Napa Auto Parts 2007 Annual Report Download - page 18

Management’s฀Discussion฀and฀Analysis฀of฀Financial฀Condition฀and฀Results฀of฀Operations
2007
Overview
Genuine Parts Company is a service organization engaged in the
distribution of automotive replacement parts, industrial replace-
ment parts, office products and electrical/electronic materials.
e Company has a long tradition of growth dating back to 1928,
the year we were founded in Atlanta, Georgia. 2007 was the
Company’s 80th year of operations. We have increased sales in
57 of the last 58 years and increased profits in 45 of the last 47
years. In 2007, business was conducted throughout the United
States, in Puerto Rico, in Canada and in Mexico from approxi-
mately 2,000 locations.
We recorded consolidated net sales of $10.8 billion for the year
ended December 31, 2007, an increase of 4% compared to $10.5
billion in 2006. Consolidated net income for the year ended
December 31, 2007, was $506 million, up 7% from $475 million
in 2006. Our two business segments serving the manufacturing
sector of the economy recorded the strongest results among our
four groups in 2007. ese businesses have participated in the
continued strength of their end markets and provided us the
opportunity to achieve another year of record sales and earnings.
Our automotive and office products businesses encountered
more difficult market circumstances in 2007.
Our progress in 2007 follows a 7% and 8% increase in revenues
in 2006 and 2005, respectively. Likewise, our improved earnings
in 2007 follow three consecutive years of double-digit growth
in earnings per share. During these periods, the Company has
implemented a variety of initiatives to grow sales and earnings,
including the introduction of new and expanded product lines,
geographic expansion, sales to new markets, enhanced customer
marketing programs and cost savings initiatives. Each of our
business segments participated in developing these initiatives,
as discussed further below.
e major categories on the December 31, 2007 consolidated
balance sheet were relatively consistent with the December
31, 2006 balance sheet categories, subject to certain exceptions
explained below. Our cash balances increased $96 million or 71%
from December 31, 2006, due primarily to improved earnings and
working capital management. In addition, the Company received
$56 million in net proceeds on a sale-leaseback transaction in
the fourth quarter of 2007, discussed further under Contractual
and Other Obligations. Accounts receivable decreased by
approximately 1%, which is significantly favorable to our increase
in revenues, and inventory was up 4%. Accounts Payable increased
$80 million or 9% from the prior year, due primarily to increased
purchases related to sales growth, extended terms with certain
suppliers and the increased utilization of procurement cards
during 2007. e current portion of debt was $250 million at
December 31, 2007, due to the reclassification of long-term debt
maturing November 2008. Total debt outstanding at December
31, 2007 was unchanged from December 31, 2006.
Results of Operations
Our results of operations are summarized for the three years
ended December 31, 2007, 2006 and 2005, as follows:
Year ended December 31,
(in thousands, except
per share data) 2007 2006 2005
Net Sales $ 10,843,195 $ 10,457,942 $ 9,783,050
Gross Profit* 3,217,223 3,104,495 2,898,086
Net Income 506,339 475,405 437,434
Diluted Earnings
Per Share 2.98 2.76 2.50
* e Company reclassified certain warehousing, distribution and
handling costs from operating expenses to cost of goods sold
for the prior periods to conform with current period presentation.
ese costs amount to $171 million and $166 million for fiscal
years 2006 and 2005, respectively. e reclassification had no
effect on net sales, net income or diluted earnings per share.
Net Sales
Consolidated net sales for the year ended December 31, 2007 totaled
$10.8 billion, another record sales level for the Company and a
4% increase from 2006. In 2007, the Industrial and Electrical
business segments showed the strongest sales improvement
among our operations. e Automotive and Office segments
encountered more difficult market circumstances, with Automotive
showing slight progress in revenue growth and Office reporting a
slight decrease in revenues for the year. For the year, prices were
up approximately 2% in the Automotive segment, 5% in the
Industrial and Electrical segments and 3% in the Office segment.
Net sales for the year ended December 31, 2006 totaled $10.5
billion, a 7% increase from 2005. All of the business segments
contributed to our sales growth in 2006, as our internal initia-
tives, healthy economy and positive trends in the industries we
serve enhanced the sales volume in each of our four groups.
Prices were up approximately 2% in the Automotive segment,
3% in the Industrial and Office segments and 7% in the Electrical
segment in 2006.
Automotive Group
Net sales for the Automotive Group (“Automotive”) were $5.3
billion in 2007, an increase of 2% from 2006. Our sales growth
was relatively consistent during the year, ranging from 2% to
3% by quarter, as the more challenging market conditions we
began to see in the last half of 2006 continued throughout 2007
without any significant change. We observed the ongoing pres-
sure of high gas prices on miles driven and consumer spending,
which negatively impact aftermarket demand. e continued
effectiveness of our growth initiatives, such as our major accounts
programs, served to offset these conditions and, as a result,
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