Napa Auto Parts 2014 Annual Report Download - page 29

Electrical/Electronic Group
Electrical/Electronic’s operating margin increased to 8.8% in 2014 from 8.4% in 2013, primarily due to
greater expense leverage associated with this group’s sales increase in 2014. Electrical/Electronic will continue
to focus on its sales initiatives and cost controls to improve its operating margin in 2015.
Electrical/Electronic’s operating margin was 8.4% in 2013, down from 8.7% in 2012. The decline in operat-
ing margin reflects the loss of expense leverage associated with the sales decrease for this segment in 2013 rela-
tive to 2012.
Income Taxes
The effective income tax rate of 36.4% in 2014 increased from 34.4% in 2013. The increase in rate is primar-
ily due to the favorable tax rate applied to the one-time gain associated with the GPC Asia Pacific acquisition
recorded in 2013. Additionally, the Company’s retirement asset valuation adjustment was less favorable in 2014
relative to 2013. The higher mix of U.S. earnings, taxed at a higher rate relative to our foreign operations, also
contributed to the increase in the 2014 tax rate.
In 2013, the income tax rate of 34.4% was down from 36.4% in 2012. The decrease reflects the favorable
impact of the lower Australian tax rate applied to the pre-tax earnings of GPC Asia Pacific, as well as the favor-
able tax rate applied to the one-time acquisition gain in 2013.
Net Income
Net income was $711 million in 2014, an increase of 4% from $685 million in 2013. On a per share diluted
basis, net income was $4.61 in 2014 compared to $4.40 in 2013, up 5%. Net income in 2014 was 4.6% of net
sales compared to 4.9% of net sales in 2013.
In connection with the acquisition of GPC Asia Pacific, the Company recorded one-time positive purchase
accounting adjustments of $33 million or $0.21 per diluted share in 2013. Before the impact of these adjustments,
net income in 2014 was up 9% from 2013, and on a per share diluted basis, net income was up 10% from 2013.
Net income was $685 million in 2013, an increase of 6% from $648 million in 2012. On a per share diluted
basis, net income was $4.40 in 2013 compared to $4.14 in 2012, up 6%. Net income in 2013 was 4.9% of net
sales compared to 5.0% of net sales in 2012.
FINANCIAL CONDITION
Our cash balance of $138 million at December 31, 2014 compares to our cash balance of $197 million at
December 31, 2013. The Company’s accounts receivable balance at December 31, 2014 increased by approx-
imately 12% from the prior year, greater than the Company’s 9% sales increase for the fourth quarter of 2014,
however, we are satisfied with the quality and collectability of our accounts receivable. Inventory at
December 31, 2014 increased by approximately 3% from December 31, 2013 and, excluding acquisitions, was up
by approximately 1% from the prior year. Accounts payable increased $285 million or approximately 13% from
December 31, 2013 due primarily to improved payment terms with certain suppliers. Combined, goodwill and
other intangible assets increased by $97 million or 8% from December 31, 2013 due to the Company’s acquis-
itions during the year. The change in our December 31, 2014 balances for deferred tax assets, which increased
$48 million, and pension and other post-retirement benefits liabilities, up $189 million from December 31, 2013,
is primarily due to changes in the discount rate, as well as recent changes in the mortality assumptions used for
the Company’s pension plans in 2014.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s sources of capital consist primarily of cash flows from operations, supplemented as neces-
sary by private issuances of debt and bank borrowings. We have $765 million of total debt outstanding at
December 31, 2014, of which $250 million matures in November 2016 and $250 million matures in December
2023. In addition, the Company has a Syndicated Facility Agreement (the “Syndicated Facility”) for
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