 152,978      $ 138,795      $ 267,539      $ 236,694   

Industrial

     95,053        85,289        179,381        151,298   

Office products

     30,611        31,367        68,126        68,771   

Electrical/electronic materials

     12,933        9,172        24,899        19,242   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating profit

     291,575        264,623        539,945        476,005   

Interest expense, net

     (5,019     (6,236     (9,734     (12,736

Other, net

     (19,251     (16,836     (34,738     (29,738
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

   $ 267,305      $ 241,551      $ 495,473      $ 433,531   
  

 

 

   

 

 

   

 

 

   

 

 

 

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 is reported as a component of net sales in the Company’s condensed consolidated statements of income and comprehensive income.

 

5


Note C – Comprehensive Income

Comprehensive income was $338.5 million and $318.2 million for the six months ended June 30, 2012 and 2011, respectively. The difference between comprehensive income and net income was due to foreign currency translation adjustments and pension and other post-retirement benefit adjustments, as summarized below:

 

     Six months Ended June 30,  
     2012     2011  
     (in thousands)  

Net income

   $ 314,873      $ 278,327   

Other comprehensive income:

    

Foreign currency translation

     3,925        26,363   

Pension and other post-retirement benefit adjustments:

    

Recognition of prior service credit, net of tax

     (2,474     (2,519

Recognition of actuarial loss, net of tax

     22,143        16,028   
  

 

 

   

 

 

 

Total other comprehensive income

     23,594        39,872   
  

 

 

   

 

 

 

Comprehensive income

   $ 338,467      $ 318,199   
  

 

 

   

 

 

 

Comprehensive income for the three months ended June 30, 2012 and 2011 totaled $163.7 million and $163.4 million, respectively.

Note D – Recently Adopted Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate, but consecutive statements for annual periods. Additionally, ASU 2011-05 eliminates the option to present comprehensive income and its components as part of the statement of stockholders’ equity. For interim periods, an entity is only required to present a total for comprehensive income. ASU 2011-05 is effective for the Company’s interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-05 only changed the manner of comprehensive income presentation in the condensed consolidated financial statements for the six months ended June 30, 2012 and 2011. The adoption of this ASU had no impact on the Company’s reported financial position, cash flows, or results of operations in the interim condensed consolidated financial statements, and will have no impact on the annual consolidated financial statements.

Note E – Share-Based Compensation

As more fully discussed in Note 5 of the Company’s notes to the consolidated financial statements in its 2011 Annual Report on Form 10-K, the Company maintains various long-term incentive plans, which provide for the granting of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance awards, dividend equivalents and other share-based awards. SARs represent a right to receive upon exercise an amount, payable in shares of common stock, equal to the excess, if any, of the fair market value of the Company’s common stock on the date of exercise over the base value of the grant. The terms of such SARs require net settlement in shares of common stock and do not provide for cash settlement. RSUs represent a contingent right to receive one share of the Company’s common stock at a future date. The majority of awards previously granted vest on a pro-rata basis for periods ranging from one to five years and are expensed accordingly on a straight-line basis. The Company issues new shares upon exercise or conversion of awards under these plans. Most awards may be exercised or converted to shares not earlier than twelve months nor later than ten years from the date of grant. At June 30, 2012, total compensation cost related to nonvested awards not yet recognized was approximately $25.7 million, as compared to $15.9 million at December 31, 2011. The weighted-average period over which this compensation cost is expected to be recognized is approximately three years. The aggregate intrinsic value for options, SARs and RSUs outstanding at June 30, 2012 was approximately $89.1 million. At June 30, 2012, the aggregate intrinsic value for options, SARs and RSUs vested totaled approximately $59.4 million, and the weighted-average contractual life for outstanding and exercisable options, SARs and RSUs was approximately six and five years, respectively. For the six months ended June 30, 2012, $5.1 million of share-based compensation cost was recorded, as compared to $4.0 million for the same period in the prior year. On April 2, 2012, the Company granted approximately 858,000 SARs and 145,000 RSUs.

 

6


Options to purchase approximately 0.8 million and 0.5 million shares of common stock were outstanding but excluded from the computation of diluted earnings per share for the three and six month periods ended June 30, 2012, as compared to approximately 1.0 million and 0.5 million shares in the three and six month periods of the prior year. These options were excluded from the computation of diluted net income per common share because the options’ exercise price was greater than the average market price of the common stock.

