Genuine Parts Company, a Georgia corporation incorporated on May 7, 1928, is a service
organization engaged in the distribution of automotive replacement parts, industrial replacement
parts, office products and electrical/electronic materials. In 2005, business was conducted
throughout the United States, in Canada and in Mexico from approximately 1,900 locations. As used
in this report, the Company refers to Genuine Parts Company and its subsidiaries, except as
otherwise indicated by the context; and the terms automotive parts and industrial parts refer
to replacement parts in each respective category.
Financial Information about Segments
. For financial information regarding segments, refer
to Segment Data set forth on Page 14 and to Note 9 of Notes to Consolidated Financial Statements
on page 38, both in the Companys Annual Report to Shareholders for the year ended December 31,
2005 filed as Exhibit 13 to this report and incorporated herein by reference.
. The distribution business, which includes all segments of the
Companys business, is highly competitive with the principal methods of competition being product
quality, sufficiency of inventory, price and the ability to give the customer prompt and dependable
service. The Company anticipates no decline in competition in any of its business segments in the
. As of December 31, 2005, the Company employed approximately 31,700 persons.
The Companys internet website can be found at www.genpt.com. The
Company makes available, free of charge on or through its internet website, access to the Companys
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed pursuant to Section 13(a) of the Securities Exchange Act of 1934,
as amended, as soon as reasonably practicable after such material is filed with or furnished to the
Securities and Exchange Commission (SEC).
AUTOMOTIVE PARTS GROUP
The Automotive Parts Group, the largest division of the Company, distributes automotive
replacement parts and accessory items. The Company is the largest member, with approximately 95%
ownership, of the National Automotive Parts Association (NAPA), a voluntary trade association
formed in 1925 to provide nationwide distribution of automotive parts. In addition to over 300,000
available part numbers, the Company, in conjunction with NAPA, offers complete inventory,
cataloging, marketing, training and other programs in the automotive aftermarket.
During 2005, the Companys Automotive Parts Group included NAPA automotive parts distribution
centers and automotive parts stores (auto parts stores or NAPA AUTO PARTS stores) owned in the
United States by the Company; NAPA and TRACTION automotive parts distribution centers and auto
parts stores in Canada owned and operated by UAP Inc. (UAP), a wholly-owned subsidiary of the
Company; auto parts stores in the United States operated by corporations in which the Company owned
either a minority or majority interest; auto parts stores in Canada operated by corporations in
which UAP owns a 50% interest; distribution centers owned by Balkamp, Inc. (Balkamp), a
majority-owned subsidiary of the Company; rebuilding plants owned by the Company and operated by
its Rayloc division; distribution centers of ACDelco, Motorcraft and other automotive supplies
owned and operated by Johnson Industries, a wholly-owned subsidiary; and automotive parts
distribution centers and automotive parts stores in Mexico, owned and operated by Grupo Auto Todo,
S.A. de C.V. (Auto Todo), a wholly-owned subsidiary of the Company.
The Company has a 15% interest in Mitchell Repair Information (MRIC), a subsidiary of
Snap-on Incorporated. MRIC is a leading diagnostic and repair information company with over 40,000
North American subscribers linked to its services and information databases. MRICs core product,
Mitchell ON-DEMAND, is a premier electronic repair information source in the automotive
During 2005, the Company entered into a joint venture with Altrom Group, an import automotive
parts distributor headquartered in Vancouver, British Columbia, Canada. The Company acquired a 25%
interest in Altrom Canada Corp., with 14 Canadian locations, and a 49% interest in Altrom America
Corp., with one U.S. location.
