純正零件 (GPC) 2005 Q4 法說會逐字稿

Good morning. My name is [Tony]. And I will be your conference operator today. At this time I would like to welcome everyone to the Genuine Parts Company fourth quarter and year-end conference call. [OPERATOR INSTRUCTIONS]. I would now like to turn the call over to Ms. Carol Yancey, Senior Vice President of Finance, and Corporate Secretary. Thank you. Ms. Yancey, you may begin your conference.

Thank you. Good morning and thank you for joining us today for the Genuine Parts fourth quarter and year-end conference call to discuss our earnings results and the 2006 outlook.

Before we begin this morning, please be advised that this call may involve forward-looking statements, such as projections of revenue, earnings, capital structure and other financial items, statements on the plans and objectives of the Company or its Management, statements of future economic performance and assumptions underlying the statements regarding the Company and its businesses. The Company's actual results could differ materially from any forward-looking statements due to several important factors described in the Company's latest S.E.C. filings. The Company assumes no obligation to update any forward-looking statements made during this call.

We will begin this morning with remarks from Tom Gallagher, our Chairman, President and CEO. Tom?

Thank you, Carol. And I'd like to add my welcome to each of you joining us on the call today. We appreciate you taking the time to be with us. Jerry Nix, our Vice Chairman and Chief Financial Officer and I will share the duties on this call as we customarily do, and once we've completed our remarks, we will be pleased to answer any questions that you may have.

Before getting into the results for 2005, I would like to comment on certain actions taken by our Directors at our board meeting yesterday. Carol Yancey who has been participating in these calls for some time now was elected Senior Vice President Finance, and we certainly congratulate Carol. Additionally Scott Smith was elected Senior Vice President and Corporate Counsel and Sid Jones, who many of you know, was elected Vice President Investor Relations. These are three long-term, talented GPC executives, and these well-deserved promotions will serve to further strengthen our GPC headquarters financial and legal departments. We congratulate Carol, Scott and Sid.

We released our fourth quarter and 2005 year end results earlier this morning, and hopefully most of you have had an opportunity to see them by now. Sales for the quarter were $2.410 billion, which was up 7%. Net income was $109 million, which was up 13% and earnings per share was $0.63 this year, compared to $0.55 in the final quarter of 2004 and the EPS increase was 15%. So it was a good quarter. And this enabled us to report another fine year for Genuine Parts company.

Sales for the year were $9.783 billion which was up 8%, net income for the year was $437.4 million, which was up 11%, and earnings per share were $2.50 compared to $2.25 in 2004 and the EPS increase is 11%. A record year in all respects for our company. And we're proud of the job that was done by the GPC team. Looking at the results by segment, our industrial operations closed out the year with a 9% increase in the quarter, and they ended the year with a 11% sales increase. This follows a 11% increase in 2004. So business has been strong in this segment for a while now. And this management team is really doing a fine job.

We are pleased to see that growth for the industrial operations continues to be consistent geographically, as well as across their various customer segments and product categories. This shows good balance in the results and we feel that this is indicative of the ongoing strength in the manufacturing sector of the economy, which is Motion Industry's customer base, and the most recent industrial production and manufacture capacity utilization figures point to another good year in 2006. Both of these indices ended 2005 at their highest levels in several years, and this is a real positive leading demand indicator for our industrial operations as we go into the new year.

EIS is our electrical/electronic company and they too had a fine year in 2005. Fourth quarter sales were up 6% and this put them up 2% for the year. Now it is important to to point out that EIS sold a segment of their company early in 2005, Circuit Supply which was an electronic division that didn't fit us for the long term. The performance of EIS's ongoing operations was actually a good bit stronger and it is interesting to look at their progress by quarter. They were up 5% in the first quarter, 7% in the second, 10% in the third and 14% in the fourth. And so you can see that business actually improved as the year went on with the second half being especially strong and the ongoing EIS operations ended the year up 9% on a comparative basis. We will anniversary the Circuit Supply sale in the second quarter which will help the comparisons over the final three quarters of 2006. And we feel that EIS is positioned to have another good year.

