GENUINE PARTS CO
ITEM 1. BUSINESS.
Genuine Parts Company, a Georgia corporation incorporated on May 7, 1928, is a service organization engaged in the distribution of automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials through our four operating segments, each described in more detail below. In 2011, business was conducted throughout the United States, in Canada and in Mexico from approximately 1,900 locations. As of December 31, 2011, the Company employed approximately 29,800 persons.
As used in this report, the “Company” refers to Genuine Parts Company and its subsidiaries, except as otherwise indicated by the context; and the terms “automotive parts” and “industrial parts” refer to replacement parts in each respective category.
Financial Information about Segments. For financial information regarding segments as well as our geographic areas of operation, refer to Note 11 of Notes to Consolidated Financial Statements beginning on page.
Available Information. The Company’s internet website can be found at www.genpt.com. The Company makes available, free of charge through its internet website, access to the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other reports, and any amendments to these documents, as soon as reasonably practicable after such material is filed with or furnished to the Securities and Exchange Commission (“SEC”). Additionally, our corporate governance guidelines, codes of conduct and ethics, and charters of the Audit Committee and the Compensation, Nominating and Governance Committee of our Board of Directors, as well as information regarding our director nominating process and our procedure for shareholders and other interested parties to communicate with our Board of Directors, are available on our website.
In Part III of this Form 10-K, we incorporate certain information by reference to our proxy statement for our 2012 annual meeting of shareholders. We expect to file that proxy statement with the SEC on or about February 27, 2012, and we will make it available online at the same time at http://www.proxydocs.com/gpc. Please refer to the proxy statement for the information incorporated by reference into Part III of this From 10-K when it is available.
AUTOMOTIVE PARTS GROUP
The Automotive Parts Group, the largest division of the Company, distributes automotive parts and accessory items. The Company is the largest member, with approximately 95% ownership, of the National Automotive Parts Association (“NAPA”), a voluntary trade association formed in 1925 to provide nationwide distribution of automotive parts. In addition to over 435,000 available part numbers, the Company, in conjunction with NAPA, offers complete inventory, cataloging, marketing, training and other programs in the automotive aftermarket.
During 2011, the Company’s Automotive Parts Group included NAPA automotive parts distribution centers and automotive parts stores (“auto parts stores” or “NAPA AUTO PARTS stores”) owned and operated in the United States by the Company; NAPA and Traction automotive parts distribution centers and auto parts stores in the United States and Canada owned and operated by the Company and NAPA Canada/UAP Inc. (“NAPA Canada/UAP”), a wholly-owned subsidiary of the Company; auto parts stores and distribution centers in the United States operated by corporations in which the Company owned either a noncontrolling or controlling interest; auto parts stores in Canada operated by corporations in which UAP owns a 50% interest; import automotive parts distribution centers in the United States owned by the Company and operated by its Altrom America division; import automotive parts distribution centers in Canada owned and operated by Altrom Canada Corporation (“Altrom Canada”), a wholly-owned subsidiary of the Company; distribution centers in the United States owned by Balkamp, Inc. (“Balkamp”), a wholly-owned subsidiary of the Company; distribution facilities in the United States owned by the Company and operated by its Rayloc division; and automotive parts distribution centers and automotive parts stores in Mexico, owned and operated by Grupo Auto Todo, S.A. de C.V. (“Auto Todo”), a wholly-owned subsidiary of the Company.
The Company has a 15% interest in Mitchell Repair Information (“MRIC”), a subsidiary of Snap-on Incorporated. MRIC is a leading automotive diagnostic and repair information company with over 40,000 North American subscribers linked to its services and information databases. MRIC’s core product, “Mitchell ON-DEMAND”, is a premier electronic repair information source in the automotive aftermarket.
Effective January 1, 2012, the Company purchased a 30% investment in the Exego Group (“Exego”) for approximately $150 million (US$) in cash. Exego, headquartered in Melbourne, Australia, is a leading aftermarket distributor of automotive parts and accessories in Australasia with annual revenues of approximately $1 billion (US$) and a company-owned store footprint of more than 430 locations across Australia and New Zealand. In accordance with the purchase agreement, the Company has the option to acquire the remaining 70% interest in Exego if Exego meets certain earnings thresholds, which the Company believes will occur within a two to three year timeframe; 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. As a 30% stakeholder, the Company’s return on its investment will be accounted for as noncontrolling investment income.
The Company’s NAPA automotive parts distribution centers distribute replacement parts (other than body parts) for substantially all motor vehicle makes and models in service in the United States, including imported vehicles, trucks, SUVs, buses, motorcycles, recreational vehicles and farm vehicles. In addition, the Company distributes replacement parts for small engines, farm equipment and heavy duty equipment. The Company’s inventories also include accessory items for such vehicles and equipment, and supply items used by a wide variety of customers in the automotive aftermarket, such as repair shops, service stations, fleet operators, automobile and truck dealers, leasing companies, bus and truck lines, mass merchandisers, farms, industrial concerns and individuals who perform their own maintenance and parts installation. Although the Company’s domestic automotive operations purchase from approximately 100 different suppliers, approximately 51% of 2011 automotive parts inventories were purchased from 10 major suppliers. Since 1931, the Company has had return privileges with most of its suppliers, which have protected the Company from inventory obsolescence.
Distribution System. In 2011, the Company operated 58 domestic NAPA automotive parts distribution centers located in 39 states and approximately 950 domestic company-owned NAPA AUTO PARTS stores located in 42 states. At December 31, 2011, the Company owned either a noncontrolling or controlling interest in four corporations, which operated approximately 47 auto parts stores in four states.
NAPA Canada/UAP, founded in 1926, is a Canadian leader in the distribution and marketing of replacement parts and accessories for automobiles and trucks. NAPA Canada/UAP employs approximately 3,500 people and operates a network of 12 distribution centers supplying approximately 596 NAPA stores and 97 Traction wholesalers. Traction is a supplier of parts to small and large fleet owners and operators and, together with NAPA stores, is a significant supplier to the mining and forestry industries. The NAPA stores and Traction wholesalers in Canada include approximately 184 company owned stores, 32 joint venture or progressive owners in which NAPA Canada/UAP owns a 50% interest and approximately 477 independently owned stores. NAPA and Traction operations supply bannered installers and independent installers in all provinces of Canada, as well as networks of service station and repair shops operating under the banners of national accounts. UAP is a licensee of the NAPA® name in Canada.
In Canada, Altrom Canada operates 15 import automotive parts distribution centers. In the United States, Altrom America operates two import automotive parts distribution centers.
In Mexico, Auto Todo owns and operates 11 distribution centers, four auto parts stores and four tire centers. Auto Todo is a licensee of the NAPA® name in Mexico.
The Company’s domestic distribution centers serve approximately 4,750 independently owned NAPA AUTO PARTS stores located throughout the United States. NAPA AUTO PARTS stores, in turn, sell to a wide variety of customers in the automotive aftermarket. Collectively, these independent automotive parts stores account for approximately 66% of the Company’s total U.S. Automotive sales and 27% of the Company’s total sales, with no automotive parts store or group of automotive parts stores with individual or common ownership accounting for more than 0.25% of the total sales of the Company.
Products. Distribution centers have access to over 435,000 different parts and related supply items. Each item is cataloged and numbered for identification and accessibility. Significant inventories are carried to provide for fast and frequent deliveries to customers. Most orders are filled and shipped the same day as they are received. The majority of sales are paid from statements with varied terms and conditions. The Company does not manufacture any of the products it distributes. The majority of products are distributed under the NAPA® name, a mark licensed to the Company by NAPA, which is important to the sales and marketing of these products. Traction sales also include products distributed under the HD Plus name, a proprietary line of automotive parts for the heavy duty truck market.
Related Operations. Balkamp, a wholly-owned subsidiary of the Company, distributes a wide variety of replacement parts and accessory items for passenger cars, heavy-duty vehicles, motorcycles and farm equipment. In addition, Balkamp distributes service items such as testing equipment, lubricating equipment, gauges, cleaning supplies, chemicals and supply items used by repair shops, fleets, farms and institutions. Balkamp packages many of the 58,000 products, which constitute the “Balkamp” line of products that are distributed to the members of NAPA. These products are categorized into over 250 different product groups purchased from approximately 600 domestic suppliers and 100 foreign manufacturers. Balkamp has two distribution centers located in Plainfield, Indiana, and West Jordan, Utah. In addition, Balkamp operates two redistribution centers that provide NAPA with over 1,000 SKUs of oils, chemicals and procurement items. BALKAMP®, a federally registered trademark, is important to the sales and marketing promotions of the Balkamp organization.
The Company, through its Rayloc division, operates four facilities where certain small automotive parts are distributed to the members of NAPA under the NAPA® brand name. Rayloc® is a mark licensed to the Company by NAPA.
The Company’s Heavy Vehicle Parts Group operates as TW Distribution, with one warehouse location in Atlanta, Georgia, which serves 23 Traction Heavy Duty parts stores in the United States, of which 15 are company-owned and eight are independently owned. This group distributes heavy vehicle parts through the NAPA system and direct to small fleet owners and operators.
Segment Data. In the year ended December 31, 2011, sales from the Automotive Parts Group were approximately 49% of the Company’s net sales, as compared to 50% in 2010 and 52% in 2009. For additional segment information, see Note 11 of Notes to Consolidated Financial Statements beginning on page.
Service to NAPA AUTO PARTS Stores. The Company believes that the quality and the range of services provided to its automotive parts customers constitute a significant advantage for its automotive parts distribution system. Such services include fast and frequent delivery, parts cataloging (including the use of electronic NAPA AUTO PARTS catalogs) and stock adjustment through a continuing parts classification system which, as initiated by the Company from time to time, allows independent retailers (“jobbers”) to return certain merchandise on a scheduled basis. The Company offers its NAPA AUTO PARTS store customers various management aids, marketing aids and service on topics such as inventory control, cost analysis, accounting procedures, group insurance and retirement benefit plans, as well as marketing conferences and seminars, sales and advertising manuals and training programs. Point of sale/inventory management is available through TAMS® (Total Automotive Management Systems), a computer system designed and developed by the Company for the NAPA AUTO PARTS stores.
In association with NAPA, the Company has developed and refined an inventory classification system to determine optimum distribution center and auto parts store inventory levels for automotive parts stocking based on automotive registrations, usage rates, production statistics, technological advances and other similar factors. This system, which undergoes continuous analytical review, is an integral part of the Company’s inventory control procedures and comprises an important feature of the inventory management services that the Company makes available to its NAPA AUTO PARTS store customers. Over the last 20 years, losses to the Company from obsolescence have been insignificant and the Company attributes this to the successful operation of its classification system, which involves product return privileges with most of its suppliers.
Competition. The automotive parts distribution business is highly competitive. The Company competes with automobile manufacturers (some of which sell replacement parts for vehicles built by other manufacturers
as well as those that they build themselves), automobile dealers, warehouse clubs and large automotive parts retail chains. In addition, the Company competes with the distributing outlets of parts manufacturers, oil companies, mass merchandisers, including national retail chains, and with other parts distributors and retailers. The Automotive Parts Group competes primarily on product offering, service, brand recognition and price. Further information regarding competition in the industry is set forth in “
ITEM 1A. RISK FACTORS.
FORWARD-LOOKING STATEMENTS
Some statements in this report, as well as in other materials we file with the 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 in our forward-looking statements as a result of various important factors. Such factors include, but are not limited to, those discussed below.
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-Q, Form 8-K and other reports to the SEC.
Set forth below are the material risks and uncertainties that, if they were to occur, could materially and adversely affect our business or could cause our actual results to differ materially from the results contemplated by the forward-looking statements in this report and in the other public statements we make. Please be aware that these risks may change over time and other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our business, financial condition, results of operations or the trading price of our securities.
Our business will be adversely affected if demand for our products slows.
Our business depends on customer demand for the products that we distribute. Demand for these products depends on many factors.
With respect to our automotive group, the primary factors are:
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the number of miles vehicles are driven annually, as higher vehicle mileage increases the need for maintenance and repair;
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the quality of the vehicles manufactured by the original vehicle manufacturers and the length of the warranty or maintenance offered on new vehicles;
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the number of vehicles in current service that are six years old and older, as these vehicles are typically no longer under the original vehicle manufacturers’ warranty and will need more maintenance and repair than newer vehicles;
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gas prices, as increases in gas prices may deter consumers from using their vehicles;
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changes in travel patterns, which may cause consumers to rely more on other transportation;
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restrictions on access to diagnostic tools and repair information imposed by the original vehicle manufacturers or by governmental regulation, as consumers may be forced to have all diagnostic work, repairs and maintenance performed by the vehicle manufacturers’ dealer networks; and
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the economy generally, which in declining conditions may cause consumers to defer vehicle maintenance and repair and defer discretionary spending.
With respect to our industrial parts group, the primary factors are:
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the level of industrial production and manufacturing capacity utilization, as these indices reflect the need for industrial replacement parts;
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changes in manufacturing reflected in the level of the Institute for Supply Management’s Purchasing Managers Index, as an index reading of 50 or more implies an expanding manufacturing economy, while a reading below 50 implies a contracting manufacturing economy;
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the consolidation of certain of our manufacturing customers and the trend of manufacturing operations being moved overseas; and
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the economy in general, which in declining conditions may cause reduced demand for industrial output.
With respect to our office products group, the primary factors are:
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the level of unemployment, especially as it relates to white collar and service jobs, as this impacts the need for business products; and
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the economy in general, which in declining conditions may cause reduced demand for office products consumption.