The Companys NAPA automotive parts distribution centers distribute replacement parts (other
than body parts) for substantially all motor vehicle makes and models in service in the United
States, including imported vehicles, trucks, SUVs, buses, motorcycles, recreational vehicles and
farm vehicles. In addition, the Company distributes replacement parts for small engines, farm
equipment and heavy duty equipment. The Companys inventories also include accessory items for
such vehicles and equipment, and supply items used by a wide variety of customers in the automotive
aftermarket, such as repair shops, service stations, fleet operators, automobile and truck dealers,
leasing companies, bus and truck lines, mass merchandisers, farms, industrial concerns and
individuals who perform their own maintenance and parts installation. Although the Companys
domestic automotive operations purchase from more than 90 different suppliers, approximately 51% of
2005 automotive parts inventories were purchased from 10 major suppliers. Since 1931, the Company
has had return privileges with most of its suppliers, which has protected the Company from
. In 2005, the Company operated 58 domestic NAPA automotive parts
distribution centers located in 39 states and approximately 1,000 domestic company-owned NAPA AUTO
PARTS stores located in 43 states. At December 31, 2005, Genuine Parts Company owned either a
minority or majority interest in three corporations, which operated approximately 21 auto parts
stores in three states.
UAP, founded in 1926, is a Canadian leader in the distribution, marketing and rebuilding of
replacement parts and accessories for automobiles and trucks. UAP employs approximately 4,000
people. The Company operates a network of 14 distribution centers supplying approximately 582 NAPA
stores and 82 TRACTION wholesalers. TRACTION is a supplier of parts to small fleet owners and
operators and, together with NAPA stores, is a significant supplier to the mining and forestry
industries. These include approximately 198 company owned stores, 22 joint venture or progressive
owners in which UAP owns a 50% interest and approximately 444 independently owned stores. NAPA and
TRACTION operations supply bannered installers and independent installers in all provinces of
Canada, as well as networks of service station and repair shops operating under the banners of
national accounts. UAP is a licensee of the NAPA® name in Canada.
In Mexico, Auto Todo owns and operates nine distribution centers and nine auto parts stores.
Auto Todo is a licensee of the NAPA® name in Mexico.
The Companys domestic distribution centers serve approximately 4,800 independently owned NAPA
AUTO PARTS stores located throughout the market areas served in the U.S. NAPA AUTO PARTS stores,
in turn, sell to a wide variety of customers in the automotive aftermarket. Collectively, these
independent automotive parts stores account for approximately 25% of the Companys total sales with
no automotive parts store or group of automotive parts stores with individual or common ownership
accounting for more than .25% of the total sales of the Company.
. Distribution centers have access to over 300,000 different parts and related
supply items. Each item is cataloged and numbered for identification and accessibility.
Significant inventories are carried to provide for fast and frequent deliveries to customers. Most
orders are filled and shipped the same day as received. The majority of sales are on terms that
require payment within 30 days of the statement date. The Company does not manufacture any of the
products it distributes. The majority of products are distributed under the NAPA® name, a mark
licensed to the Company by NAPA.
. Balkamp distributes a wide variety of replacement parts and accessory
items for passenger cars, heavy-duty vehicles, motorcycles and farm equipment. In addition,
Balkamp distributes service items such as testing equipment, lubricating equipment, gauges,
cleaning supplies, chemicals and supply items used by repair shops, fleets, farms and institutions.
Balkamp packages many of the 30,000 products, which constitute the Balkamp line of products that
are distributed to the members of NAPA.
These products are
categorized in 162 different product groups purchased from approximately 500 domestic suppliers and
130 foreign manufacturers. In addition, Balkamp operates three Redistribution Centers that provide
NAPA with over 300 SKUs of oils and chemicals. Balkamp also provides mill supplies and related
items to the Companys wholly-owned subsidiary Motion Industries, Inc. for sale in its MI
Industrial line of merchandise. BALKAMP®, a federally registered trademark, is important to the
sales and marketing promotions of the Balkamp organization. Balkamp has four distribution centers
located in Indianapolis and Plainfield, Indiana, Greenwood, Mississippi and West Jordan, Utah.
Johnson Industries, Inc. (Johnson), a wholly-owned subsidiary of the Company, is an
independent distributor of ACDelco, Motorcraft and other automotive supplies. Johnson, founded in
1924, sells primarily to large fleets and new car dealers from a network of four distribution
centers located in Atlanta, Georgia, Nashville, Tennessee, Chicago, Illinois and Pittsburgh,
Pennsylvania. During 2005, Johnson sold eight of its twelve distribution centers to streamline
operations into its current network.
