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| GPC > SEC Filings for GPC > Form 10-Q on 3-Nov-2008 | All Recent SEC Filings |
3-Nov-2008
Quarterly Report
Sales for the Automotive Parts Group increased 1% in the third quarter of 2008
and 2% for the nine months ended September 30, 2008, as compared to the same
periods in the previous year. We expect our sales and product expansion
initiatives in the Automotive Parts Group to provide further growth
opportunities. The Industrial Products Group increased sales by 7.0% and 6.5% in
the three and nine month periods ended September 30, 2008, respectively, as
compared to the same periods in 2007. The market indices, such as Industrial
Production and Capacity Utilization, held at reasonable levels during the first
nine months of 2008, evidencing continued strong market-wide demand which has
positively impacted sales for the Industrial Products Group. In addition, this
group benefited from acquisitions, which were approximately 2% of sales for this
group in both the quarter and nine months ended September 30, 2008. Sales for
the Office Products Group for the third quarter of 2008 were flat as compared to
the same period in 2007. For the nine months ended September 30, 2008, sales
decreased 1% as compared to the nine months ended September 30, 2007. This group
continues to experience weak market conditions, which have resulted in an
industry-wide softening of demand. Sales for the Electrical/Electronic Materials
Group increased 13% and 10% in the three and nine month periods ended
September 30, 2008, respectively, as compared to the same periods of the
previous year. The market indicators for this segment supported continued
expansion in the industry during the first nine months of 2008, which favorably
impacted sales for this group.
Cost of Goods Sold/Expenses
Cost of goods sold for the third quarter of 2008 was $2.03 billion, a 3%
increase from $1.97 billion for the third quarter of 2007. As a percent of
sales, cost of goods sold was consistent at 70.5% for the three months ended
September 30, 2008 compared to 70.5% for the same period in 2007. For the nine
months ended September 30, 2008, cost of goods sold was $5.97 billion, a 3%
increase from $5.78 billion for the same period last year, and as a percent of
sales was consistent at 70.3% for both periods. For the nine months ended
September 30, 2008, cumulative pricing increased 4.7% in Automotive, 6.7% in
Industrial, 2.7% in Office Products and 7.2% in Electrical/Electronic over the
same period last year.
Selling, administrative and other expenses of $638.2 million remained constant
at 22.1% of sales for both the third quarter of 2008 and for the same period of
the prior year. For the nine months ended September 30, 2008, these expenses
totaled $1.90 billion and increased to 22.4% of sales compared to 22.2% for the
same period in 2007. The slight increase for the nine month period is a result
of the Company's lack of leverage on expenses on relatively weak top line growth
in the Automotive and Office Products businesses, and certain non-recurring
costs recorded in the first quarter of 2008, discussed below.
Operating Profit
Operating profit as a percentage of sales was 8.1% for the three months ended
September 30, 2008, unchanged from the same period of the previous year. For the
nine months ended September 30, 2008, operating profit as a percentage of sales
was 8.1%, as compared to 8.2% for the same period of the previous year.
The Automotive Parts Group's operating profit decreased 3% in the third quarter
of 2008, and its operating profit margin of 8.0% for the three months ended
September 30, 2008 was a decrease from 8.3% in the same period of the prior
year. For the nine months ended September 30, 2008, operating profit decreased
2% from the first nine months of 2007 and operating profit margin decreased to
7.7%, as compared to 8.1% for the same period last year. The decrease in
operating profit and operating profit margin for this group is due to costs
associated with the sale of its Johnson Industries subsidiary, as well as
consolidation costs in its remanufacturing operations recorded in the first
quarter of 2008. The Industrial Products Group had an 11% increase in operating
profit in the third quarter of 2008, and the operating profit margin for this
group increased to 8.5%, as compared to 8.2% from the same period in the
previous year. Operating profit increased 9% for the nine month period ended
September 30, 2008, and operating profit margin increased to 8.3%, as compared
to 8.1% for the same period in 2007 due to continued expense leverage. For the
three month period ended September 30, 2008, the Office Products Group's
operating profit increased 1% and its operating profit margin increased to 7.3%,
as compared to 7.2% in the same period of the prior year. For the nine months
ended September 30, 2008, operating profit decreased 4% compared to the same
period in 2007 and operating profit margin decreased to 8.6% as compared to 8.9%
in the nine months ended September 30, 2007. The decrease in operating profit
margin for this group in the first nine months of 2008 is due to the loss of
expense leverage on the decrease in revenue for the nine months ended
September 30, 2008. The Electrical/Electronic Materials Group increased its
operating profit for the third quarter by 34%, and its operating margin
increased to 8.1% compared to 6.9% in the third quarter of the previous year.
