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 March 31, 2015
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)
|
|
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GEORGIA |
|
58-0254510 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
|
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2999 CIRCLE 75 PARKWAY,
ATLANTA, GA |
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30339 |
(Address of principal executive offices) |
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(Zip Code) |
(770) 953-1700
(Registrants 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.
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Large accelerated filer |
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x |
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Accelerated filer |
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¨ |
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Non-accelerated filer |
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¨ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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¨ |
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 issuers classes of common stock, as of the latest practicable date.
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Class |
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Outstanding at April 30, 2015 |
Common Stock, $1.00 par value per share |
|
152,200,386 Shares |
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31, 2015 |
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December 31, 2014 |
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|
(unaudited) |
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(in thousands, except share
and per share data) |
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ASSETS |
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CURRENT ASSETS: |
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|
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Cash and cash equivalents |
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$ |
166,495 |
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$ |
137,730 |
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Trade accounts receivable, less allowance for doubtful accounts (2015 $14,164; 2014 $11,836) |
|
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1,978,233 |
|
|
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1,872,365 |
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Merchandise inventories, net at lower of cost or market |
|
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3,007,295 |
|
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3,043,848 |
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Prepaid expenses and other current assets |
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482,676 |
|
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538,582 |
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TOTAL CURRENT ASSETS |
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5,634,699 |
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5,592,525 |
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Goodwill |
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818,473 |
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|
839,075 |
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Other intangible assets, less accumulated amortization |
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527,863 |
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547,515 |
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Deferred tax assets |
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144,112 |
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|
145,331 |
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Other assets |
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467,092 |
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451,690 |
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Property, plant and equipment, less allowance for depreciation (2015 $874,989; 2014 $869,083) |
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646,116 |
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670,102 |
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TOTAL ASSETS |
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$ |
8,238,355 |
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$ |
8,246,238 |
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LIABILITIES AND EQUITY |
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CURRENT LIABILITIES: |
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Trade accounts payable |
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$ |
2,608,491 |
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$ |
2,554,759 |
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Current portion of debt |
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|
393,697 |
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|
265,466 |
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Dividends payable |
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|
93,844 |
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|
88,039 |
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Income taxes payable |
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26,479 |
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|
918 |
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Other current liabilities |
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636,850 |
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674,933 |
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TOTAL CURRENT LIABILITIES |
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3,759,361 |
|
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3,584,115 |
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Long-term debt |
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500,000 |
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500,000 |
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Pension and other postretirement benefit liabilities |
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275,470 |
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329,531 |
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Deferred tax liabilities |
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67,672 |
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72,479 |
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Other long-term liabilities |
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444,810 |
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447,749 |
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EQUITY: |
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Preferred stock, par value $1 per share |
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Authorized 10,000,000 shares None issued |
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-0- |
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-0- |
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Common stock, par value $1 per share |
|
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|
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Authorized 450,000,000 shares Issued 2015 152,325,073; 2014 153,113,042 |
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152,325 |
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153,113 |
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Additional paid-in capital |
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29,579 |
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26,414 |
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Retained earnings |
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3,825,716 |
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3,841,932 |
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Accumulated other comprehensive loss |
|
|
(827,682 |
) |
|
|
(720,211 |
) |
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|
|
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TOTAL PARENT EQUITY |
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3,179,938 |
|
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3,301,248 |
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Noncontrolling interests in subsidiaries |
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11,104 |
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11,116 |
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TOTAL EQUITY |
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3,191,042 |
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3,312,364 |
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TOTAL LIABILITIES AND EQUITY |
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$ |
8,238,355 |
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$ |
8,246,238 |
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See notes to condensed consolidated financial statements.