Note F – Employee Benefit Plans

Net periodic benefit cost included the following components for the three months ended June 30:

 

     Pension Benefits     Other Post-retirement
Benefits
 
     2012     2011     2012     2011  
     (in thousands)  

Service cost

   $ 3,818      $ 3,195      $ —        $ —     

Interest cost

     25,125        24,077        67        116   

Expected return on plan assets

     (32,068     (31,073     —          —     

Amortization of prior service credit

     (1,744     (1,753     (233     (265

Amortization of actuarial loss

     17,740        12,678        317        434   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 12,871      $ 7,124      $ 151      $ 285   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost included the following components for the six months ended June 30:

 

     Pension Benefits     Other Post-retirement
Benefits
 
     2012     2011     2012     2011  
     (in thousands)  

Service cost

   $ 7,651      $ 6,382      $ —        $ —     

Interest cost

     50,269        48,141        134        233   

Expected return on plan assets

     (64,162     (62,126     —          —     

Amortization of prior service credit

     (3,492     (3,503     (466     (530

Amortization of actuarial loss

     35,495        25,349        634        867   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 25,761      $ 14,243      $ 302      $ 570   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pension benefits also include amounts related to a supplemental retirement plan. During the six months ended June 30, 2012, the Company did not make a contribution to the pension plan.

Note G – Guarantees

The Company guarantees the borrowings of certain independently controlled automotive parts stores (“independents”) and certain other affiliates in which the Company has a noncontrolling equity ownership interest (“affiliates”). Presently, the independents are generally consolidated by unaffiliated enterprises that have a controlling financial interest through ownership of a majority voting interest in the entity. The Company has no voting interest or direct or indirect equity ownership interest in any of the independents. The Company does not control the independents or the affiliates but receives a fee for the guarantee. The Company has concluded that the independents are variable interest entities but that the Company is not the primary beneficiary. Specifically, the equity holders of the independents have the power to direct the activities that most significantly impact the entity’s economic performance including, but not limited to, decisions about hiring and terminating personnel, local marketing and promotional initiatives, pricing and selling activities, credit decisions, monitoring and maintaining appropriate inventories, and store hours. Separately, the Company concluded the affiliates are not variable interest entities. The Company’s maximum exposure to loss as a result of its involvement with these independents and affiliates is equal to the total borrowings subject to the Company’s guarantee. While such borrowings of the independents and affiliates are outstanding, the Company is required to maintain compliance with certain covenants, including a maximum debt to capitalization ratio and certain limitations on additional borrowings. At June 30, 2012, the Company was in compliance with all such covenants.

 

7


At June 30, 2012, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately $224.0 million. These loans generally mature over periods from one to six years. In the event that the Company is required to make payments in connection with guaranteed obligations of the independents or the affiliates, the Company would obtain and liquidate certain collateral (e.g., accounts receivable and inventory) to recover all or a portion of the amounts paid under the guarantee. When it is deemed probable that the Company will incur a loss in connection with a guarantee, a liability is recorded equal to this estimated loss. To date, the Company has had no significant losses in connection with guarantees of independents’ and affiliates’ borrowings.

The Company has accrued for certain guarantees related to the independents’ and affiliates’ borrowings as of June 30, 2012. These liabilities are not material to the financial position of the Company and are included in “Other long-term liabilities” in the accompanying condensed consolidated balance sheets.

Note H – Fair Value of Financial Instruments

The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, trade accounts receivable and trade accounts payable approximate their respective fair values based on the short-term nature of these instruments. At June 30, 2012, the fair value of fixed rate debt was approximately $513.2 million. The fair value of fixed rate debt is designated as Level 2 in the fair value hierarchy (i.e., significant observable inputs) and is based primarily on the discounted value of future cash flows using current market interest rates offered for debt of similar credit risk and maturity.

Note I – Equity Investment

Effective January 1, 2012, the Company acquired a 30% investment in the Exego Group for approximately $165.6 million. The acquisition was funded with the Company’s cash on hand. The Exego Group, which is headquartered in Melbourne, Australia, is a leading aftermarket distributor of automotive replacement parts and accessories in Australasia, with annual revenues of approximately $1 billion and a company-owned store footprint of more than 430 locations across Australia and New Zealand. The Company has an option to acquire the remaining 70% of Exego at a later date contingent upon Exego achieving certain earnings thresholds. However, there can be no guarantee that such thresholds will be met or, if they are met, whether the Company would exercise its purchase option. The Company has accounted for the investment under the equity method of accounting.