Moving on to Office Products, they had their best sales performance of the year in the fourth quarter at plus 10%, and this put them up 8% for the year. This follows a 6% increase in 2004, and our Office Products team continues to show steady and consistent sales progress. They were able to generate good growth for the year with both their independent reseller customer group as well as with the large national office products resellers, so they had good balance in their sales growth and the solid performance with each of these customer segments would indicate that the overall industry conditions continue to be favorable. The recent data on service jobs created in 2005 also continues to be a positive indicator, with over 1.7 million new service jobs created in each of the past two years. And we feel that all of this points to another good sales year for our office products group in 2006.

And finally, automotive. Sales for this group were up 5% in the quarter. We had good solid growth in our core NAPA business at plus 7%, but this was offset by a sizable decrease at Johnson industries. We did complete the sale of 4 additional Johnson locations early in the fourth quarter, which impacted their results. And this brings the total number of locations sold in 2005 to 8. We are now down to four remaining Johnson operations, and we will continue to assess all options with regard to Johnson in 2006.

Automotive sales for the year were up 6% with the NAPA business ending the year up 7%. And this follows a 7% increase for the NAPA business in 2004, so after several years of sluggish performance, the past two years show an improving trend for our core NAPA operations and they are making good progress. At times in the past we've given you an update on our company on store group and we are pleased with the progress that they made in 2005 following the good year that they had in 2004. Sales for this group were up 9% for the year, with cash for retail sales up a very respectable 6% and commercial sales up double digits at plus 11%. Both of these exceed their respective market growth rates for the year and indicate that our Company's store group continues to gain market share.

Our independently owned store business was up 5% in 2005, following a 5% increase in 2004 which shows continued progress for the independently owned NAPA stores as well. We opened 23 new stores in the fourth quarter, and this gave us 55 for the year. After opening only 3 new stores in the first quarter, we were able to pick up the pace somewhat over the remaining nine months and while we fell short of our goal of 100 new stores for the year, the 55 for the year follows 47 new stores in 2004, and this is the best two-year performance that we have seen in the area of new distribution in a number of years. So we are making progress and we just need to keep pushing this important initiative in 2006.

As far as the other key sales drivers are concerned, we made solid progress in each of the remaining six areas, and just to cite a few examples, in the major account arena we were up 8%, our NAPA Auto Care business was up 6% and we re-Planogrammed and Reset 800 stores over the course of the year. We also made good progress in the other three key areas of outside sales, installer connectivity, and especially markets of heavy duty tools and equipment and paint and body equipment, and so all seven key initiatives contributed to the overall 7% NAPA increase.

It is interesting to look back at our core NAPA sales results for the past two years -- or past few years, excuse me, after being up only 1% in 2001 and 2% in 2002, we were up 4% in 2003 but then up 7% in 2004 and 2005. And we think this shows that the growth initiatives that were put in place in October of 2003 are yielding good results for us, and we feel that they will continue to drive a solid performance in 2006. So that's a quick recap of our revenue performance for 2005.

And at this point we'll ask Jerry to cover the financials.

Thank you, Tom. Excuse me. Good morning. We appreciate you joining us on the call today. I will continue with a review of the income statement and segment information and then touch on a few key balance sheet and other financial items. We'll be brief and then we'll open the call up to your questions.

A review of the income statements shows the following: total sales for the fourth quarter were up 7% at $2.4 billion, our sales growth by segment ranged from plus 7 to plus 9% during 2005, so a pretty strong and consistent year for us. For the full year, sales were $9.8 billion, up 8%. Both our fourth quarter and annual sales numbers were new records for us so we're very proud of the GPC team for their accomplishments. Growth profit in the quarter was 32.69% to sales compared to 33.30% for the year, down 61 basis points. This was the only quarter in 2005 where the decline in gross margins and for the year gross profit was 31.32% compared to 31.11 in '04, up 21 basis points.

The fourth quarter decrease was partially due to costs recorded in association with the downsizing of our Johnson Industries operations which included the sale of four additional Johnson locations in the quarter. For the year, we downsized this group from twelve to four locations, but feel this was a good business decision for us, as Johnson certainly impacted our results in 2005 with costs of approximately $10 million in the fourth quarter and $13 million for the full year. Feel there's more progress that we can make with Johnson, and as we modify our infrastructure there, we'll continue to take costs out of that business. And as Tom mentioned, we're considering all options regarding the remaining four Johnson locations.