2
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
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Three Months Ended March 31, |
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2015 |
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2014 |
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|
(unaudited)
(in thousands, except per share data) |
|
Net sales |
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$ |
3,736,051 |
|
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$ |
3,624,897 |
|
Cost of goods sold |
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2,623,232 |
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2,540,267 |
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Gross profit |
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1,112,819 |
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1,084,630 |
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Operating expenses: |
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Selling, administrative, and other expenses |
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825,554 |
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803,802 |
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Depreciation and amortization |
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35,884 |
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36,856 |
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861,438 |
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840,658 |
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Income before income taxes |
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251,381 |
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243,972 |
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Income taxes |
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90,371 |
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86,488 |
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Net income |
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$ |
161,010 |
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$ |
157,484 |
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Basic net income per common share |
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$ |
1.05 |
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$ |
1.02 |
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Diluted net income per common share |
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$ |
1.05 |
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$ |
1.02 |
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Dividends declared per common share |
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$ |
.615 |
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$ |
.575 |
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Weighted average common shares outstanding |
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152,656 |
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153,729 |
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Dilutive effect of stock options and non-vested restricted stock awards |
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|
918 |
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1,067 |
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Weighted average common shares outstanding assuming dilution |
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153,574 |
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154,796 |
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Comprehensive income |
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$ |
53,539 |
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$ |
161,377 |
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|
|
|
|
|
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See notes to condensed consolidated financial statements.
3
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months
Ended March 31, |
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2015 |
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2014 |
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(unaudited) |
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|
(in thousands) |
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OPERATING ACTIVITIES: |
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Net income |
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$ |
161,010 |
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|
$ |
157,484 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
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|
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Depreciation and amortization |
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35,884 |
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|
36,856 |
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Share-based compensation |
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|
3,316 |
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|
3,073 |
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Excess tax benefits from share-based compensation |
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|
(3,734 |
) |
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|
(4,106 |
) |
Changes in operating assets and liabilities |
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(73,964 |
) |
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(133,528 |
) |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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122,512 |
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|
59,779 |
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INVESTING ACTIVITIES: |
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Purchases of property, plant and equipment |
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(16,427 |
) |
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|
(18,387 |
) |
Acquisitions and other investing activities |
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(30,129 |
) |
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(156,853 |
) |
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NET CASH USED IN INVESTING ACTIVITIES |
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(46,556 |
) |
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(175,240 |
) |
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FINANCING ACTIVITIES: |
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Proceeds from debt |
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779,910 |
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|
740,012 |
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Payments on debt |
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(650,000 |
) |
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(610,604 |
) |
Share-based awards exercised, net of taxes paid |
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|
(3,804 |
) |
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|
(4,736 |
) |