With respect to our electrical/electronic materials group, the primary factors are:
•
changes in manufacturing reflected in the level of the Institute for Supply Management’s Purchasing Managers Index, as an index reading of 50 or more implies an expanding manufacturing economy, while a reading below 50 implies a contracting manufacturing economy; and
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the economy in general, which in declining conditions may cause reduced demand for industrial output.
Uncertainty and/or deterioration in general macro-economic conditions, including unemployment, inflation or deflation, high energy costs, uncertain credit markets, or other economic conditions, could have a negative impact on our business, financial condition, results of operations and cash flows.
Our business and operating results may in the future be adversely affected by uncertain global economic conditions, including instability in credit markets, declining consumer and business confidence, fluctuating commodity prices, volatile exchange rates, and other challenges that could affect the global economy. Both our commercial and retail customers may experience deterioration of their financial resources, which could result in existing or potential customers delaying or canceling plans to purchase our products. Our vendors could experience similar conditions, which could impact their ability to fulfill their obligations to us. Future weakness in the global economy could adversely affect our results of operations, financial condition and cash flows in future periods.
We depend on our relationships with our vendors, and a disruption of our vendor relationships or a disruption in our vendors’ operations could harm our business.
As a distributor of automotive parts, industrial parts, office products and electrical/electronic materials, our business depends on developing and maintaining close and productive relationships with our vendors. We depend on our vendors to sell us quality products at favorable prices. Many factors outside our control, including, without limitation, raw material shortages, inadequate manufacturing capacity, labor disputes, transportation disruptions or weather conditions, could adversely affect our vendors’ ability to deliver to us quality merchandise at favorable prices in a timely manner. Furthermore, financial or operational difficulties with a particular vendor could cause that vendor to increase the cost of the products or decrease the quality of the products we purchase from it. Vendor consolidation could also limit the number of suppliers from which we may purchase products and could materially affect the prices we pay for these products. In our automotive business, the number of vendors could decrease considerably, and the prices charged to us by the remaining vendors could increase, to the extent that vehicle production slows due to a decline in consumer spending and, possibly, the failure of one or more of the large automobile manufacturers. We would suffer an adverse impact if our vendors limit or cancel the return privileges that currently protect us from inventory obsolescence.
We face substantial competition in the industries in which we do business.
The sale of automotive and industrial parts, office products and electrical materials is highly competitive and impacted by many factors, including name recognition, product availability, customer service, anticipating changing customer preferences, store location, and pricing pressures. Because we seek to offer competitive prices, if our competitors reduce their prices, we may be forced to reduce our prices, which could result in a material decline in our revenues and earnings. Increased competition among distributors of automotive and industrial parts, office products and electronic materials, including internet-related initiatives, could cause a material adverse effect on our results of operations. The Company anticipates no decline in competition in any of its four business segments in the foreseeable future.
In particular, the market for replacement automotive parts is highly competitive and subjects us to a wide variety of competitors. We compete primarily with national and regional auto parts chains, independently owned regional and local automotive parts and accessories stores, automobile dealers that supply manufacturer replacement parts and accessories, mass merchandisers and wholesale clubs that sell automotive products and regional and local full service automotive repair shops. Furthermore, the automotive aftermarket has experienced consolidation in recent years. Consolidation among our competitors could further enhance their financial position, provide them with the ability to provide more competitive prices to customers for whom we compete, and allow them to achieve increased efficiencies in their consolidated operations that enable them to more effectively compete for customers. If we are unable to continue to develop successful competitive strategies or if our competitors develop more effective strategies, we could lose customers and our sales and profits may decline.
We may not be able to successfully implement our business initiatives in each of our four business segments to grow our sales and earnings, which could adversely affect our business, financial condition, results of operations and cash flows.
We have implemented numerous initiatives in each of our four business segments to grow sales and earnings, including the introduction of new and expanded product lines, geographic expansion (including acquisitions), sales to new markets, enhanced customer marketing programs and a variety of gross margin and cost savings initiatives. If we are unable to implement these initiatives efficiently and effectively, or if these initiatives are unsuccessful, our business, financial condition, results of operations and cash flows could be adversely affected.
Successful implementation of these initiatives also depends on factors specific to the automotive parts industry and the other industries in which we operate and numerous other factors that may be beyond our control. In addition to the other risk factors contained in this “Item 1A. Risk Factors”, adverse changes in the following factors could undermine our business initiatives and have a material adverse affect on our business, financial condition, results of operations and cash flows:
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the competitive environment in our end markets may force us to reduce prices below our desired pricing level or to increase promotional spending;
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our ability to anticipate changes in consumer preferences and to meet customers’ needs for our products in a timely manner;
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our ability to successfully enter new markets;
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our ability to effectively manage our costs;
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our ability to continue to grow through acquisitions and successfully integrate acquired businesses in our existing operations; and
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the economy in general.
Because we are involved in litigation from time to time and are subject to numerous laws and governmental regulations, we could incur substantial judgments, fines, legal fees and other costs.
We are sometimes the subject of complaints or litigation from customers, employees or other third parties for various actions. The damages sought against us in some of these litigation proceedings are substantial. Although we maintain liability insurance for some litigation claims, if one or more of the claims were to greatly exceed our insurance coverage limits or if our insurance policies do not cover a claim, this could have a material adverse affect on our business, financial condition, results of operations and cash flows.
Additionally, we are subject to numerous federal, state and local laws and governmental regulations relating to environmental protection, product quality standards, building and zoning requirements, as well as employment law matters. If we fail to comply with existing or future laws or regulations, we may be subject to governmental or judicial fines or sanctions, while incurring substantial legal fees and costs. In addition, our capital expenses could increase due to remediation measures that may be required if we are found to be noncompliant with any existing or future laws or regulations.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
The Company’s headquarters and Automotive Parts Group headquarters are located in two office buildings owned by the Company in Atlanta, Georgia.
The Company’s Automotive Parts Group currently operates 58 NAPA Distribution Centers in the United States distributed among eight geographic divisions. Approximately 90% of the distribution center properties are owned by the Company. At December 31, 2011, the Company operated approximately 950 NAPA AUTO PARTS stores located in 42 states, and the Company owned either a noncontrolling or controlling interest in 47 additional auto parts stores in four states. Other than NAPA AUTO PARTS stores located within Company owned distribution centers, the majority of the automotive parts stores in which the Company has an ownership interest were operated in leased facilities. In addition, NAPA Canada/UAP operates 12 distribution centers and approximately 184 automotive parts and Traction stores in Canada, and Auto Todo operates eleven distribution centers and eight stores and tire centers in Mexico. These operations are conducted in leased facilities.
The Company’s Automotive Parts Group also operates four Balkamp distribution/redistribution centers, four Rayloc distribution facilities and two transfer and shipping facilities. Nearly all of the Balkamp and Rayloc operations are conducted in facilities owned by the Company. Altrom Canada operates 15 import parts distribution centers and Altrom America operates two import parts distribution centers. The Heavy Vehicle Parts Group operates one TW distribution center, which serves 23 Traction stores of which 15 are company owned and located in the U.S. These operations are conducted in leased facilities.
The Company’s Industrial Parts Group, operating through Motion and Motion Canada, operates ten distribution centers, 53 service centers and 473 branches. Approximately 90% of these branches are operated in leased facilities.
The Company’s Office Products Group operates 37 facilities in the United States and five facilities in Canada distributed among the Group’s five geographic divisions. Approximately 75% of these facilities are operated in leased buildings.
The Company’s Electrical/Electronic Materials Group operates in 36 locations in the United States, one location in Puerto Rico, one location in the Dominican Republic, three locations in Mexico and one location in Canada. All of this Group’s 42 facilities are operated in leased buildings except one facility, which is owned.
We believe that our facilities on the whole are in good condition, are adequately insured, are fully utilized and are suitable and adequate for the conduct of our current operations.
For additional information regarding rental expense on leased properties, see Note 4 of Notes to Consolidated Financial Statements beginning on page.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to various legal and governmental proceedings, many involving routine litigation incidental to the businesses, including approximately 2,100 product liability lawsuits resulting from its national distribution of automotive parts and supplies. Many of these involve claims of personal injury allegedly resulting from the use of automotive parts distributed by the Company. While litigation of any type contains an element of uncertainty, the Company believes that its defense and ultimate resolution of pending and reasonably anticipated claims will continue to occur within the ordinary course of the Company’s business and that resolution of these claims will not have a material effect on the Company’s business, results of operations or financial condition.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information Regarding Common Stock
The Company’s common stock is traded on the New York Stock Exchange under the ticker symbol “GPC”. The following table sets forth the high and low sales prices for the common stock per quarter as reported on the New York Stock Exchange and dividends per share of common stock paid during the last two fiscal years:
Stock Performance Graph
Set forth below is a line graph comparing the yearly dollar change in the cumulative total shareholder return on the Company’s Common Stock against the cumulative total shareholder return of the Standard and Poor’s 500 Stock Index and a peer group composite index structured by the Company as set forth below for the five year period that commenced December 31, 2006 and ended December 31, 2011. This graph assumes that $100 was invested on December 31, 2006 in Genuine Parts Company Common Stock, the S&P 500 Stock Index (the Company is a member of the S&P 500, and its cumulative total shareholder return went into calculating the S&P 500 results set forth in the graph) and the peer group composite index as set forth below and assumes reinvestment of all dividends.
Comparison of five year cumulative total shareholder return
Genuine Parts Company, S&P 500 Index and peer group composite index
Cumulative Total Shareholder Return
$ at Fiscal Year End
Genuine Parts Company
100.00
100.59
85.47
89.90
126.34
155.73
S&P 500
100.00
105.49
66.46
84.04
96.70
98.74
Peer Index
100.00
116.22
66.39
94.66
137.31
131.82
In constructing the peer group composite index (“Peer Index”) for use in the stock performance graph above, the Company used the shareholder returns of various publicly held companies (weighted in accordance with each company’s stock market capitalization at December 31, 2006 and including reinvestment of dividends) that compete with the Company in three industry segments: automotive parts, industrial parts and office products (each group of companies included in the Peer Index as competing with the Company in a separate industry segment is hereinafter referred to as a “Peer Group”). Included in the automotive parts Peer Group are those companies making up the Dow Jones U.S. Auto Parts Index (the Company is a member of such industry group, and its individual shareholder return was included when calculating the Peer Index results set forth in the performance graph). Included in the industrial parts Peer Group are Applied Industrial Technologies, Inc. and Kaman Corporation and included in the office products Peer Group is United Stationers Inc. The Peer Index does not break out a separate electrical/electronic peer group due to the fact that there is currently no true market comparative to EIS. The electrical/electronic component of sales is redistributed to the Company’s other segments on a pro rata basis to calculate the final Peer Index.
In determining the Peer Index, each Peer Group was weighted to reflect the Company’s annual net sales in each industry segment. Each industry segment of the Company comprised the following percentages of the Company’s net sales for the fiscal years shown:
Holders
As of December 31, 2011, there were 5,324 holders of record of the Company’s common stock. The number of holders of record does not include beneficial owners of the common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.
Sales of Unregistered Securities
All of our sales of securities in 2011 were registered under the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
The following table provides information about the purchases of shares of the Company’s common stock during the three month period ended December 31, 2011:
(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 13.5 million shares authorized in the 2008 plan remain available to be repurchased by the Company. There were no other publicly announced plans as of December 31, 2011.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain selected historical financial and operating data of the Company as of the dates and for the periods indicated. The following selected financial data are qualified by reference to, and should be read in conjunction with, the consolidated financial statements, related notes and other financial information beginning on page, as well as in “
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
Genuine Parts Company is a service organization engaged in the distribution of automotive parts, industrial 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. In 2011, the Company conducted business throughout the United States, Canada, Mexico and Puerto Rico from approximately 1,900 locations.
We recorded consolidated net sales of $12.5 billion for the year ended December 31, 2011, an increase of 11% compared to $11.2 billion in 2010. Consolidated net income for the year ended December 31, 2011 was $565 million, up 19% from $476 million in 2010. The favorable market conditions in the industries that we serve combined with our internal growth initiatives drove the Company’s strong performance in 2011.
The 11% sales growth in 2011 follows an 11% increase in revenues in 2010 and a 9% decrease in revenues in 2009. Our 19% increase in net income follows a 19% increase and 16% decrease in net income in 2010 and 2009, respectively. Throughout this three year period, the Company has implemented a variety of initiatives in each of its four business segments to grow sales and earnings, including the introduction of new and expanded product lines, geographic expansion (including acquisitions), sales to new markets, enhanced customer marketing programs and a variety of gross margin and cost savings initiatives. The recovering economy served to further support the benefits of our internal growth initiatives in 2011 and 2010. In 2009, however, the effects of the economic slowdown, which we began to experience in the final quarter of 2008, adversely impacted the benefit of these initiatives.
With regard to the December 31, 2011 consolidated balance sheet, the Company’s cash balance of $525 million was consistent with cash of $530 million at December 31, 2010. The Company’s strong cash position was supported by the increase in net income and ongoing working capital management in 2011. Accounts receivable increased by approximately 7%, relatively in-line with our sales increase in the fourth quarter of the year and inventory was up by less than 2%, including acquisitions. Accounts payable increased $66 million or 5% from the prior year. The Company has increased this line item over the last several years due primarily to the combination of increased purchases, improved payment terms with certain suppliers and other ongoing payables initiatives. Total debt outstanding at December 31, 2011 was unchanged from $500 million at December 31, 2010.
RESULTS OF OPERATIONS
Our results of operations are summarized below for the three years ended December 31, 2011, 2010 and 2009.