The Company, through its Rayloc division, also operates five plants where certain small
automotive parts are rebuilt. These products are distributed to the members of NAPA under the
NAPA® brand name. Rayloc® is a mark licensed to the Company by NAPA.
. In the year ended December 31, 2005, sales from the Automotive Parts Group
was approximately 51% of the Companys net sales as compared to 52% in 2004 and 53% in 2003.
Service to NAPA AUTO PARTS Stores
. The Company believes that the quality and the range of
services provided to its automotive parts customers constitute a significant advantage for its
automotive parts distribution system. Such services include fast and frequent delivery,
obsolescence protection, parts cataloging (including the use of electronic NAPA AUTO PARTS
catalogs) and stock adjustment through a continuing parts classification system which allows
independent retailers (jobbers) to return certain merchandise on a scheduled basis. The Company
offers its NAPA AUTO PARTS store customers various management aids, marketing aids and service on
topics such as inventory control, cost analysis, accounting procedures, group insurance and
retirement benefit plans, as well as marketing conferences and seminars, sales and advertising
manuals and training programs. Point of sale/inventory management is available through TAMS®
(Total Automotive Management Systems), a computer system designed and developed by the Company for
the NAPA AUTO PARTS store.
In association with NAPA, the Company has developed and refined an inventory classification
system to determine optimum distribution center and auto parts store inventory levels for
automotive parts stocking based on automotive registrations, usage rates, production statistics,
technological advances and other similar factors. This system, which undergoes continuous
analytical review, is an integral part of the Companys inventory control procedures and comprises
an important feature of the inventory management services that the Company makes available to its
NAPA AUTO PARTS store customers. Over the last 10 years, losses to the Company from obsolescence
have been insignificant and the Company attributes this to the successful operation of its
classification system, which involves product return privileges with most of its suppliers.
. In the distribution of automotive parts, the Company competes with automobile
manufacturers (some of which sell replacement parts for vehicles built by other manufacturers as
well as those which they build themselves), automobile dealers, warehouse clubs and large
automotive parts retail chains. In addition, the Company competes with the distributing outlets of
parts manufacturers, oil companies, mass merchandisers, including national retail chains, and with
other parts distributors and retailers.
. The Company is a member of the National Automotive Parts Association, a voluntary
association formed in 1925 to provide nationwide distribution of automotive replacement parts.
NAPA, which neither buys nor sells automotive parts, functions as a trade association whose members
in 2005 operated 64 distribution centers located throughout the United States, 58 of which were
owned and operated by the Company. NAPA develops marketing concepts and programs that may be used
by its members. It is not involved in the chain of distribution.
Among the automotive lines that each NAPA member purchases and distributes are certain lines
designated, cataloged, advertised and promoted as NAPA lines. The members are not required to
purchase any specific quantity of parts so designated and may, and do, purchase competitive lines
from other supply sources.
The Company and the other NAPA members use the federally registered trademark NAPA® as part of
the trade name of their distribution centers and parts stores. The Company contributes to NAPAs
national advertising program, which is designed to increase public recognition of the NAPA name and
to promote NAPA product lines.
The Company is a party, together with other members of NAPA and NAPA itself, to a consent
decree entered by the Federal District Court in Detroit, Michigan, on May 4, 1954. The consent
decree enjoins certain practices under the federal antitrust laws, including the use of exclusive
agreements with manufacturers of automotive parts, allocation or division of territories among
several NAPA members, fixing of prices or terms of sale for such parts among such members, and
agreements to adhere to any uniform policy in selecting parts customers or determining the number
and location of, or arrangements with, auto parts customers.
INDUSTRIAL PARTS GROUP
The Industrial Parts Group distributes industrial replacement parts and related supplies
throughout the United States and Canada. This group distributes industrial bearings and power
transmission equipment replacement parts, including hydraulic and pneumatic products, material
handling components, related supplies and repair services. The Industrial Parts Group continues to
enhance communication and process activities through three distinct programs. These programs
include: motionindustries.com, an internet-based procurement system; MiSupplierConnect, a
manufacturer communication and fulfillment system; and inMotion, an internal employee communication
source and operational reporting system.