Excess tax benefits from share-based compensation |
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|
3,734 |
|
|
|
4,106 |
|
Dividends paid |
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|
(88,039 |
) |
|
|
(82,750 |
) |
Purchases of stock |
|
|
(84,252 |
) |
|
|
(22,709 |
) |
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|
|
|
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
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|
(42,451 |
) |
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|
23,319 |
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EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
|
(4,740 |
) |
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(1,279 |
) |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
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|
28,765 |
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|
|
(93,421 |
) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
137,730 |
|
|
|
196,893 |
|
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|
|
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
166,495 |
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|
$ |
103,472 |
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|
|
|
|
|
|
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|
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, 2014. Accordingly, the unaudited interim condensed
consolidated financial statements and related disclosures herein should be read in conjunction with the Companys 2014 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 condensed consolidated financial statements for inventory adjustments, the accrual of bad debts, customer sales returns, 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 is performed each year-end. Reserves for bad debts and customer sales returns are estimated and accrued on an interim basis based upon historical experience. 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 Companys financial results for the interim periods have been
made. These adjustments are of a normal recurring nature. The results of operations for the three month period ended March 31, 2015 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
|
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Three Months Ended March 31, |
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2015 |
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|
2014 |
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|
(in thousands) |
|
Net sales: |
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|
|
|
|
|
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|
Automotive |
|
$ |
1,898,508 |
|
|
$ |
1,898,515 |
|
Industrial |
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|
1,181,823 |
|
|
|
1,143,274 |
|
Office products |
|
|
490,298 |
|
|
|
418,098 |
|
Electrical/electronic materials |
|
|
182,046 |
|
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|
180,331 |
|
Other |
|
|
(16,624 |
) |
|
|
(15,321 |
) |
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Total net sales |
|
$ |
3,736,051 |
|
|
$ |
3,624,897 |
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|
|
|
|
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|
|
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Operating profit: |
|
|
|
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|
|
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Automotive |
|
$ |
150,641 |
|
|
$ |
150,110 |
|
Industrial |
|
|
87,769 |
|
|
|
83,050 |
|
Office products |
|
|
36,524 |
|
|
|
33,946 |
|
Electrical/electronic materials |
|
|
15,463 |
|
|
|
15,529 |
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|
|
|
|
|
|
|
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Total operating profit |
|
|
290,397 |
|
|
|
282,635 |
|
Interest expense, net |
|
|
(5,327 |
) |
|
|
(6,206 |
) |
Other intangible assets amortization |
|
|
(8,604 |
) |
|
|
(8,876 |
) |
Other, net |
|
|
(25,085 |
) |
|
|
(23,581 |
) |
|
|
|
|
|
|
|
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Income before income taxes |
|
$ |
251,381 |
|
|
$ |
243,972 |
|
|
|
|
|
|
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|
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 Companys condensed consolidated statements of income and comprehensive income.
5
Note C Other Comprehensive Income
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.
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|
|
|
|
|
|
|
Three Months Ended March 31, |
|
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|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
Net income |
|
$ |
161,010 |
|
|
$ |
157,484 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
(113,309 |
) |
|
|
102 |
|
Pension and other post-retirement benefit adjustments: |
|
|
|
|
|
|
|
|
Recognition of prior service credit, net of tax |
|
|
(240 |
) |
|
|
(487 |
) |
Recognition of actuarial loss, net of tax |
|
|
6,078 |
|
|
|
4,278 |
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income |
|
|
(107,471 |
) |
|
|
3,893 |
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
53,539 |
|
|
$ |
161,377 |
|
|
|
|
|
|
|
|
|
|
The following tables present the changes in accumulated other comprehensive loss by component for the three months ended
March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
|
Changes in Accumulated Other Comprehensive Loss by Component |
|
|
|
Pension and Other Post- Retirement Benefits |
|
|
Foreign Currency Translation |
|
|
Total |
|
|
|
(in thousands) |
|
Beginning balance, January 1 |
|
$ |
(533,213 |
) |
|
$ |
(186,998 |
) |
|
$ |
(720,211 |
) |
Other comprehensive loss before reclassifications, net of tax |
|
|
|
|
|
|
(113,309 |
) |
|
|
(113,309 |
) |
Amounts reclassified from accumulated other comprehensive loss, net of tax |
|
|
5,838 |
|
|
|
|
|
|
|
5,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss) |
|
|
5,838 |
|
|
|
(113,309 |
) |
|
|
(107,471 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, March 31 |
|
$ |
(527,375 |
) |
|
$ |
(300,307 |
) |
|
$ |
(827,682 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
2014 |
|
|
|
Changes in Accumulated Other Comprehensive Loss by Component |
|
|
|
Pension and Other Post- Retirement Benefits |
|
|
Foreign Currency Translation |
|
|
Total |
|
|
|
(in thousands) |
|
Beginning balance, January 1 |
|
$ |
(360,036 |
) |
|
$ |
(37,619 |
) |
|
$ |
(397,655 |
) |
Other comprehensive income before reclassifications, net of tax |
|
|
|
|
|
|
102 |
|
|
|
102 |
|
Amounts reclassified from accumulated other comprehensive loss, net of tax |
|
|
3,791 |
|
|
|
|
|
|
|
3,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss) |
|
|
3,791 |
|
|
|
102 |
|
|
|
3,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, March 31 |
|
$ |
(356,245 |
) |
|
$ |
(37,517 |
) |
|
$ |
(393,762 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated other comprehensive loss components related to the pension benefits are included in the computation of net
periodic benefit income in the employee benefit plans footnote.
