Napa Auto Parts 2002 Annual Report Download - page 20

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Results of Operations:
Years ended December 31, 2002 and 2001
Net sales for the year ended December 31, 2002, totaled
$8.26 billion, which was a slight increase from 2001. Sales
for the Automotive Group (“Automotive”) were $4.3 billion in
2002, an increase of 2% over 2001. Sales for S.P. Richards,
our Office Products Group (“Office”), were $1.4 billion, up
1% over 2001. Sales for Motion Industries, our Industrial
Group (“Industrial”), were $2.2 billion, a slight increase over
the previous year; and sales for EIS, our Electrical and
Electronic Group (“Electrical”), were down 19% to $316
million. All industry groups continue to be affected by the
slow economy with the impact being greatest for EIS due to
the telecommunication and manufacturing sectors of the
economy. Prices were down slightly in the Automotive and
Electrical segments, while pricing in the Industrial and Office
segments increased 2% and .7%, respectively.
Cost of goods sold was 69.1% of net sales in 2002 as
compared to 69.3% in 2001. The decrease can be attributed
to more efficient supply chain costs, inventory mix and certain
inventory related exit costs in 2001. Selling, administrative,
and other expenses of $1.9 billion were flat as compared to
2001, and slightly down from the previous year as a percent-
age of sales.
Operating profit as a percentage of sales was 8.5% for the
year, which was flat with 2001. These results are reflective
of the overall economic conditions, as well as the fixed costs
inherent in distribution, which have continued to impact
operating margins. Automotive operating margins decreased
slightly from 8.9% in 2001 to 8.8% in 2002. Costs associated
with new store openings were only partially offset by cost
reductions associated with distribution center closings and
other headcount reductions. Industrial operating margins
increased from 7.7% in 2001 to 7.9% in 2002, reflecting cost
and headcount reductions resulting from branch closings.
Office Products margins decreased slightly from 10.3% in
2001 to 10.1% in 2002. Our Electrical and Electronic segment
increased their margins slightly.
The effective income tax rate decreased from 40.1% to
39.3% for the year, primarily as a result of the decrease in
non-deductible goodwill amortization due to the adoption of
Statement of Financial Accounting Standards No. 142,
“Goodwill and Other Intangible Assets” (SFAS 142). Net
income, before the cumulative effect of a change in account-
ing principle related to goodwill, was 4.5% of net sales as
compared to 3.6% in 2001. Net income for 2002, before the
cumulative effect of a change in accounting principle related
to goodwill impairment was $368 million, an increase of 2%,
compared to $362 million, before the Facility Consolidation,
Impairment and Other Charges (“2001 Charges”) as discussed
below, for the same period in the prior year. On a per share
diluted basis, net income for the period, before the 2002
cumulative effect of a change in accounting principle related
to goodwill and the 2001 Charges equaled $2.10, as com-
pared to $2.08 reported in 2001. After the 2002 cumulative
effect of a change in accounting principle related to goodwill
and the 2001 Charges, the net loss was $28 million, or $.16
diluted loss per share for 2002, as compared to net income in
2001 of $297 million, or $1.71 diluted earnings per share.
Years ended December 31, 2001 and 2000
Net sales in 2001 were $8.2 billion, a decline of 2% as com-
pared to 2000. The Automotive Group and Office Products
Group increased sales by 2% and 3%, respectively. Price
increases for Automotive were 2% in 2001 and 1% in 2000
and, for Office, 2% in 2001 and 1.7% in 2000. Industrial and
EIS reported sales decreases of 5% and 30%, respectively,
resulting from the economic slowdown in the industrial manu-
facturing and telecommunication sectors of the economy.
Although Industrial and Electrical each had price increases of
1% in 2001 and 2% and 1%, respectively, in 2000, the effect
of such increases was more than offset by volume declines.
Cost of goods sold was 69.3% of net sales in 2001 as com-
pared to 68.9% in 2000. The slight increase in cost of goods
sold as a percentage of net sales is primarily attributable to
continued pricing pressures resulting from the recessionary
economic conditions coupled with inventory-related exit costs
discussed below totaling approximately $17.4 million. Selling,
administrative and other expenses of $1.9 billion were flat
management’s discussion and analysis of financial condition and results of operations
December 31, 2002