Net Sales
Consolidated net sales for the year ended December 31, 2011 totaled $12.5 billion, an 11% increase from 2010 driven by sales growth in all four of our business segments for the second consecutive year. The Industrial and Electrical business segments experienced the greatest percentage increases for the year, as the manufacturing sector of the economy held steady and strong in 2011. These businesses also benefited from acquisitions in 2011. Sales for the Automotive business segment also continued their positive trend in 2011, primarily due to the benefits of well executed internal initiatives and the overall solid fundamentals in the automotive aftermarket. Cumulatively, prices in 2011 were up approximately 3% in the Automotive segment, up approximately 4% in the Industrial segment, up approximately 5% in the Electrical segment and up approximately 2% in the Office segment.
Consolidated net sales for the year ended December 31, 2010 totaled $11.2 billion, an 11% increase from 2009. All four of our business segments showed sales growth for the year. The Industrial and Electrical business segments had the greatest percentage increases for 2010, as the manufacturing sector of the economy was much stronger in 2010 relative to 2009. These businesses also benefited from acquisitions in 2010. Sales for the Automotive business segment were much improved in 2010 as well, primarily due to the benefits of well executed internal initiatives and the overall improvement in the economy. Cumulatively, prices in 2010 were up approximately 1% in the Automotive segment, up approximately 3% in the Industrial segment, up approximately 4% in the Electrical segment and approximately flat in the Office segment.
Automotive Group
Net sales for the Automotive Group (“Automotive”) were $6.1 billion in 2011, an increase of 8% from 2010. Sales improved in 2011 due to the successful execution of our sales initiatives and the ongoing solid fundamentals in the automotive aftermarket, including the overall aging of the vehicle populations. The positive fundamentals serve to drive increased demand for automotive aftermarket maintenance and supply items. Automotive revenues were up 9% in the first, second and third quarters, and were up 6% in the fourth quarter. Other factors impacting our Automotive sales for the year include the effect of currency associated with our Canadian and Mexican businesses, which positively impacted sales by approximately 1%.
Net sales for Automotive were $5.6 billion in 2010, an increase of 7% from 2009. Sales improved in 2010 due to the successful execution of our sales initiatives and the stronger economy, which drove increased demand for automotive maintenance and supply items. Automotive revenues were up 6% in the first quarter, followed by 7% increases in the second and third quarters, and a 9% increase in the fourth quarter. Other factors impacting our Automotive sales for the year include the effect of currency, which positively impacted sales by approximately 2%.
Industrial Group
Net sales for Motion Industries, our Industrial Group (“Industrial”), were $4.2 billion in 2011, an increase of 19% compared to 2010. Several factors contributed to the sales increase for this group, including the positive impact of their internal sales initiatives and the continued strength in the manufacturing sector of the economy served by Industrial. This was evidenced by the reported growth in the manufacturing industrial production and capacity utilization indices, which this group tends to track. Also in 2011, sales were positively impacted by acquisitions, which accounted for approximately 3% of Industrial’s sales growth for the year, and the effect of currency associated with our Canadian business, which positively impacted sales by less than 1%. As a result of these several factors, Industrial revenues were up 24% in the first quarter of 2011, up 19% in the second quarter, then up 18% and 13% in the third and fourth quarters, respectively.
Net sales for Industrial were $3.5 billion in 2010, an increase of 22% compared to 2009. The positive impact of their internal sales initiatives and the strong rebound in the manufacturing sector of the economy served by Industrial contributed to the sales increase for this group. This was evidenced by the ongoing improvement in the manufacturing industrial production and capacity utilization indices. Also in 2010, sales were positively impacted by acquisitions, which accounted for approximately 5% of Industrial’s sales growth for the year. As a result of these several factors, Industrial revenues were up 9% in the first quarter of 2010, up 26% in the second quarter, then up 29% and 24% in the third and fourth quarters, respectively.
Office Group
Net sales for S. P. Richards, our Office Products Group (“Office”), were $1.7 billion in 2011, up 3% from 2010. Office revenues began to stabilize in 2010 relative to prior year trends, and this group was able to make further progress in 2011. We were pleased to report growth for this business, despite the ongoing difficult environment for the office products industry, which we attribute to the generally slow recovery of white collar employment levels in the U.S. Sales increased approximately 5%, 4% and 3% in the first, second and third quarters, respectively, and were down 1% in the fourth quarter of 2011.
Net sales for Office were $1.6 billion in 2010, up slightly compared to the prior year. Office revenues stabilized in 2010, although the office products industry continued to experience soft market conditions throughout the year as a result of reduced business spending and the ongoing impact of elevated unemployment levels. Sales decreased approximately 1% in the first and second quarters, were flat in the third quarter and were up by 3% in the fourth quarter of 2010. The fourth quarter increase was significant, as the industry-wide slowdown in office products consumption had pressured this group for several years and the fourth quarter of 2010 marked the first positive sales comparison for Office since the second quarter of 2007.
Electrical Group
Net sales for EIS, our Electrical and Electronic Group (“Electrical”), increased to $558 million in 2011, up 24% from 2010. Our sales initiatives and the continued manufacturing expansion during the year, as measured by the Institute for Supply Management’s Purchasing Managers Index, were the primary sales drivers in 2011. In addition, acquisitions in 2011 contributed approximately 11% to Electrical’s sales growth, and the effect of copper pricing had a 3% positive sales impact for the year. Electrical sales increased by 39% in the first quarter, and this was followed by increases of 28% in the second quarter, 22% in the third quarter and 10% in the fourth quarter.
Net sales for Electrical increased to $450 million in 2010, up 30% from 2009. Electrical sales increased by 16% in the first quarter, 32% in the second quarter, 31% in the third quarter and 40% in the fourth quarter. The
revenue growth in 2010 was driven by our sales initiatives, which were strongly supported by manufacturing expansion during the year, as measured by the Institute for Supply Management’s Purchasing Managers Index. In addition, acquisitions in 2010 contributed approximately 9% to Electrical’s sales growth for the year.
Cost of Goods Sold
Cost of goods sold was $8.9 billion, $8.0 billion and $7.0 billion in 2011, 2010 and 2009, respectively. The 11% increase in cost of goods sold from 2010 to 2011 is directly related to the sales increase for the same period. Cost of goods sold represented 71.1% of net sales in 2011, 71.0 % of net sales in 2010 and 70.1% of net sales in 2009. The increase in cost of goods sold as a percent of net sales for 2011 and 2010 relative to 2009 reflects the impact of certain pricing adjustments implemented in Automotive as well as ongoing competitive pricing pressures in Industrial and Office. These factors more than offset our gross margin initiatives to enhance our pricing strategies, promote and sell higher margin products and minimize material acquisition costs, hence the lower gross margin levels over the last two years.
In 2011, all four of our business segments experienced vendor price increases for the second consecutive year, although, in 2010, the Automotive and Office increases were relatively immaterial. In 2009, our Office and Electrical business segments experienced vendor price increases, while Industrial was flat and Automotive pricing was down for the year. In any year where we experience price increases, we are able to work with our customers to pass most of these along to them.
Operating Expenses
Selling, administrative and other expenses (“SG&A”) increased by $228 million or 10% to $2.6 billion in 2011, representing 20.8% of net sales and down from 21.1% of net sales in 2010. SG&A expenses as a percentage of net sales improved from the prior year due primarily to the benefit of greater expense leverage associated with the second consecutive 11% sales increase. In addition, management’s ongoing cost control measures in areas such as personnel, freight, fleet and logistics have served to further improve the Company’s cost structure. After reducing the size of its workforce by approximately 12% during 2008 and 2009, the Company has only added back approximately 2% of that over the two year period of 2011 and 2010 (including acquisitions). Our management teams remain focused on properly managing the Company’s expenses and continuing to assess the appropriate cost structure in our businesses. Depreciation and amortization expense in 2011 was $89 million, relatively in-line with 2010. The provision for doubtful accounts was $13 million in 2011, up nearly $3 million or 25% from $11 million in 2010. The increase in bad debt expense is primarily a function of the increase in sales for the year and not due to collections issues. We believe the Company is adequately reserved for bad debts at December 31, 2011.
SG&A increased by $147 million or 7% to $2.4 billion in 2010, representing 21.1% of net sales and down from 22.1% of net sales in 2009. SG&A expenses as a percentage of net sales improved from the prior year due primarily to the benefit of greater expense leverage associated with the 11% sales increase for the year. In addition, management’s ongoing cost control measures in areas such as personnel, freight, fleet and logistics have served to further improve the Company’s cost structure. After reducing the size of its workforce by approximately 12% during 2008 and 2009, the Company added back only 1% of that in 2010 (including acquisitions). In total, of the estimated $70 million cost savings in 2009, the Company estimates that it added back approximately $20 million in costs in 2010, primarily associated with the increase in sales and earnings. Depreciation and amortization expense in 2010 was $89 million, down slightly from 2009. The provision for doubtful accounts was $11 million in 2010, down 61% from $28 million in 2009. The decrease in bad debt expense reflects a much improved collections environment in 2010 relative to the prior year.
Total share-based compensation expense for the years ended December 31, 2011, 2010 and 2009 was $7.5 million, $7.0 million, and $8.6 million, respectively. Refer to Note 5 of the Consolidated Financial Statements for further information regarding share-based compensation.
Non-Operating Expenses and Income
Non-operating expenses consist primarily of interest. Interest expense was $27 million in 2011 and $28 million in 2010 and 2009. The $1 million decrease in interest expense relative to 2010 and 2009 is the result of an improved interest rate on certain long-term debt, effective November 2011.
In “Other”, interest income net of noncontrolling interests has increased in each of the last two years due primarily to our improved cash position and the elimination of certain noncontrolling interests in 2009.
Income Before Income Taxes
Income before income taxes was $891 million in 2011, an increase of 17% from $762 million in 2010. As a percentage of net sales, income before income taxes was 7.1% in 2011, reflecting an increase from 6.8% in 2010. In 2010, income before income taxes of $762 million was up 18% from $644 million in 2009 and as a percentage of net sales was 6.8%, an increase from 6.4% in 2009.
Automotive Group
Automotive income before income taxes as a percentage of net sales, which we refer to as operating margin, increased to 7.7% in 2011 from 7.5% in 2010. The improvement in operating margin for 2011 is attributed to the benefit of greater expense leverage associated with Automotive’s 8% sales increase for the year. Automotive’s initiatives to grow sales and control costs are intended to further improve its operating margin in the years ahead.
Automotive’s operating margin increased to 7.5% in 2010 from 7.4% in 2009. The improvement in operating margin for 2010 is attributed to the benefit of greater expense leverage associated with Automotive’s 7% sales increase for the year.
Industrial Group
Industrial’s operating margin increased to 8.1% in 2011 from 7.3% in 2010. The increase in operating margin in 2011 is due to the combination of greater expense leverage associated with a 19% sales increase, Industrial’s second straight year of strong double-digit sales growth, the ongoing benefits of recent cost savings and increased volume incentives. Industrial will continue to focus on its sales initiatives and cost controls to further improve its operating margin in the years ahead.
Industrial’s operating margin increased to 7.3% in 2010 from 5.6% in 2009. The increase in operating margin in 2010 was due to the combination of greater expense leverage associated with a 22% sales increase, cost savings and increased volume incentives.
Office Group
Office’s operating margin decreased slightly to 7.9% in 2011 from 8.0% in 2010. The decrease in operating margin in 2011 primarily reflects the continued pressures on gross margin in this industry, due to the slower pace of the economic recovery and office employment. These pressures were partially offset by the positive impact of Office’s cost savings initiatives.
Office’s operating margin increased to 8.0% in 2010 from 7.7% in 2009 and reflects the positive impact of our cost savings initiatives combined with the benefit of higher volume incentives from suppliers. The increase in incentives was due to our fourth quarter sales growth and related increase in purchase volumes, which allowed us to achieve higher program growth tiers with suppliers.
Electrical Group
Electrical’s operating margin increased to 7.3% in 2011 from 6.9% in 2010. The increase in operating margin in 2011 is due to the combination of greater expense leverage associated with a 24% sales increase, its second straight year of strong double-digit sales growth, and the ongoing benefits of effective cost controls. The improvement from these areas was partially offset by the increase in copper prices during the year. Electrical will continue to focus on its sales initiatives and cost controls to further improve its operating margin in the years ahead.
Electrical’s operating margin decreased to 6.9% in 2010 from 7.3% in 2009. The decrease in operating margin was mainly due to escalating copper prices during the year, which generally do not affect profit dollars, but negatively impact margins as copper is generally billed to customers at cost. The margin pressures associated with this industry standard pricing practice for copper more than offset the benefits of a stronger manufacturing sector in 2010 and greater expense leverage associated with a 30% sales increase.
Income Taxes
The effective income tax rate of 36.6% in 2011 was down from 37.6% in 2010. The decrease from 2010 is primarily attributable to a favorable adjustment recorded in the first quarter of 2011 associated with the expiration of the statute of limitations related to certain international taxes. The income tax rate decreased to 37.6% in 2010 from 38.0% in 2009. The decrease from 2009 is attributable to favorable foreign income taxes for the year.
Net Income
Net income was $565 million in 2011, an increase of 19% from $476 million in 2010. On a per share diluted basis, net income was $3.58 in 2011 compared to $3.00 in 2010, up 19%. Net income in 2011 was 4.5% of net sales compared to 4.2% of net sales in 2010.
Net income was $476 million in 2010, an increase of 19% from $400 million in 2009. On a per share diluted basis, net income was $3.00 in 2010 compared to $2.50 in 2009, up 20%. Net income in 2010 was 4.2% of net sales compared to 4.0% of net sales in 2009.
