Napa Auto Parts 2005 Annual Report Download - page 6

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To our shareholders:
THOMAS C. GALLAGHER JERRY W. NIX
Chairman, President and Vice Chairman and
Chief Executive Officer Chief Financial Officer
2005 WAS ANOTHER RECORD YEAR FOR GENUINE PARTS COMPANY.
TOTAL SALES FOR THE YEAR ROSE TO $9.8 BILLION, AN INCREASE OF
8% OVER THE PRIOR YEAR. THIS FOLLOWS AN 8% INCREASE IN 2004
AND WE CONTINUE TO BE ENCOURAGED BY THE SALES PROGRESS
BEING MADE THROUGHOUT MOST PARTS OF THE COMPANY.NET
EARNINGS FOR THE YEAR WERE $437 MILLION, AN INCREASE OF 11%
AND EARNINGS PER SHARE WERE $2.50, ALSO UP 11%. WITH THESE
RESULTS, WE HAVE NOW INCREASED SALES IN 55 OF THE LAST 56
YEARS AND INCREASED PROFITS IN 43 OF THE LAST 45 YEARS. THIS
IS A RECORD THATWE ARE PROUD OF AND WE FEEL THATIT SHOWS
THE STABILITY AND CONSISTENCY OF GENUINE PARTS COMPANY.
FINANCIAL STRENGTH
Our financial condition was further strengthened in 2005. Through
continued focus on asset management, our ratio of current assets to
current liabilities was 3.0/1 at year-end and working capital as a per-
cent to sales was 26%. We also generated strong cash flow again in
2005 with approximately $440 million in cash flow from operations
for the year. Our long-term debt remained at $500 million and our
total debt to total capitalization ratio is 16%.
During the year, we used our cash to purchase 2.8 million shares of
our Company stock. We continue to view this as a good use of cash
and, as of December 31, 2005, we have 3.2 million shares remaining
in our current authorization. We will continue to make opportunistic
share purchases in 2006. We also invested $86 million in capital
expenditures in our businesses and we returned $216 million to
shareholders through dividends paid in 2005.
DIVIDENDS
The Company has paid a cash dividend to shareholders every year
since going public in 1948 and in 2005 we increased our dividend to
$1.25 per share, representing our 49th consecutive year of increases.
The Board of Directors, at its meeting on February 20, 2006, raised
the cash dividend payable April 1, 2006 by 8% to an annual rate of
$1.35 per share, or 54% of our 2005 earnings. 2006 will be our 50th
consecutive year of dividend increases.
PROGRESS IN OPERATIONS
We are pleased to report that each of our four business segments
contributed to the progress made in 2005. Our strongest results came
from Motion Industries, our Industrial distribution company. Their
sales increased 11% in the year, which follows an 11% increase in
2004, so business has been good for the Industrial operations for the
past two years. And, importantly, the outlook for Motion is positive
for 2006 as well. Motion Industries serves the manufacturing sector of
the economy and the current Industrial Production and Manufacturer
Capacity Utilization indices point to continued strength for this sector
in the year ahead. EIS, our Electrical/Electronic segment, also serves
the manufacturing segment and they reported a sales increase of
2% for the year. EIS sold their Circuit Supply Division in April of 2005,
which impacted their overall growth rate. The ongoing EIS operations
were up 9% for the year, following a 13% increase in 2004 and EIS will
also benefit from the strength in the manufacturing sector in 2006.
S.P. Richards, our Office Products Company, improved sales by 8%
for the year.This is a solid increase for this Group and it reflects the
success of their product and customer expansion strategy. These efforts
will continue into 2006 and, combined with favorable external factors
such as ongoing healthy GDP growth rates, growth in white-collar
employment and improved office occupancy rates, we are optimistic
about continued solid growth in the Office Products Group.
Finally, Automotive, our largest business group, increased sales 6%
in 2005, following a 6% increase in 2004. Good progress was made
within our core NAPAoperations but this was offset somewhat by
the sale of eight of the twelve Johnson Industries operations that
occurred over the course of the year.Ongoing Automotive operations
were +7% and we are encouraged by the continued effectiveness of
our growth initiatives in this Group. Additionally, the increase in total
vehicles on the road, the age and mix of the vehicles, the number
of licensed drivers and miles driven are all positive indicators for our
Automotive growth plans in 2006.
Before concluding our remarks on the operations, we would like
to comment on the impact of the hurricanes that occurred in the
Southeastern part of the country in the latter part of the year. In the
cases of hurricanes Rita and Wilma, we consider ourselves fortunate,
as we came through these storms reasonably well. In the case of hur-
ricane Katrina, we experienced varying degrees of disruption and
damage in all four of our businesses and although we are not quite
back to normal operating conditions in certain areas, our employees
have done a remarkable job in keeping our operations running and
providing essential services. The majority of the employees working
in this part of the country were affected personally by the storm and
through a relief effort funded by fellow GPC team members and
matched by the Company,we are providing financial, as well as
personal assistance, to those in need as they continue to rebuild their
lives. Hundreds of GPC team members throughout our entire organi-
zation, have played an important role in helping our people, our
customers and our operations through this unfortunate situation.
We are deeply grateful to each of them and we are extremely proud
of all of them.
GPC DIRECTORS
James B. Williams will be retiring from our Board in April of 2006.
Jimmy is the retired Chairman and Chief Executive Officer of
SunTrust Bank and he has served on our Board since 1980. We
are grateful to Jimmy for his dedicated service to Genuine Parts
Company and we thank him for the outstanding counsel and
guidance that he has provided to the Company.He has been a
great contributor to our Board and we will miss his involvement.