The Company distributes industrial parts in the United States through Motion Industries, Inc.
(Motion), headquartered in Birmingham, Alabama. Motion is a wholly-owned subsidiary of the
Company. In Canada, industrial parts are distributed by Motion Industries (Canada), Inc. (Motion
Canada), an operating group in the Companys North American structure.
During 2005, the Company acquired Voorhies Supply Co. LLC, a supplier of industrial parts and
supplies with eight locations in Louisiana.
As of December 31, 2005, the Industrial Parts Group served more than 150,000 customers in all
types of industries located throughout the United States and Canada including automotive, chemical,
food and beverage, wood and lumber, iron and steel, pulp and paper, mining and aggregate and
. In North America, the Industrial Parts Group operates 417 branches,
nine distribution centers and 37 service centers as of December 31, 2005. The distribution centers
stock and distribute more than 70,000 different items purchased from more than 250 different
suppliers. The service centers provide hydraulic, hose and mechanical repairs for customers.
Approximately 38% of 2005 total industrial purchases were made from 10 major suppliers. Sales are
generated from the Industrial Parts Groups branches located in 48 states and nine provinces in
Canada. Each branch has warehouse facilities that stock significant amounts of inventory
representative of the lines of products used by customers in the respective market area served.
Motion Canada operates two distribution centers for the 44 Canadian branches serving
industrial and agricultural markets.
. The Industrial Parts Group distributes a wide variety of products to its
customers, primarily industrial concerns, to maintain and operate plants, machinery and equipment.
Products include such items as hoses, belts, bearings, pulleys, pumps, valves, chains, gears,
sprockets, speed reducers and electric motors. The nature of this
groups business demands the maintenance of large inventories and the ability to provide prompt and
demanding delivery requirements. Virtually all of the products distributed are installed by the
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.
. Non-exclusive distributor agreements are in effect with most of the
Industrial Parts Groups 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
. In the year ended December 31, 2005, sales from the Companys Industrial
Parts Group approximated 29% of the Companys net sales as compared to 27% in 2004 and 2003.
. 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 Group competes with manufacturers that sell directly to the customer.
OFFICE PRODUCTS GROUP
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 supplies, office furniture,
office machines, general office supplies, school supplies, cleaning and breakroom supplies, and
HorizonUSA Data Supplies, Inc. (HorizonUSA), a wholly owned subsidiary of S. P. Richards, is
headquartered in Reno, Nevada. HorizonUSA is a distributor of computer supplies and accessories.
The Office Products Group is represented in Canada through S. P. Richards Canada.
Headquartered near Vancouver, British Columbia, S. P. Richards Canada services office product
resellers throughout Canada from locations in Vancouver, Toronto, Calgary and Winnipeg.
. The Office Products Group distributes more than 30,000 items to over
7,000 business product resellers throughout the United States and Canada from a network of 44
distribution centers. This network of strategically located distribution centers provides
overnight delivery of the Companys comprehensive product offering. Approximately 50% of the
Companys 2005 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 and college bookstores. Resellers are
offered comprehensive marketing programs, which include full line catalogs and flyers as well as
education and training resources.
. The Office Products Group distributes computer supplies including storage media,
printer supplies and computer accessories; office furniture including desks, credenzas, chairs,
chair mats, partitions, files and computer furniture; office machines including telephones,
answering machines, calculators, fax machines, multi-function copiers, printers, digital cameras,
laminators and shredders; general office supplies including desk accessories, business forms,
accounting supplies, binders, filing supplies, report covers, writing instruments, envelopes, note
pads, copy paper, mailroom supplies, drafting supplies and audiovisual supplies; school supplies
including bulletin boards, teaching aids and art supplies; janitorial supplies including cleaning
supplies, paper towels and trash can liners; and breakroom supplies including napkins, utensils,
snacks and beverages. S. P.