Note D Recently Issued Accounting Pronouncements
In February 2015, the Financial Accounting Standards Board issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation
Analysis (ASU 2015-02). ASU 2015-02 amends the consolidation requirements and significantly changes the consolidation analysis required. ASU 2015-02 requires management to reevaluate all legal entities under a revised consolidation
model to specifically (i) modify the evaluation of whether limited partnership and similar legal entities are variable interest entities (VIEs), (ii) eliminate the presumption that a general partner should consolidate a limited
partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation
guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Act of 1940 for registered money market funds. ASU
2015-02 will be effective for fiscal years beginning after December 15, 2016 and for interim periods within fiscal years beginning after December 15, 2017. The adoption of ASU 2015-02 is not expected to have a material effect on the
Companys condensed consolidated financial statements.
Note E Share-Based Compensation
As more fully discussed in Note 5 of the Companys notes to the consolidated financial statements in its 2014 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 Companys 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 Companys 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 March 31, 2015, total compensation cost related to nonvested awards not yet recognized was
approximately $23.3 million, as compared to $28.8 million at December 31, 2014. The weighted-average period over which this compensation cost is expected to be recognized is approximately three years. The aggregate intrinsic value for SARs and
RSUs outstanding at March 31, 2015 was approximately $132.6 million. At March 31, 2015, the aggregate intrinsic value for SARs and RSUs vested totaled approximately $77.5 million, and the weighted-average contractual life for outstanding
and exercisable SARs and RSUs was approximately six and five years, respectively. For the three months ended March 31, 2015, $3.3 million of share-based compensation cost was recorded, as compared to $3.1 million for the same period in the
prior year. On April 1, 2015, the Company granted approximately 711,000 SARs and 176,000 RSUs.
7
Options to purchase approximately 0.6 million shares of common stock were outstanding but excluded from the
computation of diluted earnings per share for the three month period ended March 31, 2015. 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. There were no outstanding options to purchase shares of common stock that were excluded from the computation of diluted earnings per share for the three month period ended March 31, 2014.
Note F Employee Benefit Plans
Net periodic benefit income for the pension plans included the following components for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
Service cost |
|
$ |
2,387 |
|
|
$ |
1,909 |
|
Interest cost |
|
|
24,612 |
|
|
|
25,502 |
|
Expected return on plan assets |
|
|
(37,647 |
) |
|
|
(36,197 |
) |
Amortization of prior service credit |
|
|
(141 |
) |
|
|
(464 |
) |
Amortization of actuarial loss |
|
|
9,613 |
|
|
|
6,595 |
|
|
|
|
|
|
|
|
|
|
Net periodic benefit income |
|
$ |
(1,176 |
) |
|
$ |
(2,655 |
) |
|
|
|
|
|
|
|
|
|
Pension benefits also include amounts related to a supplemental retirement plan. During the three months ended March 31,
2015, the Company made a $38.7 million 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 controlling financial interests through
ownership of a majority voting interest in the independents. The Company has no voting interest or equity conversion rights in any of the independents. The Company does not control the independents or the affiliates, but receives a fee for the
guarantees. 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 entities 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 Companys maximum exposure to loss as a result of its involvement with these independents and
affiliates is generally equal to the total borrowings subject to the Companys guarantees. 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 March 31, 2015, the Company was in compliance with all such covenants.
At March 31, 2015, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately $293.9 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.
As of March 31, 2015, the Company has recognized certain assets and liabilities amounting to $31.0 million each for the guarantees related to the
independents and affiliates borrowings. These assets and liabilities are included in other assets and other long-term liabilities in the 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, trade
accounts payable, and borrowings under the line of credit approximate their respective fair values based on the short-term nature of these instruments. At March 31, 2015, the carrying value and the fair value of fixed rate debt were
approximately $500.0 million and $507.5 million, respectively. 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. The carrying value of the fixed rate debt is included in Long-term debt in the accompanying condensed consolidated balance sheets.
8
Item 2. Managements 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 Managements 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, 2014.