FINANCIAL CONDITION
Our cash balance of $525 million at December 31, 2011 was relatively consistent with our cash balance at December 31, 2010, supported by the increase in net income in 2011 and ongoing working capital management. The Company’s accounts receivable balance at December 31, 2011 increased by approximately 7% from the prior year, which reflects the Company’s 7% sales increase for the fourth quarter of 2011. Inventory at December 31, 2011 was up by less than 2% from December 31, 2010, which is well below the Company’s increase in sales and primarily attributable to acquisitions. Accounts payable increased $66 million or approximately 5% from December 31, 2010 due primarily to increased inventory purchases related to the Company’s sales increase. Goodwill and other intangible assets increased by $70 million or 34% from December 31, 2010 due to the Company’s acquisitions during the year. The change in our December 31, 2011 balances for deferred taxes, up $94 million or 59%, as well as pension and other post-retirement benefits liabilities, up $235 million or approximately 91% from December 31, 2010, is primarily due to a change in funded status of the Company’s pension and other post-retirement plans in 2011, net of $58 million in pension contributions during the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s sources of capital consist primarily of cash flows from operations, supplemented as necessary by private issuances of debt and bank borrowings. We have $500 million of total debt outstanding at December 31, 2011, of which $250 million matures in November 2013 and $250 million matures in November 2016. In addition, the Company has available a $350 million unsecured revolving line of credit. No amounts were outstanding under the line of credit at December 31, 2011 and 2010. The capital and credit markets were volatile over the last few years, although these conditions did not materially impact our access to these markets. Currently, we believe that our cash on hand and available short-term and long-term sources of capital are sufficient to fund the Company’s operations, including working capital requirements, scheduled debt payments, interest payments, capital expenditures, benefit plan contributions, income tax obligations, dividends, share repurchases and contemplated acquisitions.
The ratio of current assets to current liabilities was 2.5 to 1 at December 31, 2011, and this compares to 2.2 to 1 at December 31, 2010. Before consideration of current debt outstanding at December 21, 2010, the ratio of current assets to current liabilities was 2.6 to 1. Our liquidity position remains solid. The Company’s $500 million in total debt outstanding at December 31, 2011 is unchanged from 2010.
Sources and Uses of Net Cash
A summary of the Company’s consolidated statements of cash flows is as follows:
Net Cash Provided by Operating Activities:
The Company continues to generate cash and net cash provided by operating activities totaled $625 million in 2011. This reflects an 8% decrease from 2010, as, collectively, trade accounts receivable, merchandise inventories and trade accounts payable represented a $19 million use of cash in 2011 compared to a $185 million source of cash in 2010. This was partially offset by a $90 million increase in net income. Net cash provided by operating activities of $679 million in 2010 represents a 20% decrease from 2009, as, collectively, trade accounts receivable, merchandise inventories and trade accounts payable as a source of cash was $129 million less in 2010 relative to 2009 and pension contributions in 2010 increased by $35 million from 2009. These items were partially offset by a $76 million increase in net income.
Net Cash Used in Investing Activities:
Net cash flow used in investing activities was $231 million in 2011 compared to $172 million in 2010, an increase of 34%. Cash used for acquisitions of businesses and other investing activities in 2011 were $46 million greater than in 2010, and capital expenditures increased by $18 million. Net cash flow used in investing activities was $172 million in 2010 compared to $264 million in 2009, a decrease of 35%. Cash used for acquisitions of businesses in 2010 was $44 million less than in 2009, while capital expenditures increased by $16 million for the year. The decrease in investing activities was primarily due to a $73 million purchase of properties under a construction and lease agreement in 2009.
Net Cash Used in Financing Activities:
The Company used $394 million of cash in financing activities in 2011, a 23% increase from the $321 million used in financing activities in 2010. In 2010, the $321 million of cash used in financing activities was down 3% from the $330 million used in 2009. For the three years presented, net cash used in financing activities was primarily for dividends paid to shareholders and repurchases of the Company’s common stock. The Company paid dividends to shareholders of $276 million, $258 million and $254 million during 2011, 2010 and 2009, respectively. The Company expects this trend of increasing dividends to continue in the foreseeable future. During 2011, 2010 and 2009, the Company repurchased $122 million, $75 million and $26 million, respectively, of the Company’s common stock. We expect to remain active in our share repurchase program, but the amount and value of shares repurchased will vary.
Notes and Other Borrowings
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% (0.60% at December 31, 2011). At December 31, 2011 and 2010, no amounts were outstanding under the line of credit. Due to the workers’ compensation and insurance reserve requirements in certain states, the Company also had unused letters of credit of approximately $54 million and $50 million outstanding at December 31, 2011 and 2010, respectively.
At December 31, 2011, the Company had unsecured senior notes outstanding under a $500 million financing arrangement as follows: $250 million series C senior unsecured note, 4.67% fixed, due 2013; and $250 million series D and E senior unsecured notes, 3.35% fixed, due 2016. These borrowings contain covenants
related to a maximum debt-to-capitalization ratio and certain limitations on additional borrowings. At December 31, 2011, the Company was in compliance with all such covenants. The weighted average interest rate on the Company’s total outstanding borrowings was approximately 4.01% at December 31, 2011 and 5.45% at December 31, 2010. Total interest expense, net of interest income, for all borrowings was $24.6 million, $26.6 million and $27.1 million in 2011, 2010 and 2009, respectively.
Contractual and Other Obligations
The following table shows the Company’s approximate obligations and commitments, including interest due on credit facilities, to make future payments under specified contractual obligations as of December 31, 2011:
Contractual Obligations
Due to the uncertainty of the timing of future cash flows associated with the Company’s unrecognized tax benefits at December 31, 2011, the Company is unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $60 million of unrecognized tax benefits have been excluded from the contractual obligations table above. Refer to Note 6 of the Consolidated Financial Statements for a discussion on income taxes.
Purchase orders or contracts for the purchase of inventory and other goods and services are not included in our estimates. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current distribution needs and are fulfilled by our vendors within short time horizons. The Company does not have significant agreements for the purchase of inventory or other goods specifying minimum quantities or set prices that exceed our expected requirements.
The Company guarantees the borrowings of certain independently owned automotive parts stores (independents) and certain other affiliates in which the Company has a noncontrolling equity ownership interest (affiliates). The Company’s 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 Company’s guarantee. To date, the Company has had no significant losses in connection with guarantees of independents’ and affiliates’ borrowings. The following table shows the Company’s approximate commercial commitments as of December 31, 2011:
Other Commercial Commitments
In addition, the Company sponsors defined benefit pension plans that may obligate us to make contributions to the plans from time to time. Contributions in 2011 were $58 million. We expect to make a $17 million cash contribution to our qualified defined benefit plans in 2012, and contributions required for 2012 and future years will depend on a number of unpredictable factors including the market performance of the plans’ assets and future changes in interest rates that affect the actuarial measurement of the plans’ obligations.
Share Repurchases
In 2011, the Company repurchased approximately 2.4 million shares and the Company had remaining authority to purchase approximately 13.5 million shares at December 31, 2011.
CRITICAL ACCOUNTING POLICIES
General
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our consolidated financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, net sales and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We describe in this section certain critical accounting policies that require us to make significant estimates, assumptions and judgments. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain at the time the estimate is made and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. Management believes the following critical accounting policies reflect its most significant estimates and assumptions used in the preparation of the consolidated financial statements. For further information on the critical accounting policies, see Note 1 of the Consolidated Financial Statements.
Inventories - Provisions for Slow Moving and Obsolescence
The Company identifies slow moving or obsolete inventories and estimates appropriate loss provisions related thereto. Historically, these loss provisions have not been significant as the vast majority of the Company’s inventories are not highly susceptible to obsolescence and are eligible for return under various vendor return programs. While the Company has no reason to believe its inventory return privileges will be discontinued in the future, its risk of loss associated with obsolete or slow moving inventories would increase if such were to occur.
Allowance for Doubtful Accounts - Methodology
The Company evaluates the collectability of accounts receivable based on a combination of factors. Initially, the Company estimates an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience. This initial estimate is periodically adjusted when the Company becomes aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While the Company has a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which the Company operates could result in higher than expected defaults and, therefore, the need to revise estimates for bad debts. For the years ended December 31, 2011, 2010 and 2009, the Company recorded provisions for doubtful accounts of $13.2 million, $10.6 million, and $28.5 million, respectively.
Consideration Received from Vendors
The Company enters into agreements at the beginning of each year with many of its vendors that provide for inventory purchase incentives. Generally, the Company earns inventory purchase incentives upon achieving specified volume purchasing levels or other criteria. The Company accrues for the receipt of these incentives as part of its inventory cost based on cumulative purchases of inventory to date and projected inventory purchases through the end of the year. While management believes the Company will continue to receive consideration from vendors in 2012 and beyond, there can be no assurance that vendors will continue to provide comparable amounts of incentives in the future or that we will be able to achieve the specified volumes necessary to take advantage of such incentives.
Impairment of Property, Plant and Equipment and Goodwill and Other Intangible Assets
At least annually, the Company evaluates property, plant and equipment, goodwill and other intangible assets for potential impairment indicators. The Company’s judgments regarding the existence of impairment indicators are based on market conditions and operational performance, among other factors. Future events could cause the Company to conclude that impairment indicators exist and that assets associated with a particular operation are impaired. Evaluating for impairment also requires the Company to estimate future operating results and cash flows which require judgment by management. Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations.
Employee Benefit Plans
The Company’s benefit plan committees in the U.S. and Canada establish investment policies and strategies and regularly monitor the performance of the Company’s pension plan assets. The pension plan investment strategy implemented by the Company’s management is to achieve long-term objectives and invest the pension assets in accordance with the applicable pension legislation in the U.S. and Canada, as well as fiduciary standards. The long-term primary objectives for the pension plan funds are to provide for a reasonable amount of long-term growth of capital without undue exposure to risk, protect the assets from erosion of purchasing power and provide investment results that meet or exceed the pension plan’s actuarially assumed long term rate of return. The Company’s investment strategy with respect to pension plan assets is to generate a return in excess of the passive portfolio benchmark (50% S&P 500 Index, 5% Russell Mid Cap Index, 10% Russell 2000 Index, 5% MSCI EAFE Index, and 30% BarCap U.S. Govt/Credit).
We make several critical assumptions in determining our pension plan liabilities and related pension expense. We believe the most critical of these assumptions are the expected rate of return on plan assets and the discount rate. Other assumptions we make relate to employee demographic factors such as rate of compensation increases, mortality rates, retirement patterns and turnover rates.
Based on the investment policy for the pension plans, as well as an asset study that was performed based on the Company’s asset allocations and future expectations, the Company’s expected rate of return on plan assets for measuring 2012 pension expense or income is 7.84% for the plans. The asset study forecasted expected rates of return for the approximate duration of the Company’s benefit obligations, using capital market data and historical relationships.
The discount rate is chosen as the rate at which pension obligations could be effectively settled and is based on capital market conditions as of the measurement date. We have matched the timing and duration of the expected cash flows of our pension obligations to a yield curve generated from a broad portfolio of high-quality fixed income debt instruments to select our discount rate. Based upon this cash flow matching analysis, we selected a weighted average discount rate for the plans of 5.17% at December 31, 2011.
Net periodic benefit cost for our defined benefit pension plans was $32.3 million, $21.9 million and $7.3 million for the years ended December 31, 2011, 2010 and 2009, respectively. The increase in pension cost in 2011 from 2010 reflects the change in assumptions for the rate of return on plan assets, the discount rate and the rate of compensation increases. The increase in pension cost in 2010 from 2009 was primarily due to the curtailment and subsequent remeasurement of the U.S. defined benefit pension plan in 2009 and the change in assumptions for the rate of return on plan assets, the discount rate and the rate of compensation increases. The 2009
curtailment and subsequent remeasurement decreased benefit costs in 2009 and are discussed further below. Refer to Note 7 of the Consolidated Financial Statements for more information regarding employee benefit plans.
In April 2009, the Company recorded a $4.3 million non-cash curtailment adjustment in connection with a plan reorganization, which reduced the expected years of future service of employees covered by the U.S. defined benefit pension plan.
In July 2009, the Company announced changes to the U.S. postretirement benefit plan. Effective January 1, 2010, future retirees no longer receive employer-provided medical benefits and current pre-65 retirees no longer receive employer-provided post-65 benefits (beyond an access-only arrangement).
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the quarterly results of operations for the years ended December 31, 2011 and 2010:
We recorded the quarterly earnings per share amounts as if each quarter was a discrete period. As a result, the sum of the basic and diluted earnings per share will not necessarily total the annual basic and diluted earnings per share.
The preparation of interim consolidated financial statements requires management to make estimates and assumptions for the amounts reported in the interim condensed consolidated financial statements. Specifically, the Company makes estimates and assumptions in its interim consolidated financial statements for the accrual of bad debts, inventory adjustments and discount and volume incentives earned, among others. Bad debts are accrued based on a percentage of sales, and volume incentives are estimated based upon cumulative and projected purchasing levels. Inventory adjustments are accrued on an interim basis and adjusted in the fourth quarter based on the annual September and October book-to-physical inventory adjustments. The methodology and practices used in deriving estimates and assumptions for interim reporting typically result in adjustments upon accurate determination at year-end. The effect of these adjustments in 2011 and 2010 was not significant.
ITEM 7A. 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.
Foreign Currency
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. Foreign currency exchange exposure particularly in regard to the Canadian dollar and, to a lesser extent, the Mexican peso, positively impacted our results for the year ended December 31, 2011.