Richards has return privileges with most of its suppliers, which has protected the Company from
While the Company inventories include products from over 350 of the industrys leading
manufacturers worldwide, S. P. Richards also markets seven proprietary brands of items. These
brands include: SPARCO®,
an economical line of office supply basics; Compucessory, a line of
computer accessories; Lorell, a line of office furniture; NATURE SAVER®, an offering of recycled
paper products; Elite Image, a line of new and remanufactured toner cartridges; Integra, a line of
writing instruments; and Genuine Joe, a new line of breakroom products.
. In the year ended December 31, 2005, sales from the Companys Office
Products Group remained constant at approximately 17% of the Companys net sales, the same as in
2004 and 2003.
. In the distribution of office supplies to retail dealers, S. P. Richards
competes with many other wholesale distributors as well as with certain manufacturers of office
ELECTRICAL/ELECTRONIC MATERIALS GROUP
The Electrical/Electronic Materials Group was formed on July 1, 1998 through the acquisition
of EIS, Inc. (EIS) headquartered in Atlanta, Georgia. This Group distributes materials to more
than 20,000 electrical and electronic manufacturers in North America. With 31 branch locations in
the U.S., Mexico and Canada, this Group distributes over 100,000 items, from insulating and
conductive materials to assembly tools and test equipment. EIS also has three manufacturing
facilities that provide custom fabricated parts.
During 2005, EIS sold certain assets in their Circuit Supply Division, the segment of the
Group that sold to the printed circuit board industry. In addition, in 2005 EIS acquired
Polifibra, an electrical distributor with one location in Toronto, Ontario Canada.
. The Electrical/Electronic Materials Group provides effective
distribution services to original equipment manufacturers, motor repair shops and assembly markets.
EIS actively utilizes its E-commerce Internet site to present its products to customers while
allowing these on-line visitors to conveniently purchase from a large product assortment.
Electrical and electronic products are distributed from warehouse locations in major user
markets throughout the U.S., as well as in Mexico and Canada. The Company has return privileges
with some of its suppliers, which has protected the Company from inventory obsolescence.
The Electrical/Electronic Materials Group distributes a wide variety of products
to customers from over 350 vendors. Products include such items as magnet wire, conductive
materials, insulating and shielding materials, assembly tools, test equipment, adhesives and
chemicals, pressure sensitive tapes, solder, anti-static products and thermal management products.
To meet the prompt delivery demands of its customers, this Group maintains large inventories. The
majority of sales are on open account. Approximately 37% of 2005 total Electrical/Electronic
Materials Group purchases were made from 10 major suppliers.
The Electrical/Electronic Materials Groups integrated supply programs
are a part of the marketing strategy, as a greater number of customersespecially national
accountsare given the opportunity to participate in this low-cost, high-service capability. The
Group developed AIMS (Advanced Inventory Management System), a totally integrated, highly automated
solution for inventory management. The Groups Integrated Supply offering also includes SupplyPro,
an electronic vending dispenser used to eliminate costly tool cribs, or in-house stores, at
customer warehouse facilities.
In the year ended December 31, 2005 sales from the Companys
Electrical/Electronic Materials Group approximated 3% of the Companys sales, as compared to 4% in
2004 and 3% in 2003.
The Electrical/Electronic Materials Group competes with other
distributors specializing in the distribution of electrical and electronic products, general line
distributors and, to a lesser extent, manufacturers that sell directly to customers.
Some statements in this report constitute forward-looking statements that are subject to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company cautions
that its forward-looking statements involve risks and uncertainties. The Company undertakes no
duty to update its forward-looking statements, which reflect the Companys beliefs, expectations
and plans as of the present time. Actual results or events may differ materially from those
indicated as a result of various important factors. Such factors include, but are not limited to,
changes in general economic conditions, the growth rate of the market for the Companys products
and services, the ability to maintain favorable supplier arrangements and relationships,
competitive product and pricing pressures, including internet related initiatives, the
effectiveness of the Companys promotional, marketing and advertising programs, changes in laws and
regulations, including changes in accounting and taxation guidance, the uncertainties of
litigation, as well as other risks and uncertainties discussed from time to time in the Companys
filings with the SEC. Some of these factors that may affect us are described in greater detail
below. Readers are cautioned that other factors not listed here or in our other SEC filings could
materially impact the Companys future earnings, financial position and cash flows. You should not
place undue reliance upon forward-looking statements contained herein and should carefully read
other reports that the Company will, from time to time, file with the SEC.