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,
the Companys ability to successfully implement its business initiatives in each of its four business segments, slowing demand for the Companys 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 Companys ability to successfully integrate its acquired businesses, the uncertainties and costs of litigation, disruptions caused by a failure or breach of the Companys information systems, as well as other risks
and uncertainties discussed in the Companys Annual Report on Form 10-K for 2014 and from time to time in the Companys 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 reports on 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 three months ended March 31, 2015, business was conducted throughout the United States, Canada, Australia, New Zealand, Mexico and Puerto Rico from approximately 2,600 locations.
For the three months ended March 31, 2015, the Company recorded consolidated net income of $161.0 million compared to consolidated net income of
$157.5 million, an increase of 2% from the same three month period in the prior year.
The Company continues to focus on a variety of initiatives to
facilitate continued growth including strategic acquisitions, the introduction of new and expanded product lines, geographic expansion, sales to new markets, enhanced customer marketing programs and a variety of gross margin and cost savings
initiatives.
Sales
Sales for the three months ended
March 31, 2015 were $3.74 billion, an increase of 3% compared to $3.62 billion for the same period in the previous year.
9
Sales for the Automotive Parts Group remained flat for the three months ended March 31, 2015 as compared to
the same period in the previous year. This groups revenues for the three months ended March 31, 2015 consisted of approximately 3% organic sales growth and a less than 1% increase from acquisitions, offset by a negative foreign currency
impact of approximately 4% associated with the sales from our businesses located throughout Australia, Canada and Mexico. In the quarters ahead, we anticipate continued underlying sales growth in the Automotive Parts Group due primarily to the
Companys initiatives to drive organic growth.
The Industrial Products Groups sales increased by 3% for the three month period ended
March 31, 2015 as compared to the same period in 2014. The sales increase for the three month period ended March 31, 2015 reflects an approximate 1% accretive impact from the Companys acquisitions and organic sales growth of 3%,
offset by a negative 1% foreign currency impact. The Industrial Products Group experienced moderating demand patterns in the three months ended March 31, 2015. However, we expect the current industry conditions, as well as internal sales
initiatives and acquisitions, to support continued revenue growth for this group in the quarters ahead.
Sales for the Office Products Group increased 17%
for the three months ended March 31, 2015, as compared to the same period in 2014. The increase in this groups revenues for the quarter ended March 31, 2015 reflects an approximate 6% accretive impact of acquisitions and 11% organic
sales growth. We expect internal sales initiatives and acquisitions to support revenue growth for this group in the quarters ahead despite the industry-wide slowdown in office product consumption.
Sales for the Electrical/Electronic Materials Group increased 1% for the three months ended March 31, 2015 as compared to the same period in 2014. The
increase in this groups revenues for the quarter ended March 31, 2015 reflects an approximate 6% accretive impact of the Companys acquisitions, net of a 4% decrease in organic sales and a 1% negative impact of copper pricing. Our
focused growth initiatives should enable this group to report gradual organic revenue improvement and moderate revenue increases from their recently completed acquisitions in the quarters ahead.
Industry pricing was basically flat in each of the Automotive, Industrial Products and ElectricalElectronic Materials segments and increased by approximately
1% in the Office Products segment for the three month period ended March 31, 2015.
Cost of Goods Sold/Expenses
Cost of goods sold for the first quarter of 2015 was $2.62 billion, a 3% increase from $2.54 billion for the first quarter of 2014. As a percentage of net
sales, cost of goods sold increased to 70.2% of net sales for the three month period ended March 31, 2015, as compared to 70.1% for the same period of the prior year. The increase in cost of goods sold for the three month period ended
March 31, 2015 primarily relates to the sales increase for this period as compared to the same three month period of the prior year. The Companys cost of goods sold 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 and LIFO adjustments.
Total operating expenses of $861.4 million decreased to 23.1% of net sales for the first quarter of 2015 compared to $840.7 million, or 23.2% of sales for the
same period of the prior year. We continue to focus on effectively managing the costs in our business with ongoing investments in technology and supply chain initiatives primarily associated with freight and logistics.