Note J – Acquisitions

On May 1, 2012 the Company acquired Quaker City Motor Parts Co. (“Quaker City”) for approximately $330 million, net of cash acquired. Quaker City, headquartered in Middleton, Delaware, is a long-standing NAPA distributor with annual revenues of approximately $300 million. Quaker City serves approximately 270 auto parts stores, of which approximately 140 are company-owned. The Company funded the acquisition with cash on hand and short-term borrowings under credit facilities. In connection with this acquisition, the Company entered into a $200 million unsecured credit facility on April 23, 2012. The facility matures upon the earlier of September 15, 2012 or the date the Company’s existing $350 million credit facility is refinanced, which expires in December 2012. The credit facility bears interest at LIBOR plus 0.5%. No amounts were outstanding under this facility at June 30, 2012.

The results of operations for Quaker City were included in the Company’s condensed consolidated statements of income beginning on the acquisition date. The Company recorded approximately $210 million of goodwill and other intangible assets associated with the acquisition. The Company is in the process of analyzing the estimated values of assets and liabilities acquired as of the acquisition date and is obtaining third-party valuations of certain tangible and intangible assets. The acquisition accounting is therefore preliminary and subject to revision.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes contained herein and with the audited consolidated financial statements, accompanying notes, related information and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2011.

 

8


Forward-Looking Statements

Some statements in this report, as well as in other materials we file with the Securities and Exchange Commission (SEC) or otherwise release to the public and in materials that we make available on our website, constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Senior officers may also make verbal statements to analysts, investors, the media and others that are forward-looking. Forward-looking statements may relate, for example, to future operations, prospects, strategies, financial condition, economic performance (including growth and earnings), industry conditions and demand for our products and services. The Company cautions that its forward-looking statements involve risks and uncertainties, and while we believe that our expectations for the future are reasonable in view of currently available information, you are cautioned not to place undue reliance on our forward-looking statements. Actual results or events may differ materially from those indicated as a result of various important factors. Such factors may include, among other things, slowing demand for the Company’s products, changes in general economic conditions, including, unemployment, inflation or deflation, high energy costs, uncertain credit markets and other macro-economic conditions, the ability to maintain favorable vendor arrangements and relationships, disruptions in our vendors’ operations, competitive product, service and pricing pressures, the Company’s ability to successfully implement its business initiatives in each of its four business segments, the Company’s ability to successfully integrate its acquired businesses, the uncertainties and costs of litigation, as well as other risks and uncertainties discussed in the Company’s Annual Report on Form 10-K for 2011 and from time to time in the Company’s subsequent filings with the SEC.

Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its forward-looking statements except as required by law. You are advised, however, to review any further disclosures we make on related subjects in our subsequent Forms 10-K, 10-Q, 8-K and other reports to the SEC.

Overview

Genuine Parts Company is a service organization engaged in the distribution of automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials. The Company has a long tradition of growth dating back to 1928, the year we were founded in Atlanta, Georgia. During the six months ended June 30, 2012, business was conducted throughout the United States, Canada, Mexico and Puerto Rico from approximately 1,900 locations.

For the three months ended June 30, 2012, we recorded consolidated net income of $168.6 million compared to consolidated net income of $151.8 million in the same period last year, an increase of 11%. For the six months ended June 30, 2012, we recorded consolidated net income of $314.9 million compared to consolidated net income of $278.3 million in the same period last year, an increase of 13%. The Company continues to focus on several initiatives, such as new and expanded product lines, the penetration of new markets (including by acquisitions), and a variety of gross margin and cost savings initiatives to facilitate consistent and steady growth.

Sales

Sales for the second quarter of 2012 were $3.34 billion, an increase of 5% compared to $3.18 billion for the same period in 2011. For the six months ended June 30, 2012, sales were $6.52 billion, an increase of 6% compared to $6.16 billion in the same period of the prior year.