During 2011 and 2010, it was estimated that a 10% shift in exchange rates between those foreign functional currencies and the U.S. dollar would have impacted translated net sales by approximately $169 million and $140 million, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item 8 is set forth in a separate section of this report. See “Index to Consolidated Financial Statements and Financial Statement Schedules” beginning on page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Management’s conclusion regarding the effectiveness of disclosure 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, as such term is defined in SEC Rule 13a-15(e). Based on that evaluation, the Company’s management, including the 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 in the Company’s reports 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.
Management’s report on internal control over financial reporting
A report of management’s assessment of our internal control over financial reporting, as such term is defined in SEC Rule 13a-15(f), as of December 31, 2011 is set forth in a separate section of this report. See “Index to Consolidated Financial Statements and Financial Statement Schedules” beginning on page.
The attestation report called for by Item 308(b) of Regulation S-K is incorporated herein by reference to the “Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting”, which is set forth in a separate section of this report. See “Index to Consolidated Financial Statements and Financial Statement Schedules” beginning on page.
Changes in internal control over financial reporting
There have been no changes in the Company’s internal control over financial reporting during the Company’s fourth fiscal quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
EXECUTIVE OFFICERS OF THE COMPANY.
Executive officers of the Company are elected by the Board of Directors and each serves at the pleasure of the Board of Directors until his successor has been elected and qualified, or until his earlier death, resignation, removal, retirement or disqualification. The current executive officers of the Company are:
Thomas C. Gallagher, age 64, has been Chief Executive Officer since August 2004 and Chairman of the Board since February 2005. Mr. Gallagher served as President of the Company from 1990 until January 2012 and Chief Operating Officer of the Company from 1990 until August 2004.
Jerry W. Nix, age 66, was appointed as a director of the Company and elected Vice-Chairman by the Board of Directors in November 2005. He is Chief Financial Officer of the Company, a position he has held since 2000. Previously, Mr. Nix held the position of Executive Vice President - Finance from 2000 to 2005 and Senior Vice President-Finance from 1990 to 2000.
Paul D. Donahue, age 55, was appointed President of the Company in January 2012, and has served as President of the Company’s U.S. Automotive Parts Group since July 2009. Mr. Donahue served as Executive Vice President of the Company from August 2007 until his appointment as President in January. Previously, Mr. Donahue was President and Chief Operating Officer of S. P. Richards Company from 2004 to 2007 and was Executive Vice President - Sales and Marketing in 2003, the year he joined the Company.
Bruce Clayton, age 65, has been the Senior Vice President-Human Resources at the Company since November 2004. Previously, Mr. Clayton held the position of Vice President-Risk Management and Employee Services from June 2000 to November 2004.
Further information required by this item is set forth under the heading “Nominees for Director”, under the heading “Corporate Governance - Code of Conduct and Ethics”, under the heading “Corporate Governance -Board Committees - Audit Committee”, under the heading “Corporate Governance - Director Nominating Process” and under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” of the Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this item is set forth under the headings “Executive Compensation”, “Additional Information Regarding Executive Compensation”, “2011 Grants of Plan-Based Awards”, “2011 Outstanding Equity Awards at Fiscal Year-End”, “2011 Option Exercises and Stock Vested”, “2011 Pension Benefits”, “2011 Nonqualified Deferred Compensation”, “Post Termination Payments and Benefits”, “Compensation, Nominating and Governance Committee Report”, “Compensation, Nominating and Governance Committee Interlocks and Insider Participation” and “Compensation of Directors” of the Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Certain information required by this item is set forth below. Additional information required by this item is set forth under the headings “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management” of the Proxy Statement and is incorporated herein by reference.
Equity Compensation Plan Information
The following table gives information as of December 31, 2011 about the common stock that may be issued under all of the Company’s existing equity compensation plans:
(1) Reflects the maximum number of shares issuable pursuant to the exercise or conversion of stock options, stock appreciation rights, restricted stock units and common stock equivalents. The actual number of shares issued upon exercise of stock appreciation rights is calculated based on the excess of fair market value of our common stock on date of exercise and the grant price of the stock appreciation rights.
(2) Genuine Parts Company 1999 Long-Term Incentive Plan, as amended
(3) Genuine Parts Company 2006 Long-Term Incentive Plan
(4) Genuine Parts Company Director’s Deferred Compensation Plan, as amended
(5) All of these shares are available for issuance pursuant to grants of full-value stock awards.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Information required by this item is set forth under the headings “Corporate Governance - Independent Directors” and “Transactions with Related Persons” of the Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Information required by this item is set forth under the heading “Proposal 3. Ratification of Selection of Independent Auditors” of the Proxy Statement and is incorporated herein by reference.
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Documents filed as part of this report
(1) Financial Statements
The following consolidated financial statements of Genuine Parts Company and subsidiaries are included in this Annual Report on Form 10-K. See, also, the Index to Consolidated Financial Statements on Page.
Report of independent registered public accounting firm on internal control over financial reporting
Report of independent registered public accounting firm on the financial statements
Consolidated balance sheets - December 31, 2011 and 2010
Consolidated statements of income - Years ended December 31, 2011, 2010 and 2009
Consolidated statements of equity - Years ended December 31, 2011, 2010 and 2009
Consolidated statements of cash flows - Years ended December 31, 2011, 2010 and 2009
Notes to consolidated financial statements - December 31, 2011
(2) Financial Statement Schedules
The following consolidated financial statement schedule of Genuine Parts Company and subsidiaries, set forth immediately following the consolidated financial statements of Genuine Parts Company and Subsidiaries, is filed pursuant to Item 15(c):
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
(3) Exhibits.
The following exhibits are filed as part of or incorporated by reference in this report. Exhibits that are incorporated by reference to documents filed previously by the Company under the Securities Exchange Act of 1934, as amended, are filed with the Securities and Exchange Commission under File No. 1-5690. The Company will furnish a copy of any exhibit upon request to the Company’s Corporate Secretary.
Exhibit 3.1
Amended and Restated Articles of Incorporation of the Company, as amended April 23, 2007. (Incorporated herein by reference from the Company’s Current Report on Form 8-K, dated April 23, 2007.)
Exhibit 3.2
By-laws of the Company, as amended and restated August 20, 2007. (Incorporated herein by reference from the Company’s Current Report on Form 8-K, dated August 20, 2007.)
Exhibit 4.2
Specimen Common Stock Certificate. (Incorporated herein by reference from the Company’s Registration Statement on Form S-1, Registration No. 33-63874.)
Instruments with respect to long-term debt where the total amount of securities authorized there under does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis have not been filed. The Registrant agrees to furnish to the Commission a copy of each such instrument upon request.
Exhibit 10.1*
The Genuine Parts Company Tax-Deferred Savings Plan, effective January 1, 1993. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 3, 1995.)
Exhibit 10.2*
Amendment No. 1 to the Genuine Parts Company Tax-Deferred Savings Plan, dated June 1, 1996, effective June 1, 1996. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 7, 2005.)
Exhibit 10.3*
Genuine Parts Company Death Benefit Plan, effective July 15, 1997. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 10, 1998.)
Exhibit 10.4*
Amendment No. 2 to the Genuine Parts Company Tax-Deferred Savings Plan, dated April 19, 1999, effective April 19, 1999. (Incorporated herein by reference from the Company’s Annual Report on Form10-K, dated March 10, 2000.)
Exhibit 10.5*
The Genuine Parts Company Original Deferred Compensation Plan, as amended and restated as of August 19, 1996. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 8, 2004.)
Exhibit 10.6*
Amendment to the Genuine Parts Company Original Deferred Compensation Plan, dated April 19, 1999, effective April 19, 1999. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 10, 2000.)
Exhibit 10.7*
Amendment No. 3 to the Genuine Parts Company Tax-Deferred Savings Plan, dated November 28, 2001, effective July 1, 2001. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 7, 2002.)
Exhibit 10.8*
Genuine Parts Company 1999 Long-Term Incentive Plan, as amended and restated as of November 19, 2001. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 21, 2003.)
Exhibit 10.9*
Amendment No. 4 to the Genuine Parts Company Tax-Deferred Savings Plan, dated June 5, 2003, effective June 5, 2003. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 8, 2004.)
Exhibit 10.10*
Genuine Parts Company Directors’ Deferred Compensation Plan, as amended and restated effective January 1, 2003, and executed November 11, 2003. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 8, 2004.)
Exhibit 10.11*
Genuine Parts Company Stock Appreciation Rights Agreement. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 7, 2005.)
Exhibit 10.12*
Amendment No. 5 to the Genuine Parts Company Tax-Deferred Savings Plan, dated December 28, 2005, effective January 1, 2006. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 3, 2006.)
Exhibit 10.13*
Amendment No. 2 to the Genuine Parts Company Death Benefit Plan, dated November 9, 2005, effective April 1, 2005. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 3, 2006.)
Exhibit 10.14*
Genuine Parts Company 2006 Long-Term Incentive Plan, effective April 17, 2006. (Incorporated herein by reference from the Company’s Current Report on Form 8-K, dated April 18, 2006.)
Exhibit 10.15*
Amendment to the Genuine Parts Company 2006 Long-Term Incentive Plan, dated November 20, 2006, effective November 20, 2006. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated February 28, 2007.)
Exhibit 10.16*
Amendment No. 1 to the Genuine Parts Company Directors’ Deferred Compensation Plan, dated November 19, 2007, effective January 1, 2008. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated February 29, 2008.)
Exhibit 10.17*
Amendment No. 6 to the Genuine Parts Company Tax-Deferred Savings Plan, dated November 28, 2007, effective January 1, 2008. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated February 29, 2008.)
Exhibit 10.18*
Amendment No. 2 to the Genuine Parts Company 2006 Long-Term Incentive Plan, dated November 19, 2007, effective November 19, 2007. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated February 29, 2008.)
Exhibit 10.19*
Genuine Parts Company Performance Restricted Stock Unit Award Agreement. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated February 29, 2008.)
Exhibit 10.20*
Genuine Parts Company Restricted Stock Unit Award Agreement. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated February 29, 2008.)
Exhibit 10.21*
Specimen Change in Control Agreement, as amended and restated as of November 19, 2007. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated February 29, 2008.)
Exhibit 10.22*
Genuine Parts Company Supplemental Retirement Plan, as amended and restated as of January 1, 2009. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated February 27, 2009.)
Exhibit 10.23*
Genuine Parts Company 2009 Annual Incentive Bonus Plan, dated March 31, 2009, effective January 1, 2009. (Incorporated herein by reference from the Company’s Quarterly Report on Form 10-Q dated May 7, 2009).
Exhibit 10.24*
Amendment No. 1 to the Genuine Parts Company Supplemental Retirement Plan, as amended and restated as of January 1, 2009, dated August 16, 2010, effective August 16, 2010. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated February 25, 2011.)
Exhibit 10.25*
Amendment No. 2 to the Genuine Parts Company Supplemental Retirement Plan, as amended and restated as of January 1, 2009, dated November 16, 2010, effective January 1, 2011. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated February 25, 2011.)
Exhibit 10.26*
Amendment No. 7 to the Genuine Parts Company Tax-Deferred Savings Plan, dated November 16, 2010, effective January 1, 2011. (Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated February 25, 2011.)
Exhibit 10.27*
Description of Director Compensation. (Incorporated herein by reference from the Company’s Quarterly Report on Form 10-Q, dated August 4, 2011.)
* Indicates management contracts and compensatory plans and arrangements.
Exhibit 21
Subsidiaries of the Company.
Exhibit 23
Consent of Independent Registered Public Accounting Firm.
Exhibit 31.1
Certification signed by Chief Executive Officer pursuant to SEC Rule 13a-14(a).
Exhibit 31.2
Certification signed by Chief Financial Officer pursuant to SEC Rule 13a-14(a).
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 (furnished herewith).
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 (furnished herewith).
Exhibit 101
Interactive data files pursuant to Rule 405 of Regulation S-T:
i) the Consolidated Balance Sheets as of December 31, 2011 and 2010; (ii) the Consolidated Statements of Income for the Years ended December 31, 2011, 2010 and 2009; (iii) the Consolidated Statements of Equity for the Years ended December 31, 2011, 2010 and 2009; (iv) the Consolidated Statements of Cash Flows for Years ended December 31, 2011, 2010 and 2009; (v) the Notes to the Consolidated Financial Statements, tagged as blocks of text; and (vi) Financial Statement Schedule II - Valuation and Qualifying Accounts.
(b) Exhibits
See the response to Item 15(a)(3) above.
(c) Financial Statement Schedules
See the response to Item 15(a)(2) above.
SIGNATURES.
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ Thomas C. Gallagher
2/27/12
/s/ Jerry W. Nix
2/27/12
Thomas C. Gallagher
(Date)
Jerry W. Nix
(Date)
Chairman and Chief Executive Officer
Vice Chairman and Chief Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Dr. Mary B. Bullock
2/20/12
/s/ Jean Douville
2/20/12
Dr. Mary B. Bullock
(Date)
Jean Douville
(Date)
Director
Director
/s/ Thomas C. Gallagher
2/20/12
/s/ George C. Guynn
2/20/12
Thomas C. Gallagher
(Date)
George C. Guynn
(Date)
Director
Chairman and Chief Executive
Officer (Principal Executive Officer)
Director
/s/ John R. Holder
2/20/12
/s/ John D. Johns
2/20/12
John R. Holder
Director
(Date)
John D. Johns
Director
(Date)
/s/ Michael M. E. Johns
2/20/12
/s/ J. Hicks Lanier
2/20/12
Michael M. E. Johns
(Date)
J. Hicks Lanier
(Date)
Director
Director
/s/ Robert C. Loudermilk, Jr.
