Napa Auto Parts 2009 Annual Report Download - page 6

Table of Contents
industrial supplies. In recent years, Motion expanded its offering to include systems and automation products in response to the
increasing sophistication of motion control and process automation for full systems integration of plant equipment. Manufacturing trends
and government policies have led to opportunities in the “green” and energy-efficient product markets, leading to product offerings such
as energy-efficient motors and drives, recyclable and environmentally friendly parts and supplies. The nature of this group’s business
demands the maintenance of adequate inventories and the ability to promptly meet demanding delivery requirements. Virtually all of the
products distributed are installed by the customer or used in plant and facility maintenance activities. Most orders are filled immediately
from existing stock and deliveries are normally made within 24 hours of receipt of order. The majority of all sales are on open account.
Supply Agreements. Non-exclusive distributor agreements are in effect with most of the Industrial Parts Group’s suppliers. The
terms of these agreements vary; however, it has been the experience of the Industrial Parts Group that the custom of the trade is to treat
such agreements as continuing until breached by one party or until terminated by mutual consent. The Company has return privileges
with most of its suppliers, which has protected the Company from inventory obsolescence.
Additionally, Motion has ongoing purchase agreements with existing customers that represent approximately 40% of the annual sales
volume.
Segment Data. In the year ended December 31, 2009, sales from the Company’s Industrial Parts Group approximated 29% of the
Company’s net sales, as compared to 32% in 2008 and 31% in 2007. For additional segment information, see Note 11 of Notes to
Consolidated Financial Statements set forth beginning on page F-1.
Competition. The industrial parts distribution business is highly competitive. The Industrial Parts Group competes with other
distributors specializing in the distribution of such items, general line distributors and others who provide similar services. To a lesser
extent, the Industrial Parts Group competes with manufacturers that sell directly to the customer. Further information regarding
competition in the industry is set forth in “Item 1A. Risk Factors — We Face Substantial Competition in the Industries in Which We Do
Business.”
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The Office Products Group, operated through S. P. Richards Company (“S. P. Richards”), a wholly owned subsidiary of the
Company, is headquartered in Atlanta, Georgia. S. P. Richards is engaged in the wholesale distribution of a broad line of office and other
business related products that are used in the daily operation of businesses, schools, offices and institutions. Office products fall into the
general categories of computer supplies, imaging products, office furniture, office machines, general office products, school supplies,
cleaning and breakroom supplies, and healthcare products.
The Office Products Group is represented in Canada through S. P. Richards Canada, a wholly-owned subsidiary of the Company,
and is headquartered near Toronto, Ontario. S. P. Richards Canada services office product resellers throughout Canada from locations in
Vancouver, Toronto, Calgary, Edmonton and Winnipeg.
Distribution System. The Office Products Group distributes more than 50,000 items to nearly 6,000 business product resellers
throughout the United States and Canada from a network of 43 distribution centers. The 2008 acquisition of Action/Emco Wholesale
allowed for the consolidation of the Detroit facility into the larger, more state of the art facility in Grand Rapids, Michigan. The Company
also eliminated operational expenses by closing its Hartford distribution center. This was achieved by incorporating the business serviced
out of the facility into the New York and Boston distribution centers. In 2009, the Company accelerated the installation of new pick to
voice technology in its distribution centers and will have largely completed that rollout by year end 2010. This network of strategically
located distribution centers provides overnight delivery of the Company’s comprehensive product offering. Approximately 45% of the
Company’s 2009 total office products purchases were made from 10 major suppliers.
The Office Products Group sells strictly to resellers of office products. These resellers include independently owned office product
dealers, national office product superstores and mass merchants, large contract stationers, mail order companies, Internet resellers and
college bookstores. Resellers are offered comprehensive marketing programs, which include print and electronic catalogs and flyers,
electronic content for reseller websites, and education and training resources.
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