Napa Auto Parts 2003 Annual Report Download - page 4

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TO OUR SHAREHOLDERS
We are pleased to have the opportunity to give you our thoughts
and comments on the year 2003 for Genuine Parts Company and
what we see ahead for 2004. Total sales for 2003 reached $8.45
billion, an increase of 2% and a new record level for us exceeding
our previous high set in the year 2000.
Net earnings of $353.6 million before an accounting change were
down 4% compared to 2002 and earnings per share before the
effect of a change in accounting principle in 2003 and 2002, were
$2.03 compared to $2.10, respectively. We are disappointed that
earnings before the cumulative effect adjustments were not on
the plus side given our sales improvement. While we were able
to do a commendable job of expense control, our gross profit
margins before the reclassification of vendor consideration, were
below those of the previous year and negatively impacted our
earnings picture. There are a number of actions we can take to
improve margins for 2004 and this is certainly a priority for our
entire GPC Management Team.
As you may recall, there have been a number of accounting
changes coming forward from the Financial Accounting Standards
Board in recent times. Effective January 1, 2003, all companies
including GPC were required to adopt the Financial Accounting
Standards Board's EITF 02-16 affecting the accounting treatment
of cash consideration received from vendors. As a result of EITF
02-16, a non-cash charge of $20 million was recorded as of January
1, 2003 representing the cumulative effect of a change in account-
ing principle. It is important to note that these changes have no
impact on our operating results and no cash implications for us.
FINANCIAL STRENGTH
The Company’s balance sheet remains strong and our financial
condition is excellent. Our ratio of current assets to current liabili-
ties was 3.4/1 at year-end, a slight increase over the previous year,
and we continued to generate strong cash flow, with approxi-
mately $402 million in cash flow from operations for 2003. We
used cash during the year to invest $74 million in necessary capital
expenditures for our businesses and reduced total debt by approx-
imately $114 million. This represents the second consecutive year
of significant debt reduction for us, and our total debt to total
capitalization ratio moved down to 23% from 27% in 2002.
The Company also purchased approximately 600,000 shares of
our Company stock during 2003, as part of our gradual share
repurchase plan and we currently have an additional 6.6 million
shares authorized for repurchase. We will continue to use
available cash flow to further reduce our debt levels and remain
active in our share repurchase plan for 2004.
DIVIDENDS
The Company has paid a dividend every year since going public in
1948 and the $1.18 per share dividend paid in 2003 was our 47th
consecutive year of dividend increases. We are pleased to report
that on February 16, 2004, the Board of Directors continued this
significant tradition by increasing the cash dividend payable April 1,
2004 to an annual rate of $1.20 per share. The new cash dividend
represents 59% of our 2003 earnings before the effect of a change
in accounting principle and becomes our 48th consecutive year of
dividend increases.
MANAGEMENT
In June 2003, Robert L. Fitts, Chairman of S.P. Richards Company,
retired after 29 years of service with the Company. Bob joined
Motion Industries in 1974 and was promoted through several sig-
nificant positions there, moving to S.P. Richards in 1985. Bob led our
Office Products segment through a period of excellent growth in
both sales and earnings and provided splendid leadership to the
S.P.R. team. Our thanks and best wishes to Bob as he looks ahead.
Following Bob's retirement at S.P. Richards, C. Wayne Beacham
has been named Chairman in addition to his title of Chief Executive
Officer, and Paul D. Donahue was named President and Chief
Operating Officer. Paul was previously the Executive Vice President
of Sales and Marketing.
In August 2003, the Board of Directors elected Robert J. Susor as
Executive Vice President of Genuine Parts Company. Bob was pre-
viously Senior Vice President - Market Development and has over
35 years of experience with the Company. This promotion recog-
nizes Bob for the fine job he has done and the expanded role he
plays within the Automotive Group of Genuine Parts Company.
In December 2003, Albert T. Donnon, Group Vice President of the
Midwest Group of our U.S. Automotive Parts Group, announced
his retirement after 30 years of service with the Company. We
thank Al for his dedication and many positive contributions to
Genuine Parts Company and wish him the best in the years ahead.
Lee A. Maher has been promoted to this key position and is well
prepared for this opportunity. Lee has been a part of our organi-
zation for 26 years and was previously the Midwest Division Vice
President for Distribution.
In January 2004, Larry R. Samuelson was elected President of the
U.S. Automotive Parts Group. For the past four years, Larry has
WE WERE ENCOURAGED WITH OUR SALES PICTURE
EARLY IN THE YEAR, EXPERIENCED A SLOWING IN
QUARTERS TWO AND THREE AND THEN A
STRENGTHENING IN THE FINAL QUARTER WITH
SALES IMPROVING BY 5%. WE ARE OPTIMISTIC THAT
THIS STRONGER SALES TREND WILL CARRY OVER
INTO 2004.
LARRY L. PRINCE THOMAS C. GALLAGHER
Chairman of the Board President