Sales for the Automotive Parts Group increased 4% in the second quarter of 2012 and 5% for the six months ended June 30, 2012, as compared to the same periods in the previous year. The increase in this group’s revenues was primarily due to the acquisition of Quaker City Motor Parts Co. (“Quaker City”). In addition, slight pricing deflation and unfavorable foreign exchange rates associated with our Canadian and Mexican businesses negatively impacted sales in the second quarter and six months ended June 30, 2012 by approximately 1%. We expect sales in the Automotive Parts Group to continue to increase at more modest growth rates due to a moderation in the economy coupled with recent declines in consumer confidence indices. The Industrial Products Group’s sales increased by 8% and 10% for the three and six month periods ended June 30, 2012, as compared to the same period in 2011, respectively. Price inflation was not a material factor to sales in the second quarter and six month periods ended June 30, 2012. Industrial market indices, such as Industrial Production and Capacity Utilization, remained at healthy levels over the three and six month periods ended June 30, 2012, indicating ongoing improvement in the manufacturing sector of the economy served by the Industrial Parts Group. As a result, we expect sales in our Industrial Products Group will continue to grow. Sales for the Office Products Group decreased by approximately 1% for the three and six month periods ended June 30, 2012, as compared to the same periods in 2011. Sales volume for this group declined by approximately 2% and 3% in the second quarter and six month periods ended June 30, 2012, respectively, which was partially offset by price inflation of approximately 2%. With white-collar employment a leading indicator for this segment, the overall office products industry continues to experience soft market conditions. Sales for the Electrical/Electronic Materials Group increased 9% and 7% for the three and six month periods ended June 30, 2012, as compared to the same period of the previous year, respectively. Sales volume was down by approximately 2% in the second quarter and six month periods ended June 30, 2012. Price deflation, including the impact of copper pricing decreased sales by approximately 2% for the three and six month periods ended June 30, 2012. However, the decreased sales volume and price deflation were more than offset by acquisitions that contributed approximately 12% and 11% to sales for the three and six month periods of 2012, respectively, as compared to the same periods of the prior year. We expect continued growth for this group over the remainder of the year.

 

9


Cost of Goods Sold/Expenses

Cost of goods sold for the second quarter of 2012 was $2.37 billion, a 4% increase from $2.27 billion for the second quarter of 2011. The increase in cost of goods sold for the second quarter was primarily related to the sales increase for the same period. As a percentage of net sales, cost of goods sold represented 70.9% of net sales for the three month period ended June 30, 2012, as compared to 71.2% for the same period of the prior year. For the six months ended June 30, 2012, cost of goods sold was $4.63 billion, a 5% increase from $4.39 billion for the same period last year, and as a percent of sales decreased to 71.0% compared to 71.4%. Our cost of sales includes the total cost of merchandise sold, including freight expenses associated with moving merchandise from our vendors to our distribution centers and retail stores, vendor income and inventory adjustments. Gross profit as a percentage of net sales may fluctuate based on (i) changes in merchandise costs and related vendor income or vendor pricing, (ii) variations in product and customer mix, (iii) price changes in response to competitive pressures and (iv) physical inventory adjustments.

Total operating expenses of $705.0 million decreased slightly to 21.1% of net sales for the second quarter of 2012 compared to $674.6 million, or 21.2% of sales for the same period of the prior year. For the six months ended June 30, 2012, these expenses totaled $1.40 billion, or 21.4% of sales, an improvement from $1.33 billion, or 21.6% of sales for the same period in the prior year. The decrease in operating expenses as a percentage of net sales for the second quarter ended June 30, 2012 is due to approximately $4 million in cost savings initiatives recognized in the second quarter and $14 million recognized in the six months ended June 30, 2012, as well as the benefit of greater expense leverage associated with our 5% and 6% sales growth for the three and six month periods ended June 30, 2012, respectively. Our operating expenses are substantially comprised of compensation and benefit costs for the Company’s personnel. Other major expense categories include facility occupancy costs for headquarters, distribution center and store operations, insurance costs, accounting, legal and professional services, transportation and delivery costs, travel and advertising. Management’s ongoing cost control measures in these areas have served to improve the Company’s cost structure.

Operating Profit

Operating profit of $291.6 million increased to 8.7% of net sales for the three months ended June 30, 2012, compared to 8.3% for the same period of the previous year. For the six months ended June 30, 2012, operating profit of $539.9 million increased to 8.3% of net sales, compared to $476.0 million or 7.7% of net sales in the same period in 2011. This improvement was driven by the increase in gross margin and decrease in operating expenses as a percentage of net sales for the three and six month periods ended June 30, 2012.