The Companys operating expenses are substantially comprised of compensation and benefit related costs for 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. Managements ongoing cost
control measures in these areas have served to improve the Companys overall cost structure.
Operating Profit
Operating profit increased to $290.4 million for the three months ended March 31, 2015, compared to $282.6 million for the same three month period of the
prior year, and as a percentage of net sales, remained unchanged at 7.8%. The increase in operating profit for the three month period ended March 31, 2015 is relatively consistent with the change in sales.
10
The Automotive Parts Groups operating profit increased marginally in the first quarter of 2015 and its
operating profit margin remained unchanged at 7.9%, as compared to the same three month period of the prior year. The Industrial Products Groups operating profit increased 6% in the first quarter of 2015 compared to the same three month period
of 2014, and the operating profit margin for this group increased to 7.4% compared to 7.3% for the same period of the previous year. The Office Products Groups operating profit increased 8% in the first quarter of 2015 compared to the same
three month period in 2014, and the operating profit margin for this group decreased to 7.4% compared to 8.1% for the same three month period of 2014, primarily due to the impact of changes in customer mix. The Electrical/Electronic Materials Group
reported a slight decrease in operating profit in the first quarter, and its operating profit margin decreased to 8.5% compared to 8.6% in the same three month period ended March 31, 2014.
Income Taxes
The effective income tax rate increased to
35.9% for the three month period ended March 31, 2015, compared to 35.5% for the same period in 2014. The rate increase in the three month period ended March 31, 2015 reflects the higher mix of U.S. earnings, taxed at a higher rate
relative to our foreign operations, and the less favorable non-taxable retirement plan valuation relative to the same three month period ended March 31, 2014.
Net Income
Net income for the three months ended
March 31, 2015 was $161.0 million, an increase of 2%, as compared to $157.5 million for the same three month period of 2014. On a per share diluted basis, net income was $1.05, an increase of 3% as compared to $1.02 for the first quarter of
2014.
Financial Condition
The Companys cash
balance of $166.5 million at March 31, 2015 increased $28.8 million or 21% from December 31, 2014. For the three months ended March 31, 2015, the Company has used $30.1 million for acquisitions and other investing activities, $88.0
million for dividends paid to the Companys shareholders, $16.4 million for investments in the Company via capital expenditures and $84.3 million for share repurchases. These items were more than offset by the Companys earnings and net
proceeds from debt.
Accounts receivable increased $105.9 million or 6% from December 31, 2014, which is due to the Companys overall sales
increase and acquisitions. Inventory decreased $36.6 million or 1% compared to the inventory balance at December 31, 2014, as inventory from acquisitions was marginally offset by planned inventory reductions. Accounts payable increased $53.7
million or 2% from December 31, 2014, primarily due to acquisitions and more favorable payment terms negotiated with our vendors in the three month period ended March 31, 2015. The Companys debt is discussed below.
Liquidity and Capital Resources
Total debt increased
$128.2 million, or 17%, from December 31, 2014, due to incremental borrowings under the Companys $850 million unsecured revolving line of credit primarily related to the Companys acquisitions and share repurchases. The line of
credit matures in September 2017 and bears interest at LIBOR plus various margins, which are based on the Companys leverage ratio. At March 31, 2015, $393.7 million was outstanding under the line of credit.
The remaining debt outstanding is at fixed rates of interest and remains unchanged at $500.0 million as of March 31, 2015, compared to December 31,
2014. The fixed rate debt is comprised of two notes of $250.0 million each, due in November 2016 and December 2023, carrying an interest rate of 3.35% and 2.99%, respectively. At March 31, 2015, the Company was in compliance with all covenants
connected with these borrowings.
The ratio of current assets to current liabilities was 1.5 to 1 at March 31, 2015, as compared to 1.6 to 1 at
December 31, 2014.
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.