2/20/12
/s/ Wendy B. Needham
2/20/12
Robert C. Loudermilk, Jr.
(Date)
Wendy B. Needham
(Date)
Director
Director
/s/ Jerry W. Nix
2/20/12
/s/ Gary W. Rollins
2/20/12
Jerry W. Nix
(Date)
Gary W. Rollins
(Date)
Director
Vice Chairman and Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
ANNUAL REPORT ON FORM 10-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Page
Report of Management on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm on Financial Statements and Schedule
Consolidated Balance Sheets as of December 31, 2011 and 2010
Consolidated Statements of Income for the Years Ended December 31, 2011, 2010 and
Consolidated Statements of Equity for the Years Ended December 31, 2011, 2010 and
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and
Notes to Consolidated Financial Statements
Financial Statement Schedule II - Valuation and Qualifying Accounts
S-1
Report of Management
Genuine Parts Company
Management’s Responsibility for the Financial Statements
We have prepared the accompanying consolidated financial statements and related information included herein for the years ended December 31, 2011, 2010 and 2009. The opinion of Ernst & Young LLP, the Company’s independent registered public accounting firm, on those consolidated financial statements is included herein. The primary responsibility for the integrity of the financial information included in this annual report rests with management. Such information was prepared in accordance with generally accepted accounting principles appropriate in the circumstances based on our best estimates and judgments and giving due consideration to materiality.
Management’s Report on Internal Control over Financial Reporting
The management of Genuine Parts Company and its subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.
The Company’s internal control system was desig+ned to provide reasonable assurance to the Company’s management and to the board of directors regarding the preparation and fair presentation of the Company’s published consolidated financial statements. The Company’s internal control over financial reporting includes those policies and procedures that:
i. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
ii. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
iii. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011.
In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework”. Based on this assessment, management concluded that, as of December 31, 2011, the Company’s internal control over financial reporting was effective.
Ernst & Young LLP has issued an audit report on the Company’s operating effectiveness of internal control over financial reporting as of December 31, 2011. This report appears on page.
Audit Committee Responsibility
The Audit Committee of Genuine Parts Company’s Board of Directors is responsible for reviewing and monitoring the Company’s financial reports and accounting practices to ascertain that they are within acceptable limits of sound practice in such matters. The membership of the Committee consists of non-employee Directors. At periodic meetings, the Audit Committee discusses audit and financial reporting matters and the internal audit function with representatives of financial management and with representatives from Ernst & Young LLP.
/s/ Jerry W. Nix
JERRY W. NIX
Vice Chairman and Chief Financial Officer
February 27, 2012
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
The Board of Directors and Shareholders of Genuine Parts Company and Subsidiaries
We have audited Genuine Parts Company and Subsidiaries’ internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Genuine Parts Company and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting section of the accompanying Report of Management. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Genuine Parts Company and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Genuine Parts Company and Subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of income, equity, and cash flows for each of the three years in the period ended December 31, 2011 of Genuine Parts Company and Subsidiaries and our report dated February 27, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 27, 2012
Report of Independent Registered Public Accounting Firm on the Financial Statements
The Board of Directors and Shareholders of Genuine Parts Company and Subsidiaries
We have audited the accompanying consolidated balance sheets of Genuine Parts Company and Subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of income, equity, and cash flows for each of the three years in the period ended December 31, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15(c). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Genuine Parts Company and Subsidiaries at December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Genuine Parts Company and Subsidiaries’ internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 27, 2012
Genuine Parts Company and Subsidiaries
Consolidated Balance Sheets
See accompanying notes.
Genuine Parts Company and Subsidiaries
Consolidated Statements of Income
See accompanying notes.
Genuine Parts Company and Subsidiaries
Consolidated Statements of Equity
(In thousands, except share and per share amounts)
See accompanying notes.
Genuine Parts Company and Subsidiaries
Consolidated Statements of Cash Flows
See accompanying notes.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2011
1. Summary of Significant Accounting Policies
Business
Genuine Parts Company and all of its majority-owned subsidiaries (the Company) is a distributor of automotive replacement parts, industrial replacement parts, office products, and electrical/electronic materials. The Company serves a diverse customer base through approximately 1,900 locations in North America and, therefore, has limited exposure from credit losses to any particular customer, region, or industry segment. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company has evaluated subsequent events through the date the financial statements were issued.
Principles of Consolidation
The consolidated financial statements include all of the accounts of the Company. The net income attributable to noncontrolling interests is not material to the Company’s consolidated net income. Intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements, in conformity with U.S. generally accepted accounting principles, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates and the differences could be material.
Revenue Recognition
The Company records revenue when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the Company’s price to the customer is fixed and determinable and collectability is reasonably assured. Delivery is not considered to have occurred until the customer assumes the risks and rewards of ownership.
Foreign Currency Translation
The consolidated balance sheets and statements of income of the Company’s foreign subsidiaries have been translated into U.S. dollars at the current and average exchange rates, respectively. The foreign currency translation adjustment is included as a component of accumulated other comprehensive loss.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
Trade Accounts Receivable and the Allowance for Doubtful Accounts
The Company evaluates the collectability of trade accounts receivable based on a combination of factors. Initially, the Company estimates an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience. This initial estimate is periodically adjusted when the Company becomes aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While the Company has a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which the Company operates could
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
result in higher than expected defaults, and, therefore, the need to revise estimates for bad debts. For the years ended December 31, 2011, 2010, and 2009, the Company recorded provisions for doubtful accounts of approximately $13,248,000, $10,597,000, and $28,463,000, respectively. At December 31, 2011 and 2010, the allowance for doubtful accounts was approximately $16,916,000 and $15,599,000, respectively.
Merchandise Inventories, Including Consideration Received From Vendors
Merchandise inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for a majority of automotive parts, electrical/electronic materials, and industrial parts, and by the first-in, first-out (FIFO) method for office products and certain other inventories. If the FIFO method had been used for all inventories, cost would have been approximately $422,178,000 and $383,094,000 higher than reported at December 31, 2011 and 2010, respectively. During 2011, 2010, and 2009 reductions in inventory levels in industrial parts inventories and electrical parts inventories (2009) resulted in liquidations of LIFO inventory layers. The effect of the LIFO liquidation in 2011, 2010, and 2009 was to reduce cost of goods sold by approximately $16,000,000, $25,000,000, and $22,000,000, respectively.
The Company identifies slow moving or obsolete inventories and estimates appropriate provisions related thereto. Historically, these losses have not been significant as the vast majority of the Company’s inventories are not highly susceptible to obsolescence and are eligible for return under various vendor return programs. While the Company has no reason to believe its inventory return privileges will be discontinued in the future, its risk of loss associated with obsolete or slow moving inventories would increase if such were to occur.
The Company enters into agreements at the beginning of each year with many of its vendors that provide for inventory purchase incentives. Generally, the Company earns inventory purchase incentives upon achieving specified volume purchasing levels or other criteria. The Company accrues for the receipt of these incentives as part of its inventory cost based on cumulative purchases of inventory to date and projected inventory purchases through the end of the year. While management believes the Company will continue to receive consideration from vendors in 2012 and beyond, there can be no assurance that vendors will continue to provide comparable amounts of incentives in the future.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist primarily of prepaid expenses and amounts due from vendors.
Goodwill and Other Intangible Assets
The Company reviews its goodwill and indefinite lived intangible assets annually in the fourth quarter, or sooner if circumstances indicate that the carrying amount may exceed fair value. The present value of future cash flows approach was used to determine any potential impairment. The Company determined that these assets were not impaired and, therefore, no impairments were recognized for the years ended December 31, 2011, 2010, or 2009. If an impairment occurs at a future date, it may have the effect of increasing the volatility of the Company’s earnings.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Other Assets
Other assets are comprised of the following:
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Buildings include certain leases capitalized at December 31, 2011 and 2010. Depreciation and amortization is primarily determined on a straight-line basis over the following estimated useful life of each asset: buildings and improvements, 10 to 40 years; machinery and equipment, 5 to 15 years.
Long-Lived Assets Other Than Goodwill
The Company assesses its long-lived assets other than goodwill for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining life of such assets. If these projected cash flows are less than the carrying amount, an impairment would be recognized, resulting in a write-down of assets with a corresponding charge to earnings. Impairment losses, if any, are measured based upon the difference between the carrying amount and the fair value of the assets.
Other Long-Term Liabilities
Other long-term liabilities are comprised of the following:
Self-Insurance
The Company is self-insured for the majority of group health insurance costs. A reserve for claims incurred but not reported is developed by analyzing historical claims data provided by the Company’s claims administrators. These reserves are included in accrued expenses in the accompanying consolidated balance sheets as the expenses are expected to be paid within one year.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Long-term insurance liabilities consist primarily of reserves for the workers’ compensation program. In addition, the Company carries various large risk deductible workers’ compensation policies for the majority of workers’ compensation liabilities. The Company records the workers’ compensation reserves based on an analysis performed by an independent actuary. The analysis calculates development factors, which are applied to total reserves as provided by the various insurance companies who underwrite the program. While the Company believes that the assumptions used to calculate these liabilities are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect workers’ compensation costs.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is comprised of the following:
Fair Value of Financial Instruments
The carrying amounts reflected in the 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 December 31, 2011 and 2010, the fair value of fixed rate debt was approximately $509,000,000 and $529,000,000, 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.
Shipping and Handling Costs
Shipping and handling costs are classified as selling, administrative and other expenses in the accompanying consolidated statements of income and totaled approximately $190,000,000, $180,000,000, and $150,000,000 for the years ended December 31, 2011, 2010, and 2009, respectively.
Advertising Costs
Advertising costs are expensed as incurred and totaled $45,100,000, $36,800,000, and $44,500,000 in the years ended December 31, 2011, 2010, and 2009, respectively.
Accounting for Legal Costs
The Company’s legal costs expected to be incurred in connection with loss contingencies are expensed as such costs are incurred.
Share-Based Compensation
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
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
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.
Net Income per Common Share
Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the year. The computation of diluted net income per common share includes the dilutive effect of stock options, stock appreciation rights and nonvested restricted stock awards options. Options to purchase approximately 850,000, 4,500,000, and 5,400,000 shares of common stock ranging from $37 - $54 per share were outstanding at December 31, 2011, 2010, and 2009, respectively. These options were excluded in the computation of diluted net income per common share because the options’ exercise price was greater than the average market price of common stock in each respective year.
2. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill during the years ended December 31, 2011, 2010, and 2009 by reportable segment, as well as other identifiable intangible assets, consisting primarily of customer relationship intangible assets, noncompete agreements, and trademarks, are summarized as follows (in thousands):
3. Credit Facilities
There were no amounts subject to variable rates at December 31, 2011 and 2010. The weighted average interest rate on the Company’s outstanding borrowings was approximately 4.01% and 5.45% at December 31, 2011 and 2010, respectively.
The Company maintains a $350,000,000 unsecured revolving line of credit with a consortium of financial institutions that matures in December 2012 and bears interest at LIBOR plus 0.30% (0.60% at December 31, 2011). The Company also has the option under this agreement to increase its borrowing an additional
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
$200,000,000. No amounts were outstanding under this line of credit at December 31, 2011 and 2010. Certain borrowings contain covenants related to a maximum debt-to-capitalization ratio and certain limitations on additional borrowings. At December 31, 2011, the Company was in compliance with all such covenants. Due to the workers’ compensation and insurance reserve requirements in certain states, the Company also had unused letters of credit of $53,703,000 and $50,419,000 outstanding at December 31, 2011 and 2010, respectively.
Amounts outstanding under the Company’s credit facilities consist of the following:
4. Leased Properties
In June 2003, the Company completed an amended and restated master agreement to the $85,000,000 construction and lease agreement (the Agreement). The lessor in the Agreement was an independent third-party limited liability company, which had as its sole member a publicly traded corporation. Properties acquired by the lessor were constructed and/or then leased to the Company under operating lease agreements. On June 26, 2009, the Agreement expired. In accordance with the Agreement, the Company purchased the properties from the lessor for $72,814,000, including closing costs. The properties are included in property, plant, and equipment in the accompanying consolidated balance sheets.
Future minimum payments, by year and in the aggregate, under the noncancelable operating leases with initial or remaining terms of one year or more consisted of the following at December 31, 2011 (in thousands):
Rental expense for operating leases was approximately $154,500,000 in 2011, $147,886,000 in 2010, and $153,523,000 in 2009.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
5. Share-Based Compensation
At December 31, 2011, total compensation cost related to nonvested awards not yet recognized was approximately $15,900,000. The weighted-average period over which this compensation cost is expected to be recognized is approximately three years. The aggregate intrinsic value for options and RSUs outstanding at December 31, 2011 and 2010 was approximately $110,300,000 and $67,100,000, respectively. The aggregate intrinsic value for options and RSUs vested totaled approximately $77,800,000 and $45,900,000 at December 31, 2011 and 2010, respectively. At December 31, 2011, the weighted-average contractual life for outstanding and exercisable options and RSUs was six and four years, respectively. For the years ended December 31, 2011, 2010, and 2009, $7,547,000, $7,016,000, and $8,578,000 of share-based compensation cost was recorded, respectively. The total income tax benefit recognized in the consolidated statements of income for share-based compensation arrangements was approximately $3,000,000, $2,800,000, and $3,400,000 for 2011, 2010, and 2009, respectively. There have been no modifications to valuation methodologies or methods during the years ended December 31, 2011, 2010, and 2009.
