Napa Auto Parts 2002 Annual Report Download - page 7

Total sales reached $8.25 billion in 2002, up slightly compared
to the previous year. Net earnings were $367 million, an increase
of 2%. Earnings on a per share basis were $2.10 compared to
the $2.08 produced in 2001. The earnings number for 2002 is
before the cumulative effect of a change in accounting principle
and the 2001 earnings figure excludes the effect of non–recur-
ring charges taken in the final quarter of that year. After the
cumulative effect adjustment described in the next paragraph,
we had a net loss in 2002 of $27.6 million and in 2001, net
income of $297.1 million including the effect of the non-recur-
ring charges.
As we mentioned in our 2002 first quarter report, we recorded
a non-cash charge of $395 million as of January 1, 2002 related
to our goodwill impairment. This adjustment resulted from the
completion of impairment testing in conjunction with the new
Statement of Financial Accounting Standard No. 142, “Goodwill
and Other Intangible Assets”. The charge was recorded as a
cumulative effect of a change in accounting. The majority of
the goodwill written down related to acquisitions made in
1998 and 1999 and under prior accounting standards would
have been amortized over an extended period of time. Our core
U.S. operations for NAPA, Motion and S.P. Richards were
not affected by this change and we continue to have a positive
outlook on the operations that were affected by this change.
Financial Strength
The Company’s financial condition is excellent and our balance
sheet remains strong. Our current assets were 3.1 times current
liabilities at the end of the year. To fund our cash requirements
we generated $498 million in cash flow from operations.
Capital expenditures of $65 million were in our normal range
and included funds to maintain and improve our facilities,
equipment, systems and technology projects. We also used cash
to reduce our total debt in 2002 by approximately $100 mil-
lion, decreasing our total debt to total capitalization ratio to
27% compared to 28% at the end of 2001. Continued reduc-
tion of our debt will remain a priority for us again in 2003.
During the year the Company also purchased approximately
400,000 shares of our Company stock, leaving a balance of 7.2
million shares authorized to be repurchased. We believe that a
gradual share repurchase plan combined with a meaningful
cash dividend will add value for our shareholders over time.
Dividends
2002 was our 46th consecutive year of dividend increases, with
dividends of $1.16 per share. We are proud of our dividend
record, and are pleased that on February 17, 2003, the Board of
Directors increased the cash dividend payable April 1, 2003 to
an annual rate of $1.18 per share. This equals 56% of our 2002
earnings before the effect of a change in accounting principle
and becomes our 47th consecutive year of dividend increases.
Progress in Operations
As we mentioned earlier in our remarks we were able to show
improvement in both sales and earnings for the year. At mid year
our results in sales and earnings trailed the previous year and it
was apparent that our economy was showing little change to
stimulate business activity. We feel fortunate that our operations
found a way in the second half of the year to generate an
improved picture with revenue gains in both the third and
fourth quarters.
For the year, revenues in our Automotive Group were up
2% for the year and presented our most consistent picture with
sales showing some increase in all four quarters. While this level
of growth does not meet our expectations for the longer term,
we believe the fundamentals are in place to support a gradual
Larry L. Prince
Chairman of the Board
Thomas C. Gallagher
President
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