11
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 units foreign functional currency into U.S.
dollars for consolidated financial statement purposes. The Companys principal foreign currency exchange exposures are the Australian dollar, Canadian dollar and Mexican peso, which are the functional currencies of our Australia, Canada and
Mexico operations, respectively. As previously noted under Sales, foreign currency exchange exposure, particularly in regard to the Australian dollar and Canadian dollar, negatively impacted our results for the three month period ended
March 31, 2015. There have been no other material changes in market risk from the information provided in the Companys 2014 Annual Report on Form10-K.
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 Companys management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of
the Companys disclosure controls and procedures. Based on that evaluation, the Companys CEO and CFO concluded that the Companys 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 SECs rules and forms and that such information is accumulated and communicated to the Companys management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in the Companys 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 Companys last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys 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 2014 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2014 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
12
The following table provides information about the Companys purchases of shares of the Companys
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 |
|
January 1, 2015 through
January 31, 2015 |
|
|
541,023 |
|
|
$ |
100.27 |
|
|
|
460,272 |
|
|
|
9,073,251 |
|
|
|
|
|
|
February 1, 2015 through
February 28, 2015 |
|
|
125,081 |
|
|
$ |
95.92 |
|
|
|
80,210 |
|
|
|
8,993,041 |
|
|
|
|
|
|
March 1, 2015 through
March 31, 2015 |
|
|
351,508 |
|
|
$ |
93.75 |
|
|
|
329,500 |
|
|
|
8,663,541 |
|
|
|
|
|
|
Totals |
|
|
1,017,612 |
|
|
$ |
97.48 |
|
|
|
869,982 |
|
|
|
8,663,541 |
|
(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 8.7 million shares authorized in the 2008 plan remain available to be repurchased by the Company. There were no other publicly announced plans
as of March 31, 2015. |
13
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 Companys Current Report on Form 8-K dated April 23, 2007) |
|
|
Exhibit 3.2 |
|
By-Laws of the Company, as amended and restated November 18, 2013 (incorporated herein by reference from Exhibit 3.2 to the Companys Current Report on Form 8-K dated November 18, 2013) |
|
|
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 |
|
|
Exhibit 101 |
|
Interactive data files pursuant to Rule 405 of Regulation S-T: |
|
|
(i) the Condensed Consolidated Balance Sheets at March 31, 2015 and December 31, 2014; (ii) the Condensed Consolidated Statements of Income and Comprehensive Income for the three month periods ended March 31, 2015 and 2014; (iii)
the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014; and (iv) the Notes to the Condensed Consolidated Financial Statements |
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: May 7, 2015 |
|
|
|
|
|
/s/ Carol B. Yancey |
|
|
|
|
|
|
Carol B. Yancey |
|
|
|
|
|
|
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial and Accounting Officer) |
15
EXHIBIT 31.1
CERTIFICATIONS
I, Thomas C. Gallagher, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Genuine Parts Company; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 7, 2015
|
/s/ Thomas C. Gallagher |
Thomas C. Gallagher Chairman and Chief
Executive Officer |
EXHIBIT 31.2
CERTIFICATIONS
I, Carol B. Yancey, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Genuine Parts Company; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 7, 2015
|
/s/ Carol B. Yancey |
Carol B. Yancey Executive Vice President and
Chief Financial Officer |
EXHIBIT 32.1
STATEMENT OF CHIEF EXECUTIVE OFFICER OF
GENUINE PARTS COMPANY
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
§ 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Genuine Parts Company (the Company) on Form 10-Q for the quarter ended March 31,
2015 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Thomas C. Gallagher, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
|
1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
/s/ Thomas C. Gallagher |
Thomas C. Gallagher Chairman and Chief
Executive Officer May 7, 2015 |
EXHIBIT 32.2
STATEMENT OF CHIEF FINANCIAL OFFICER OF
GENUINE PARTS COMPANY
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
§ 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Genuine Parts Company (the Company) on Form 10-Q for the quarter ended March 31,
2015 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Carol B. Yancey, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
|
1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
/s/ Carol B. Yancey |
Carol B. Yancey
Executive Vice President and Chief Financial Officer
May 7, 2015 |
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