For the years ended December 31, 2011 and 2010 the fair value for options and SARs granted was estimated using a Black-Scholes option pricing model with the following weighted-average assumptions, respectively: risk-free interest rate of 3.6% and 3.6%; dividend yield of 3.8% and 4.6%; annual historical volatility factor of the expected market price of the Company’s common stock of 19% and 19%; an average expected life and estimated turnover based on the historical pattern of existing grants of approximately eight years and 5.0% to 6.0%, respectively. The fair value of RSUs is based on the price of the Company’s stock on the date of grant. The Company had no grant activity for the year ended December 31, 2009. The total fair value of shares vested during the years ended December 31, 2011, 2010, and 2009, was $7,200,000, $9,200,000, and $13,200,000, respectively.
A summary of the Company’s share-based compensation activity and related information is as follows:
(1) Shares include Restricted Stock Units (RSUs).
(2) The weighted-average exercise price excludes RSUs.
(3) The exercise prices for options and SARs outstanding as of December 31, 2011 ranged from approximately $32 to $54. The weighted-average remaining contractual life of all options and SARs outstanding is approximately six years.
The weighted-average grant date fair value of options and SARs granted during the years 2011 and 2010 was $8.18 and $5.41, respectively. The Company had no grant activity for the year ended December 31, 2009. The aggregate intrinsic value of options exercised during the years ended December 31, 2011, 2010, and 2009 was $25,100,000, $15,700,000, and $4,700,000.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
In 2011, the Company granted approximately 1,028,000 SARs and 126,000 RSUs. In 2010, the Company granted approximately 1,002,000 SARs and 124,000 RSUs.
A summary of the Company’s nonvested share awards (RSUs) activity is as follows:
For the years ended December 31, 2011, 2010, and 2009 approximately $5,400,000, $3,300,000, and ($684,000), respectively, of excess tax benefits (expense) was classified as a financing cash inflow (outflow).
6. Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested. As such, no U.S. federal and state income taxes have been provided thereon, and it is not practicable to determine the amount of the related unrecognized deferred income tax liability. Significant components of the Company’s deferred tax assets and liabilities are as follows:
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
The current portion of the deferred tax liability is included in income taxes payable in the consolidated balance sheets. The Company has a capital loss carryforward of approximately $42,000,000 that will expire in 2013.
The components of income tax expense are as follows:
The reasons for the difference between total tax expense and the amount computed by applying the statutory Federal income tax rate to income before income taxes are as follows:
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, various states, and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state and local tax examinations by tax authorities for years before 2008 or subject to non-United States income tax examinations for years ended prior to 2002. The Company is currently under audit in the United States and Canada. Some audits may conclude in the next 12 months and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts. It is not possible to estimate the effect, if any, of the amount of such change during the next twelve months to previously recorded uncertain tax positions in connection with the audits. However, the Company does not anticipate total unrecognized tax benefits will significantly change during the year due to the settlement of audits and the expiration of statutes of limitations.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
The amount of gross tax effected unrecognized tax benefits, including interest and penalties, as of December 31, 2011 and 2010 was approximately $59,532,000 and $50,216,000, respectively, of which approximately $18,966,000 and $18,189,000, respectively, if recognized, would affect the effective tax rate. During the
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
years ended December 31, 2011, 2010, and 2009, the Company paid interest and penalties of approximately $759,000, $272,000, and $363,000, respectively. The Company had approximately $12,687,000 and $10,791,000 of accrued interest and penalties at December 31, 2011 and 2010, respectively. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.
7. Employee Benefit Plans
The Company’s defined benefit pension plans cover most of its employees in the U.S. and Canada. The plan covering U.S. employees is noncontributory and benefits are based on the employees’ compensation during the highest five of their last ten years of credited service. The Canadian plan is contributory and benefits are based on career average compensation. The Company’s funding policy is to contribute an amount equal to the minimum required contribution under applicable pension legislation. The Company may increase its contribution above the minimum if appropriate to its tax and cash position and the plans’ funded position.
In 2008, the U.S. defined benefit plan was amended to prohibit employees hired on or after March 1, 2008, from participating in the plan. The plan was also amended to freeze credited service for participants who do not meet certain age and length of service requirements as of December 31, 2008. However, the plan continues to reflect future pay increases for all participants.
In April 2009, the Company recorded a $4,298,000 noncash curtailment adjustment in connection with a reorganization, which reduced the expected years of future service of employees covered by the U.S. defined benefit pension plan. Curtailment accounting is required if an event eliminates, for a significant number of employees, the accrual of defined benefits for some or all of their future service.
The Company also sponsors supplemental retirement plans covering employees in the U.S. and Canada and other postretirement benefit plans in the U.S. The Company uses a measurement date of December 31st for its pension and other postretirement benefit plans.
In July 2009, the Company announced changes to the U.S. postretirement benefit plan. Effective January 1, 2010, future retirees no longer receive employer-provided medical benefits and current pre-65 retirees no longer receive employer-provided post-65 medical benefits (beyond an access-only arrangement).
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
The benefit obligations for the Company’s U.S. pension plans included in the above were $1,775,994,000 and $1,542,469,000 at December 31, 2011 and 2010, respectively. The total accumulated benefit obligation for the Company’s defined benefit pension plans was approximately $1,756,546,000 and $1,526,951,000 at December 31, 2011 and 2010, respectively.
The assumptions used to measure the pension and other postretirement plan benefit obligations for the plans at December 31, 2011 and 2010, were:
An 8.00% annual rate of increase in the per capita cost of covered health care benefits was assumed on December 31, 2011. The rate was assumed to decrease ratably to 4.80% at December 31, 2019, and thereafter.
The fair values of plan assets for the Company’s U.S. pension plans included in the above were $1,320,036,000 and $1,294,348,000 at December 31, 2011 and 2010, respectively.
The asset allocations for the Company’s funded pension plans at December 31, 2011 and 2010, and the target allocation for 2012, by asset category were:
The Company’s benefit plan committees in the U.S. and Canada establish investment policies and strategies and regularly monitor the performance of the funds. The pension plan strategy implemented by the Company’s management is to achieve long-term objectives and invest the pension assets in accordance with the applicable pension legislation in the U.S. and Canada, as well as fiduciary standards. The long-term primary objectives for
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
the pension plans are to provide for a reasonable amount of long-term growth of capital, without undue exposure to risk, protect the assets from erosion of purchasing power, and provide investment results that meet or exceed the pension plans’ actuarially assumed long-term rates of return. The Company’s investment strategy with respect to pension plan assets is to generate a return in excess of the passive portfolio benchmark (50% S&P 500 Index, 5% Russell Mid Cap Index, 10% Russell 2000 Index, 5% MSCI EAFE Index, and 30% BarCap U.S. Govt/Credit).
The fair values of the plan assets as of December 31, 2011 and 2010, by asset category, are shown in the tables below. Various inputs are considered when determining the value of the Company’s pension plan assets. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. Level 1 represents observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 represents other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.) Level 3 represents significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).
The valuation methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Equity securities are valued at the closing price reported on the active market on which the individual securities are traded on the last day of the calendar plan year. Debt securities including corporate bonds, U.S. Government securities, and asset-backed securities are valued using price evaluations reflecting the bid and/or ask sides of the market for an investment as of the last day of the calendar plan year.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Equity securities include Genuine Parts Company common stock in the amounts of $123,436,000 (8.4% of total plan assets) and $103,549,000 (7.2% of total plan assets) at December 31, 2011 and 2010, respectively. Dividend payments received by the plan on Company stock totaled approximately $3,630,000 and $3,308,000 in 2011 and 2010, respectively. Fees paid during the year for services rendered by parties in interest were based on customary and reasonable rates for such services.
There were no changes in the fair value measurement of plan assets using significant unobservable inputs (Level 3) during 2011 and the 2010 changes were not material.
Based on the investment policy for the pension plans, as well as an asset study that was performed based on the Company’s asset allocations and future expectations, the Company’s expected rate of return on plan assets for measuring 2012 pension cost or income is 7.84% for the plans. The asset study forecasted expected rates of return for the approximate duration of the Company’s benefit obligations, using capital market data and historical relationships.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheets at December 31:
Amounts recognized in the consolidated balance sheets consist of:
Amounts recognized in accumulated other comprehensive loss consist of:
For the pension benefits, the following table reflects the total benefits expected to be paid from the plans’ or the Company’s assets. Of the pension benefits expected to be paid in 2012, approximately $4,985,000 is expected to be paid from employer assets. For pension benefits, expected employer contributions reflect amounts expected to be contributed to funded plans. For other postretirement benefits, the following table’s employer contributions reflect only the Company’s share of the benefit cost. The expected benefit payments show the Company’s cost without regard to income from federal subsidy payments received pursuant to the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA). Expected federal subsidy payments, which reduce the Company’s cost for the plan, are shown separately.
Information about the expected cash flows for the pension plans and other post retirement benefit plans follows:
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Net periodic benefit cost included the following components:
Other changes in plan assets and benefit obligations recognized in other comprehensive income are as follows:
The estimated amounts that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2012 are as follows:
The assumptions used in measuring the net periodic benefit costs for the plans follow:
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
A 7.75% annual rate of increase in the per capita cost of covered health care benefits was assumed on December 31, 2010. The rate was assumed to decrease ratably to 4.75% at December 31, 2016, and thereafter. The effect of a one-percentage-point change in the assumed health care cost trend rate is not significant.
The Company has two defined contribution plans that cover substantially all of its domestic employees. The Company’s matching contributions are determined based on the employee’s participation in the U.S. pension plan. Pension plan participants who continue earning credited service after 2008 receive a matching contribution of 20% of the first 6% of the employee’s salary. Other employees receive a matching contribution of 100% of the first 5% of the employee’s salary. Total plan expense for both plans was approximately $38,773,000 in 2011, $33,476,000 in 2010, and $31,783,000 in 2009.
8. 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 other equity conversion rights 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 generally 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 December 31, 2011, the Company was in compliance with all such covenants.
At December 31, 2011, the total borrowings of the independents and affiliates subject to guarantee by the Company were approximately $217,200,000. 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 guarantees related to the independents’ and affiliates’ borrowings as of December 31, 2011 and 2010. These liabilities are not material to the financial position of the Company and are included in other long-term liabilities in the accompanying consolidated balance sheets.
9. Acquisitions
During 2011, the Company acquired three companies in the Industrial Group and one company in the Electrical/Electronic Materials Group for approximately $115,600,000. During 2010, the Company acquired four companies in the Industrial and Electrical/Electronic Materials Groups for approximately $90,645,000. During 2009, the Company acquired eight companies in the Industrial and Automotive Groups for approximately $71,038,000.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
The Company allocated the purchase price to the assets acquired and the liabilities assumed based on their fair values as of their respective acquisition dates. The results of operations for the acquired companies were included in the Company’s consolidated statements of income beginning on their respective acquisition dates. The Company recorded approximately $78,210,000, $40,247,000, and $12,199,000 of goodwill and other intangible assets associated with the 2011, 2010, and 2009 acquisitions, respectively. The Company is in the process of analyzing the estimated values of assets and liabilities acquired for certain 2011 acquisitions. The allocation of the purchase price is therefore preliminary and subject to revision.
On June 1, 2009, the Company acquired the remaining noncontrolling interest in its consolidated subsidiary, Balkamp, Inc., for approximately $63,165,000. The acquisition was accounted for as an equity transaction and the associated noncontrolling interest in the subsidiary’s equity was eliminated as part of the transaction.
10. Subsequent Event
Effective January 1, 2012, the Company acquired a 30% investment in the Exego Group for approximately $150,000,000. The acquisition was funded with the Company’s cash on hand. Based on the terms of the 30% investment, an additional payment may be required, but it is not expected to be material. 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 $1,000,000,000 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.
11. Segment Data
The Company’s reportable segments consist of automotive, industrial, office products, and electrical/electronic materials. Within the reportable segments, certain of the Company’s operating segments are aggregated since they have similar economic characteristics, products and services, type and class of customers, and distribution methods.
The Company’s automotive segment distributes replacement parts (other than body parts) for substantially all makes and models of automobiles, trucks, and other vehicles.
The Company’s industrial segment distributes a wide variety of industrial bearings, mechanical and fluid power transmission equipment, including hydraulic and pneumatic products, material handling components, and related parts and supplies.
The Company’s office products segment distributes a wide variety of office products, computer supplies, office furniture, and business electronics.
The Company’s electrical/electronic materials segment distributes a wide variety of electrical/electronic materials, including insulating and conductive materials for use in electronic and electrical apparatus.
Inter-segment sales are not significant. Operating profit for each industry segment is calculated as net sales less operating expenses excluding general corporate expenses, interest expense, equity in income from investees, amortization, and noncontrolling interests. Approximately $106,000,000, $68,200,000, and $38,900,000 of income before income taxes was generated in jurisdictions outside the United States for the years ended December 31, 2011, 2010, and 2009, respectively. Net sales and net long-lived assets by country relate directly to the Company’s operations in the respective country. Corporate assets are principally cash and cash equivalents and headquarters’ facilities and equipment.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
For management purposes, net sales by segment exclude the effect of certain discounts, incentives, and freight billed to customers. The line item “other” represents the net effect of the discounts, incentives, and freight billed to customers that are reported as a component of net sales in the Company’s consolidated statements of income.
Genuine Parts Company and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Annual Report on Form 10-K
Item 15(c)
Schedule Valuation and Qualifying Accounts Financial Statement Schedule II - Valuation and Qualifying Accounts
Genuine Parts Company and Subsidiaries
(1) Doubtful accounts written off, net of recoveries.