The Automotive Parts Group’s operating profit increased 10% in the second quarter of 2012 and its operating profit margin increased to 9.3% for the three months ended June 30, 2012, compared to 8.8% in the same period of the prior year. For the six months ended June 30, 2012, operating profit increased 13% compared to the same period of the prior year, and the operating profit margin increased to 8.5% compared to 7.9% for the same period last year. For the three and six month periods ended June 30, 2012, operating profit margin for this group improved due to cost savings and improved expense leverage on increased revenues. The Industrial Products Group had an 11% increase in operating profit in the second quarter of 2012 compared to the second quarter of 2011, and the operating profit margin for this group in the second quarter of 2012 increased to 8.3% compared to 8.1% in the same period of the previous year. Operating profit for the Industrial Products Group increased by 19% for the six month period ended June 30, 2012, compared to the same period in 2011, and the operating profit margin increased to 7.9% compared to 7.4% for the same period in 2011. The improved operating profit margin for this group is due to the combination of increased volume incentives, cost savings and greater expense leverage on sales growth. The Office Products Group’s operating profit decreased 2% in the second quarter of 2012 compared to the same three month period in 2011, and the operating profit margin for this group decreased to 7.4% compared to 7.5% in the same period of 2011. For the six months ended June 30, 2012, the Office Products Group’s operating profit decreased 1% compared to the same period of the prior year and the operating profit margin remained unchanged at 8.1% for the same period in 2011. The decrease in operating profit margin for this group is a result of decreased expense leverage on sales in the three and six month periods ended June 30, 2012 that was partially offset by the positive impact of 2% price inflation and ongoing initiatives to reduce costs. The Electrical/Electronic Materials Group increased its operating profit by 41% in the second quarter, and its operating profit margin increased to 8.7% compared to 6.7% in the second quarter of the previous year. Operating profit increased by 29% for the six month period ended June 30, 2012, compared to the same period in 2011, and the operating profit margin increased to 8.4% compared to 7.0% for the same six month period in 2011. The improvement in operating profit and operating profit margin for this group is primarily due to the positive margin impact of decreases in copper pricing, as well as the result of cost savings initiatives for the three and six month periods ended June 30, 2012.

 

10


Income Taxes

The effective income tax rate decreased to 36.9% for the three month period ended June 30, 2012, compared to 37.2% for the same three month period ended June 30, 2011, due to decreased state taxes. The effective income tax rate was 36.5% for the six months ended June 30, 2012, compared to 35.8% for the same period in 2011. The rate increase for the six months ended June 30, 2012 is due to a favorable adjustment recorded in the first three months ended March 31, 2011 associated with the expiration of the statute of limitations related to certain international taxes.

Net Income

Net income for the three months ended June 30, 2012 was $168.6 million, an increase of 11% as compared to $151.8 million for the same three month period of 2011. On a per share diluted basis, net income was $1.08, an increase of 12% as compared to $.96 for the second quarter of last year. Net income for the six months ended June 30, 2012 was $314.9 million, an increase of 13% from $278.3 million recorded in the same period of the previous year. Net income on a per share diluted basis for the six months ended June 30, 2012, was $2.01, up 14% compared to $1.76 for the same six month period in 2011.

Financial Condition

The Company’s cash balance at June 30, 2012 decreased $353.5 million or 67% from December 31, 2011, due to $526.0 million used for acquisitions and other investing activities, $51.4 million invested in the Company via capital expenditures, and $55.0 million for share repurchases; offset by a favorable reduction in working capital.

Accounts receivable increased $144.7 million or 10% from December 31, 2011, which is due to the Company’s overall sales increase and acquisitions. Inventory increased $71.6 million or 3% compared to the inventory balance at December 31, 2011, due to acquisitions. Goodwill and other intangible assets increased $218.5 million or 78% from December 31, 2011, in association with two acquisitions in the six month period ended June 30, 2012. Other assets increased $183.9 million or 68% compared to December 31, 2011, which primarily reflects the Company’s 30% investment in the Exego Group for approximately $165.6 million. Accounts payable increased $158.9 million or 11% from December 31, 2011. This change is primarily due to more favorable payment terms and other payables initiatives negotiated with our vendors in the six months ended June 30, 2012. The Company’s debt is discussed below.

Liquidity and Capital Resources

Total debt is at fixed rates of interest and remains unchanged at $500 million as of June 30, 2012, compared to December 31, 2011. Debt is comprised of two notes of $250 million each, due in November 2013 and November 2016 carrying an interest rate of 4.67% and 3.35%, respectively.

The ratio of current assets to current liabilities was 2.2 to 1 at June 30, 2012, as compared to 2.5 to 1 at December 31, 2011.

The Company currently believes existing lines of credit and cash generated from operations will be sufficient to fund anticipated operations, including share repurchases, if any, for the foreseeable future. The Company maintains a $350 million unsecured revolving line of credit with a consortium of financial institutions, which matures in December 2012 and bears interest at LIBOR plus .30%. The Company entered into a $200 million unsecured credit facility on April 23, 2012 in connection with its acquisition of Quaker City. The new facility matures upon the earlier of September 15, 2012 or the date the Company’s existing $350 million credit facility is refinanced, which expires in December 2012. The new credit facility bears interest at LIBOR plus 0.5%. At June 30, 2012, no amounts were outstanding under either the line of credit or new facility.