We'd also add that the gross margins at SP Richards impacted our overall results in the fourth quarter. This was mainly due to a shift in product mix in the quarter associated with stronger sales growth in the IT product category. In addition, SPR decided to forego certain forward-buying opportunities for additional purchasing volume incentives in the fourth quarter. As a result, we were able to decrease the office products groups inventory by 1% from '04 on a 8% sales increase in 2005, and we're pleased with this improvement in our inventory control. SPR developed specific and meaningful initiatives to improve their gross margin and we expect to see the benefit of these in 2006.

Despite these challenges, we did show improvement in gross margins for the year and will continue to work towards further margin enhancement in 2006. For 2005, our cumulative pricing for the year was up 1.6% in automotive, 5.7% in industrial, 3.2% in office products and 3.0 in electrical. In the fourth quarter, SG&A as a percent to sales decreased to 121 basis points from 26.56 to 25.35%. Now this improvement partially reflects the impact of our ongoing cost control measures in our operating units. However, mainly the decrease was due to those expenses accounted for in corporate expense which were more reasonable throughout the year in '05 after increasing significantly in the fourth quarter of 2004. Our run rate for the year, which shows SG&A decreasing slightly from 24.11% to 24.07 is probably a better measure of the progress made on our operating expense line.

Effectively managing our costs continues to be a very important initiative for us. And during the year we were challenged by items such as employee benefits, general insurance and legal and professional expenses, including Sarbanes-Oxley costs. In addition, freight, utility costs and the SG&A trended up. And our performance-based compensation costs such as bonuses and stock options increased with our improved operating results for the year. I should add here though, that our employee head count had remained relatively flat over the years, thus we were pleased to show improvement for the year and we'll be working hard to show further progress in the year ahead. Net income for the quarter, $109.0 million, that was up 13%. Earnings per share was $0.63 compared to $0.55 last year. And that's up 15%. For the year, net income was 437.4 million, that's up 11% from 2004 and earnings per share was $2.50 compared to $2.25 the prior year, also up 11%.

Now let's discuss the results by segment. The first touch on the quarterly results. The automotive had revenue in the quarter of $1.2206 billion, that's up 5%. They had operating profit of $83.9 million, that's down 8%, and that's due to the previously-discussed Johnson Industry issues. The industrial group had revenue in the quarter of $695.2 million, that's up 9%. Operating profit of $61.9 million. Operating profit increase of 27%, so strong margin improvement within the industrial group.

The office products team had $412.1 million in revenue in the quarter, up 10%, operating profit $42.1 million flat for the quarter. So they had some margin deterioration in the fourth quarter as previously discussed. The Expo group had $86.4 million in revenue, that's up 6%. They had operating profit of $4.8 million, up 44%, so strong margin improvement by the electrical team for the quarter.

Now if we look at the results for the full year by segment, the automotive team had revenue of $5.0135 million, that represents 51% of the total. It was up 6%. Operating profit of $398.5 million, up 1% with margins at 7.9%. The industrial group had revenues in the -- for the full year of $2.7957 billion, representing 29% of our total, up 11%, at operating profit of $214.2 million, up 23%, so an outstanding year by this team with margin improvement to 7.7%.

Office products team had $1.6624 billion in revenue, representing 17% of the total, up 8%, operating profit of $157.4 million up 4%. And with the outstanding margins at 9.5% but down a little bit from the prior year. Electrical group had $341.5 million in revenue. That was up 2% and represents 3% of the total. They had operating profit of $17.5 million. That is up 20% for the year. And operating profit margins going to 5.1 from 4.4 the prior year.

So although sales were up 7% for the quarter, operating profit was only up 4%, resulting in a decrease in operating margins of 20 basis points. The two biggest factors were the gross margin issues at Johnson and SPR which were discussed earlier, and they had an impact on our automotive and office product sectors. However, we're very pleased with the excellent margin achieved in our industrial electrical groups.

Along with the issues faced in the fourth quarter, another challenge for us in 2005 related to the repositioning of our rotating electrical line within our remanufacturing operations. As we discussed in our previous 2005 quarterly calls, we made some pricing adjustments to drive additional sales volume and this impacted our margins for most of 2005. The impact of this change was approximately $11 million for the full year. Our operating margins for the full year held at 8.1%, even with 2004. But again it is important to note that our industrial and electric groups show tremendous margin for the year and we're pleased with our core NAPA margins as well. In addition, our office products group with an operating margin of 9.5% for the year continues to produce industry-leading margins.