S-1
ANNUAL REPORT ON FORM 10-K
INDEX OF EXHIBITS
The following exhibits are filed (or furnished, if so indicated) herewith as a part of this Report:
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
31.1
Certification signed by the Chief Executive Officer pursuant to SEC Rule 13a-14(a).
31.2
Certification signed by the Chief Financial Officer pursuant to SEC Rule 13a-14(a).
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 (furnished herewith).
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 (furnished herewith).
Interactive data files pursuant to Rule 405 of Regulation S-T.
The following exhibits are incorporated by reference as set forth in Item 15 of this Form 10-K:
- 3.1
Amended and Restated Articles of Incorporation of the Company, amended April 23, 2007.
- 3.2
By-Laws of the Company as amended and restated August 20, 2007.
- 4.2
Specimen Common Stock Certificate.
Instruments with respect to long-term debt where the total amount of securities authorized there under does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis have not been filed. The Registrant agrees to furnish to the Commission a copy of each such instrument upon request.
- 10.1*
The Genuine Parts Company Restated Tax-Deferred Savings Plan, effective January 1, 1993.
- 10.2*
Amendment No. 1 to the Genuine Parts Company Tax-Deferred Savings Plan, dated June 1, 1996, effective June 1, 1996.
- 10.3*
Genuine Parts Company Death Benefit Plan, effective July 15, 1997.
- 10.4*
Amendment No. 2 to the Genuine Parts Company Tax-Deferred Savings Plan, dated April 19, 1999, effective April 19, 1999.
- 10.5*
The Genuine Parts Company Original Deferred Compensation Plan, as amended and restated as of August 19, 1996.
- 10.6*
Amendment to the Genuine Parts Company Original Deferred Compensation Plan, dated April 19, 1999, effective April 19, 1999.
- 10.7*
Amendment No. 3 to the Genuine Parts Company Tax-Deferred Savings Plan, dated November 28, 2001, effective July 1, 2001.
- 10.8*
Genuine Parts Company 1999 Long-Term Incentive Plan, as amended and restated as of November 19, 2001.
- 10.9*
Amendment No. 4 to the Genuine Parts Company Tax-Deferred Savings Plan, dated June 5, 2003, effective June 5, 2003.
- 10.10*
Genuine Parts Company Directors’ Deferred Compensation Plan, as amended and restated effective January 1, 2003, and executed November 11, 2003.
- 10.11*
Genuine Parts Company Stock Appreciation Rights Agreement.
- 10.12*
Amendment No. 5 to the Genuine Parts Company Tax-Deferred Savings Plan.
- 10.13*
Amendment No. 2 to the Genuine Parts Company Death Benefit Plan.
- 10.14*
Genuine Parts Company 2006 Long-Term Incentive Plan, effective April 17, 2006.
- 10.15*
Amendment to the Genuine Parts Company 2006 Long-Term Incentive Plan, dated November 20, 2006, effective November 20, 2006.
- 10.16*
Amendment No. 1 to the Genuine Parts Company Directors’ Deferred Compensation Plan, dated November 19, 2007, effective January 1, 2008.
- 10.17*
Amendment No. 6 to the Genuine Parts Company Tax-Deferred Savings Plan, dated November 28, 2007, effective January 1, 2008.
- 10.18*
Amendment No. 2 to the Genuine Parts Company 2006 Long-Term Incentive Plan, dated November 19, 2007, effective November 19, 2007.
- 10.19*
Genuine Parts Company Performance Restricted Stock Unit Award Agreement.
- 10.20*
Genuine Parts Company Restricted Stock Unit Award Agreement.
- 10.21*
Specimen Change in Control Agreement, as amended and restated as of November 19, 2007.
- 10.22*
Genuine Parts Company Supplemental Retirement Plan, as amended and restated as of January 1, 2009.
- 10.23*
Genuine Parts Company 2009 Annual Incentive Bonus Plan, dated March 31, 2009, effective
January 1, 2009.
- 10.24*
Amendment No. 1 to the Genuine Parts Company Supplemental Retirement Plan, as amended and restated as of January 1, 2009, dated August 16, 2010, effective August 16, 2010.
- 10.25*
Amendment No. 2 to the Genuine Parts Company Supplemental Retirement Plan, as amended and restated January 1, 2009, dated November 16, 2010, effective January 1, 2011.
- 10.26*
Amendment No. 7 to the Genuine Parts Company Tax-Deferred Savings Plan, dated November 16, 2010, effective January 1, 2011.
- 10.27*
Description of Director Compensation.
* Indicates management contracts and compensatory plans and arrangements.
BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
BOARD OF DIRECTORS
Dr. Mary B. Bullock
President Emerita of Agnes Scott College
Jean Douville
Chairman of the Board of Directors of UAP Inc.
Thomas C. Gallagher
Chairman and Chief Executive Officer
George C. “Jack” Guynn
Retired President and Chief Executive Officer of the Federal Reserve Bank of Atlanta
John R. Holder
Chairman and Chief Executive Officer of Holder Properties
John D. Johns
Chairman, President & Chief Executive Officer of Protective Life Corporation
Michael M. E. Johns, MD
Chancellor of Emory University and Executive Vice President for Health Affairs, Emeritus
J. Hicks Lanier
Chairman of the Board of Directors and Chief Executive Officer of Oxford Industries, Inc.
Robert C. “Robin” Loudermilk, Jr.
President and Chief Executive Officer of The Loudermilk Companies, LLC
Wendy B. Needham
Retired Managing Director, Global Automotive Research at Credit Suisse First Boston
Jerry W. Nix
Vice Chairman and Chief Financial Officer
Gary W. Rollins
President and Chief Executive Officer of Rollins Inc.
Corporate Officers
Thomas C. Gallagher
Chairman and Chief Executive Officer
Jerry W. Nix
Vice Chairman and Chief Financial Officer
Paul D. Donahue
President
Treg S. Brown
Senior Vice President - Planning and Acquisitions
Charles A. Chesnutt
Senior Vice President - Technology and Process Improvement
R. Bruce Clayton
Senior Vice President - Human Resources
Frank M. Howard
Senior Vice President and Treasurer
Michael D. Orr
Senior Vice President - Operations and Logistics
Scott C. Smith
Senior Vice President - Corporate Counsel
Carol B. Yancey
Senior Vice President - Finance and Corporate Secretary
Philip C. Johnson
Vice President - Compensation
Sidney G. Jones
Vice President - Investor Relations
Karl J. Koenig
Vice President - Real Estate and Construction
Eric N. Sundby
Vice President - Information Technology
David A. Haskett
Assistant Vice President and Corporate Controller
Napoleon B. Rutledge, Jr.
Assistant Vice President - Internal Audit
U.S. Automotive Parts Group
Paul D. Donahue
President
Lee A. Maher
Executive Vice President and Chief Operating Officer
Glenn M. Chambers
Executive Vice President - Operations
Scott W. LeProhon
Executive Vice President - Merchandising and Product Strategy
Daniel F. Askey
Senior Vice President - Sales
Todd P. Helms
Senior Vice President - Human Resources
Gregory N. Miller
Senior Vice President and Chief Financial Officer
W. Larry Bevil
Vice President - Information Systems
J. Richard Borman
Vice President - Supply Chain and Logistics
Michael A. Briggs
Vice President - Retail Product Management and Merchandising
Byron H. Frantz
Vice President - Wholesale Product Management
Michael J. Fusaro
Vice President - Process Improvement - Distribution
Richard A. Geiger
Vice President - Finance
Mark W. Hohe
Vice President - Store Operations
David B. Nicki
Vice President - NAPA Tools and Equipment Sales
J. Michael Phillips
Vice President - Organizational Development
Bret A. Robyck
Vice President - AutoCare Sales
Gaylord M. Spencer
Vice President - Marketing Strategy
Michael L. Swartz
Vice President - Inventory & Procurement
Dennis P. Tolivar
Vice President - Major Accounts
DIVISIONS
M. Todd McMurtrie
Vice President - Atlantic Division
Grant L. Morris
Vice President - Central Division
Michael J. Kelleher
Vice President - Eastern Division
Gregg T. Sargent
Vice President - Florida Division
Kevin E. Herron
Vice President - Midwest Division
Eric G. Fritsch
Vice President - Mountain Division
Patrick A. Wolfe
Vice President - Southern Division
Stuart A. Kambury
Vice President - Southwest Division
Bradley A. Shaffer
Vice President - Western Division
Heavy Vehicle Parts Group (Atlanta, GA)
D. Gary Silva
President
Greg A. Lancour
Vice President - Operations
Rayloc (Atlanta, GA)
William J. Westerman III
President
Damon E. Elmore
Vice President - Human Resources
Michael S. Gaffney II
Vice President - Marketing
Joseph W. Lashley
Vice President - Information Services
Debbie E. Niffin
Vice President - Finance
Balkamp, Inc. (Indianapolis, IN)
D. Tip Tollison
President
Frank C. Amato
Executive Vice President
Mary F. Knudsen
Vice President - Finance and Treasurer
Grupo Auto Todo (Puebla, Mexico)
Juan Lujambio
President and Chief Executive Officer
Jorge Otero
Executive Vice President - Finance
Altrom Import Parts Group (Vancouver, Canada)
Scott S. Mountford
President - Altrom North America
Dean P. Medwid
Vice President and General Manager - Altrom Canada
NAPA Canada/UAP Inc. (Montreal, Canada)
Jean Douville
Chairman of the Board
Robert Hattem
President and Chief Operating Officer
Alain Masse
Executive Vice President - Heavy Vehicle Parts Division
Daniel Dallaire
Vice President - Human Resources
Joseph P. Herauf
Vice President - Sales
Thomas Hunt
Vice President - Product Development
Mark Miron
Vice President - Distribution & Logistics
Frank Pipito
Vice President - Finance & Secretary
EIS, Inc. (Atlanta, GA)
Robert W. Thomas
President and Chief Executive Officer
Alexander Gonzalez
Senior Vice President - Electrical and Assembly
Larry L. Griffin
Senior Vice President - Marketing
Thomas A. Jones
Senior Vice President - Manufacturing
William C. Knight
Senior Vice President - Logistics and Operations
David T. Quinn
Senior Vice President - Seacoast Electric Division
Peter F. Sheehan
Senior Vice President - Specialty Wire and Cable
Matthew C. Tyser
Senior Vice President - Finance and Secretary
Motion Industries (Birmingham, AL)
William J. Stevens
President and Chief Executive Officer
Timothy P. Breen
Executive Vice President and Chief Operating Officer - U.S.
G. Harold Dunaway, Jr.
Executive Vice President - Finance & Administration and Secretary
Randall P. Breaux
Senior Vice President - Marketing, Strategic Planning and Product Support
Anthony G. Cefalu
Senior Vice President and Group Executive - Central and Hose & Rubber
Ellen H. Holladay
Senior Vice President, Chief Information Officer and Operational Excellence Officer
R. David James
Senior Vice President - Business Development
Scott A. MacPherson
Senior Vice President - Sales
Kenneth L. McGrew
Senior Vice President and Chief Operating Officer - Industrial Supplies
James R. Neill
Senior Vice President - Human Resources
Mark W. Sheehan
Senior Vice President and President - Motion Mexico
Kevin P. Storer
Senior Vice President & Group Executive - West
Gerald V. Sourbeer
Senior Vice President and Group Executive - Southeast
Mark R. Thompson
Senior Vice President - Corporate Accounts
Randy R. Till
Senior Vice President & Group Executive - East
John D. Walters
Senior Vice President & Group Executive - Southwest
Zahirudin K. Hameer
Vice President - Inventory Management
M. Keith Knight
Vice President - Business Systems
Douglas R. Osborne
Vice President and Director - Operational Excellence
C. Jeff Rouse
Vice President - Government Sales and Export
Brandon C. Scordino
Vice President - Technology Planning and Development
James R. Summers
Vice President - Systems Assurance & Data Center Operations
J. Marvin Walker
Vice President - Finance
James F. Williams
Vice President - Corporate Purchasing
Dermot R. Strong
President - Motion Canada
S. P. Richards Company (Atlanta, GA)
C. Wayne Beacham
Chairman of the Board and Chief Executive Officer
Richard T. Toppin
President and Chief Operating Officer
Steven E. Lynn
Senior Vice President - Merchandising
Donald C. Mikolasy
Senior Vice President - Sales
James F. O’Brien
Senior Vice President - Marketing
Dennis J. Arnold
Vice President - Furniture
John K. Burgess
Vice President - Sales
E. Chadwick Lee
Vice President - Logistics
Charles E. Macpherson
Vice President - Strategic Pricing
Tom C. Maley
Vice President - Business Development & Analytics
G. Henry Martin
Vice President - Human Resources
Brian M. McGill
Vice President - Information Systems & CIO
James C. Moseley
Vice President - Information Systems
John R. Reagan
Vice President - Merchandising
Thomas M. Testa
Vice President - Sales
J. Phillip Welch, Jr.
Vice President - Finance, Controller, Secretary and Treasurer
Chris F. Whiting
Vice President - Cleaning and Breakroom Supply
Bryan A. Wight
Vice President - Sales - Emerging Markets
Lester P. Christian
Vice President - Southeast Division
Bryan T. Hall
Vice President - South Central Division
Gregory L. Nissen
Vice President - Western Division
James P. O’Connor
Vice President - Northeast Division
Richard A. Wiltz
Vice President - North Central Division
Peter R. Dalglish
Managing Director - S. P. Richards Canada