 

11


On May 1, 2012 the Company acquired Quaker City for approximately $330 million. The Company funded the acquisition with cash on hand and short-term borrowings under credit facilities.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Although the Company does not face material risks related to interest rates and commodity prices, the Company is exposed to changes in foreign currency rates with respect to foreign currency denominated operating revenues and expenses. The Company has translation gains or losses that result from translation of the results of operations of an operating unit’s foreign functional currency into U.S. dollars for consolidated financial statement purposes. The Company’s principal foreign currency exchange exposure is the Canadian dollar, which is the functional currency of our Canadian operations. As previously noted under “Sales,” foreign currency exchange exposure, particularly in regard to the Canadian dollar and, to a lesser extent, the Mexican peso, negatively impacted our results for the three and six month periods ended June 30, 2012. There have been no other material changes in market risk from the information provided in the Company’s Annual Report on Form10-K for the year ended December 31, 2011.

Item 4. Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or furnishes under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 of the SEC that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

 

12


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information about the Company’s purchases of shares of the Company’s common stock during the quarter:

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period    Total
Number of
Shares
Purchased
(1)
   Average
Price Paid
Per Share
   Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (2)
   Maximum Number of
Shares That May Yet
Be Purchased Under
the Plans or
Programs

April 1, 2012 through

April 30, 2012

   82,531    $63.96    —      13,543,461

May 1, 2012 through

May 31, 2012

   317,001    $61.62    250,000    13,293,461

June 1, 2012 through

June 30, 2012

   709,359    $59.50    664,700    12,628,761

Totals

   1,108,891    $60.43    914,700    12,628,761

 

(1) Includes shares surrendered by employees to the Company to satisfy tax withholding obligations in connection with the vesting of shares of restricted stock, the exercise of stock options and/or tax withholding obligations.
(2) On November 17, 2008, the Board of Directors announced that it had authorized the repurchase of 15 million shares. The authorization for this repurchase plan continues until all such shares have been repurchased or the repurchase plan is terminated by action of the Board of Directors. Approximately 12.6 million shares authorized in the 2008 plan remain available to be repurchased by the Company. There were no other publicly announced plans as of June 30, 2012.

Item 6. Exhibits

(a) The following exhibits are filed or furnished as part of this report:

 

Exhibit  3.1

   Amended and Restated Articles of Incorporation of the Company, dated April 23, 2007 (incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K dated April 23, 2007)

Exhibit  3.2

   Bylaws of the Company, as amended and restated (incorporated herein by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K dated August 20, 2007)

Exhibit 31.1

   Certification pursuant to SEC Rule 13a-14(a) signed by the Chief Executive Officer - filed herewith

Exhibit 31.2

   Certification pursuant to SEC Rule 13a-14(a) signed by the Chief Financial Officer - filed herewith

Exhibit 32.1

   Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by the Chief Executive Officer – furnished herewith

Exhibit 32.2

   Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by the Chief Financial Officer – furnished herewith

 

13


Exhibit 101

 

Interactive data files pursuant to Rule 405 of Regulation S-T:

(i) the Condensed Consolidated Balance Sheets at June 30, 2012 and December 31, 2011; (ii) the Condensed Consolidated Statements of Income and Comprehensive Income for the three month period ended June 30, 2012 and 2011; (iii) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011; and (iv) the Notes to the Condensed Consolidated Financial Statements – submitted herewith pursuant to Rule 406T

 

14


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: August 3, 2012  

/s/ Jerry W. Nix

  Jerry W. Nix
 

Vice Chairman and Chief Financial Officer

(Principal Financial and Accounting Officer)

 

15

XNYS:GPC Genuine Parts Company Quarterly Report 10-Q Filling

Genuine Parts Company XNYS:GPC Stock - Get Quarterly Report SEC Filing of Genuine Parts Company XNYS:GPC stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

Content Partners
XNYS:GPC Genuine Parts Company Quarterly Report 10-Q Filing - 6/30/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Title |  Date |  Company |  Symbol |  Interest |  Popularity

Previous: XNYS:GPC Genuine Parts Company Quarterly Report 10-Q Filing - 3/31/2012  |  Next: XNYS:GPI Group 1 Automotive Inc Insider Activity 4 Filing - 1/3/2012