Operating profit increased 26% for the nine months ended September 30, 2008,
compared to the same period of the previous year, and operating profit margin
for the Electrical/Electronic Materials Group increased to 8.0% from 7.1% as
compared to the same period of 2007. The improvement in operating profit and
operating margin is due to strong sales growth.
Income Taxes
The effective income tax rate was 37.9% for the three month period ended
September 30, 2008 as compared to 38.0% for the three month period ended
September 30, 2007. The effective income tax rate was 37.3% for the nine month
period ended September 30, 2008 as compared to 38.0% for the same period in the
previous year. The decrease in the rate in the nine month period is primarily
due to the tax benefit on the sale of the Company's Johnson Industries
subsidiary, which occurred in the first quarter of 2008.
Net Income
Net income for the three months ended September 30, 2008 was $131.0 million, an
increase of 2%, as compared to $128.6 million for the third quarter of 2007. On
a per share diluted basis, net income was $.81, up 7% compared to $.76 for the
third quarter of last year. Net income for the nine months ended September 30,
2008, was $387.6 million, an increase of 2% over $380.3 million recorded for the
same period in the previous year. Earnings per share on a diluted basis were
$2.36, up 6% compared to $2.23 for the same nine month period of the previous
year. The increase in earnings per share for the three and nine month periods
ended September 30, 2008 was favorably impacted by the decrease in the average
diluted share count resulting from the Company's share repurchase program.
Financial Condition
The major balance sheet categories at September 30, 2008 were relatively
consistent with the December 31, 2007 balance sheet categories, with the
exception of cash. Cash balances decreased $107.4 million or 46% from
December 31, 2007, due primarily to the increased level of share repurchases in
the period and acquisitions. Cash generated from operations of $469.0 million
was primarily used to pay dividends of $188.8 million, repurchase approximately
$228.9 million of the Company's stock, invest in the Company via capital
expenditures of $60.1 million, as well as for acquisitions of approximately
$111.3 million.
Accounts receivable increased $134.3 million or 11%, which is primarily due to
the Company's overall sales increase and acquisitions within our Office Products
and Industrial Parts Groups. Inventory decreased $17.5 million compared to
December 31, 2007, which reflects the Company's inventory management
initiatives. Prepaid expenses and other current assets increased 4%, or
$10.7 million, primarily due to increased volume incentive accruals as compared
to December 31, 2007. Goodwill and intangible assets increased $65.5 million in
association with acquisitions made in the nine months ended September 30, 2008,
and other assets decreased $27.2 million or 13%, from December 31, 2007,
primarily due to the conversion of a joint venture investment to a wholly owned
subsidiary, effective January 1, 2008. Accounts payable increased $80.7 million,
or 8%, due primarily to increased purchases related to sales growth made in the
nine months ended September 30, 2008, compared to December 31, 2007. The
Company's long-term debt is discussed in detail below.
Liquidity and Capital Resources
The Company had $500 million of total debt outstanding at September 30, 2008 and
December 31, 2007. A $250 million portion matures in November 2008 with the
remaining portion maturing in November 2011. The debt is at fixed rates of
interest. We have in place a signed agreement to extend the debt upon maturity
another five years at a fixed interest rate.
The ratio of current assets to current liabilities was 2.5 to 1 at September 30,
2008, as compared to 2.6 to 1 at December 31, 2007.
The credit and capital markets have recently experienced adverse conditions.
Continuing volatility in the credit and capital markets may increase costs
associated with the incurrence of debt or affecting our ability to access the
credit or capital markets. Notwithstanding these adverse market conditions, the
Company currently believes existing lines of credit and cash generated from
operations will be sufficient to fund anticipated operations, including
voluntary share repurchases, if any, for the foreseeable future. The Company is
currently not dependent on any short-term borrowing arrangements that are not
already available.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information called for by this item is provided elsewhere herein and in
"Item 7A. Quantitative and Qualitative Disclosures about Market Risk" in the
Company's Annual Report on Form 10-K for the year ended December 31, 2007. There
have been no material changes in market risk from the information provided under
Item 7A in the Company's Annual Report on Form 10-K for the year ended
December 31, 2007.
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