Risks Relating to Our Company
We Depend on Our Relationships with Our Vendors.
As a distributor of automotive replacement parts, industrial parts, office products and
electrical/electronic materials, our business is dependent on developing and maintaining close and
productive relationships with our vendors. We depend on our vendors to sell us quality products at
favorable prices. Many factors outside our control may harm these relationships. For example,
financial or operational difficulties with a vendor could cause that vendor to increase the cost of
the products we purchase from it. Vendor consolidation could also limit the number of suppliers
from which we may purchase products and could materially affect the prices we pay for these
products. Also, consolidation among automotive parts or industrial parts and office product
suppliers could disrupt our relationship with some vendors. A disruption of our vendor
relationships or a disruption in our vendors operations could have a material adverse effect on
our business and results of operations.
Our Business and Results of Operations Could Be Impacted by Certain Laws.
We are subject to various federal, state, local and foreign laws and regulations relating to the
operation of our business, such as laws and regulations relating to environmental and employment
matters. Because such laws and regulations are subject to change without notice, we cannot
anticipate the potential costs of compliance. On the other hand, if we fail to comply with
existing or future laws or regulations, we may be subject to governmental or judicial fines or
sanctions. There can be no assurance that the cost of compliance, or a material failure by us to
comply, with these laws and regulations will not have a material adverse effect on us in the
Risks Relating to Our Industry
We Face Substantial Competition in the Industries in Which We Do Business.
The industries in which we do business are highly competitive. The sale of automotive and
industrial parts, office products and electronic materials is highly competitive in many areas,
including name recognition, product availability, customer service, anticipating changing customer
preferences, store location and price. Increased competition among distributors of automotive and
industrial parts, office products and electronic materials could cause a material adverse effect on
our results of operations.
In particular, the market for replacement automotive parts is highly competitive and subjects us to
a wide variety of competitors. We compete primarily with national and regional auto parts chains,
independently owned automotive parts and accessories stores, automobile dealers that supply
manufacturer replacement parts and accessories, mass merchandisers and wholesale clubs that sell
automotive products and regional and local full service automotive repair shops. If we are unable
to continue to develop successful competitive strategies, or if our competitors develop more
effective strategies, we could lose customers and our sales and profits may decline.
Our Business May Be Materially Affected If Demand for Our Products Slows.
Our business depends on customer demand for the products that we distribute. Demand for these
products depends on many factors. With respect to our automotive group, the primary factors are:
the number of miles vehicles are driven annually, as higher vehicle mileage increases the need for
maintenance and repair; the quality of the vehicles manufactured by the original vehicle
manufacturers and the length of the warranty or maintenance offered on new vehicles; the number of
vehicles in current service that are six years old and older, as these vehicles are typically no
longer under the original vehicle manufacturers warranty and will need more maintenance and repair
than newer vehicles; restrictions on access to diagnostic tools and repair information imposed by
the original vehicle manufacturers or by governmental regulation; and the economy generally.
Our Business May Be Impacted by General Economic Conditions and Local, National and Global Events.
Our business and results of operations also may be impacted by general economic conditions,
conditions in local markets or other factors that we cannot control, including: job growth and
unemployment conditions, industrial output and capacity and capital expenditures, reduction in
manufacturing capacity in our targeted geographic markets due to consolidation and the transfer of
manufacturing capacity to foreign countries, weather, terrorist acts, pricing pressures of our
competitors and customers, shortages of fuel or interruptions in transportation systems, labor
strikes, work stoppages, or other interruptions to or difficulties in the employment of labor in
the major markets where we operate, changes in interest rates, inflation or currency exchange
rates, changes in accounting policies and practices and changes in regulatory policies and