Napa Auto Parts 2008 Annual Report Download - page 18

management’s discussion and analysis of nancial condition and results of operations
2008
overview
Genuine Parts Company is a service organization engaged in the
distribution of automotive replacement parts, industrial replacement
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. In 2008, business was conducted
throughout the United States, Puerto Rico, Canada and Mexico
from approximately 2,000 locations.
We recorded consolidated net sales of $11.0 billion for the year
ended December 31, 2008, an increase of 2% compared to $10.8
billion in 2007. Consolidated net income for the year ended
December 31, 2008, was $475 million, down 6% from $506 mil-
lion in 2007. After achieving steady and consistent results through
the first three quarters of the year, we experienced a weakening in
demand across all of our business segments during the final quarter.
Our businesses were impacted by the effects of reduced consumer
spending, declining industrial production and higher unemployment,
which we discuss further below.
Our 2008 revenue increase of 2% follows a 4% and 7% increase in
revenues in 2007 and 2006, respectively. Our 6% decrease in net
income follows a 7% increase in 2007 and double-digit earnings
growth in each of the prior three years. During these periods, the
Company has implemented a variety of initiatives in each of our four
business segments to grow sales and earnings, including the intro-
duction of new and expanded product lines, geographic expansion,
sales to new markets, enhanced customer marketing programs and
cost savings initiatives.
e following discussion addresses the major categories on the
December 31, 2008 consolidated balance sheet. Our cash balance
of $68 million was down $164 million or 71% from December 31,
2007, due mainly to $129 million in increased expenditures for
dividends, share repurchases and acquisitions during the year as
well as the $31 million decrease in net income. We are pleased with
our use of cash in these areas. Accounts receivable increased by
approximately 1%, which is less than our increase in annual
revenues, and inventory was down by approximately 1%. Accounts
payable increased $20 million or 2% from the prior year, due
primarily to improved payment terms with certain suppliers and
the expansion of our procurement card program begun in 2007.
e prior year’s current portion of debt of $250 million matured
in November 2008 and was replaced on favorable terms with new
borrowings maturing in 2013 and reclassified to long-term debt
during the fourth quarter. Total debt outstanding at December 31,
2008 was unchanged from $500 million at December 31, 2007.
results of operations
Our results of operations are summarized below for the three years
ended December 31, 2008, 2007 and 2006. Financial information
for our four business segments is provided on the previous page.
Year ended December 31,
(in thousands except
per share data) 2008 2007 2006
Net Sales $ 11,015,263 $ 10,843,195 $ 10,457,942
Gross Profit 3,272,490 3,217,223 3,104,495
Net Income 475,417 506,339 475,405
Diluted Earnings
Per Share 2.92 2.98 2.76
Net Sales
Consolidated net sales for the year ended December 31, 2008
totaled $11.0 billion, another record level of revenue for the
Company and a 2% increase from 2007. Similar to the prior year,
the Industrial and Electrical business segments showed the strongest
sales growth among our operations. e Automotive and Office
segments continued to experience sluggish growth and, for the year,
Automotive reported a slight sales increase, while Office reported
a decrease in revenues. After reporting consistent sales growth
through the first three quarters of the year, we experienced a signifi-
cant weakening in demand across all our business segments during
the final quarter, reflecting the effects of the worsening state of the
economy, such as reduced consumer spending, declining industrial
production and higher unemployment. Cumulatively, prices in 2008
were up approximately 6% in the Automotive segment, 8% in the
Industrial and Electrical segments and 4% in the Office segment.
ese price increases reflect the highest inflationary period for the
Company in many years.
Net sales for the year ended December 31, 2007 totaled $10.8 billion,
a 4% increase from 2006. In 2007, the Industrial and Electrical
business segments had the strongest sales improvement, with the
Automotive segment showing slight progress in revenue growth and
the Office segment reporting a slight decrease in revenues for the
year. For 2007, prices were up approximately 2% in the Automotive
segment, 5% in the Industrial and Electrical segments and 3% in the
Office segment.
Automotive Group
Net sales for the Automotive Group (“Automotive”) were $5.3 billion
in 2008, essentially flat compared to 2007. In the first half of the
year, Automotive sales were consistent with our 2007 results, but
our rate of sales growth decreased during each succeeding quarter of
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