We feel it is important to add here that the pretax margin for the Company improved 60 basis points in the fourth quarter to 7.34%. This improvement reflects the benefit of interest and corporate expense relative to the prior year, and we feel good about our progress on this line. And for the full year, our pretax income as a percent of sales improved 26 basis points to 7.25%, up from 6.99 in 2004. And this is a solid gain for us, and shows -- and follows similar progress in 2004. And we look to show continued improvement into 2006 and beyond. And we had interest expense of 6.2 million for the quarter, 29.6 million for the year. Down 21% from 2004. This was due to our reduced debt level in 2005, compared to the prior year.

In 2006 you'd expect to see our net interest expense for the year be around $25 million. Other category was $10 million for the quarter, and that's down $25 million from -- from 25 million in 2004. It was $49 million in the year, down from $62 million in 2004. We're pleased with improvement in this category in 2005. The components of the other category for the year include corporate expense of $45 million, amortization expense of nearly $400,000 and minority interest of nearly $3.3 million. Our fourth quarter corporate expenses were more reasonable and in line with the prior quarter's expenses in 2005. Corporate expense includes costs associated with pension, employee benefits, insurance and legal and professional expenses. For 2006, we are expecting to see continued increases in employee benefits and other personnel related costs, such as stock options and compensation, pension costs and insurance coverages.

In total, we'd estimate that this category would be in the range of 50 to $60 million for the 2006 year. Now let's touch base on a few key balance sheet items. Cash at December 31 increased by 40% to $189 million from $135 million last year. Our cash position remains strong due to our growth in income, and the continued improvement in our working capital position. We'll discuss cash further in our cash flow comments in a moment. Accounts receivable increased 6% from last year, less than our sales increased for the quarter. So our receivables continue to move at a favorable rate to sales, and we feel good about the quality of our receivables.

Inventory was up just 1%, and that's approximately $18 million on a $2.2 billion inventory level compared to last year. On 8% sales growth for the year, we're very pleased with our progress in this inventory area. Effective inventory management remains a key initiative for us as we look ahead to 2006. Accounts payable increased 14%, or $116 million from last year. Another good year for us after increasing by 21%, or $150 million in 2004. Our increase in payables over the last two years had been due to the combination of increased purchases related to the increased sales, as well as extended terms established with our vendors. We've made good progress in this area in the last two years particularly as we've maintained only minimal increases in inventory over that time period.

Working capital was $2.6 billion at December 31, 2005, up 2% from 2004. Improving our working capital position is an ongoing and important initiative for us, and we plan to further improve our working capital efficiency in 2006. Current ratio at the end of the year was 3.0 to 1, which emphasizes that our balance sheet remains in excellent condition. We continue to generate consistent and strong cash flows and we're encouraged by the possibilities our strong cash position provides the company. In 2005 our cash from operations was approximately $440 million, and free cash flow as we measure it, which deducts capital expenditures and dividends of cash from operations was approximately $140 million.

During 2005 we chose to contribute an additional $90 million into the pension plan as a -- because it was provided -- preferential tax treatment and would reduce our pension expense going forward. We increased the cash use for share repurchases as well as capital expenditures and dividends. Looking ahead, our priorities for the cash remain strong dividend, reinvestment in each of the businesses, share repurchase and, where appropriate, strategic bolt on types of acquisitions. Our strategy has been to target the small acquisitions that can quickly add value to our existing businesses, such as the Vorhees acquisition at Motion Industries and [Polyfever] at EIS this past year. We'll continue to follow this strategy in 2006.

We paid dividends of $216 million in 2005 and continue to believe that dividends are important. At our board meeting yesterday, our Board of Directors authorized an increase in the dividend to $1.35 per share in 2006, that's up 8% from the $1.25 a share last year. New dividend represents 54% of our 2005 earnings, and is our 50% consecutive year of dividend increases. We've paid a dividend every year since going public in 1948 and have increased it every year since 1955. As you know, this record continues to distinguish Genuine Parts Company from most other companies.

Capital expenditures were $26.4 million for the fourth quarter and $85.7 for the full year, that's up approximately 14 million from 2004 and in line with our plan for the year. Related depreciation and amortization was 14.1 million for the quarter, 65.5 for the year, both up slightly from the previous year. We expect our CapEx to continue in the 80 to $90 million range for 2006 and we would expect our D&A to be up slightly in the rage of 6 a to $70 million. Another priority for us has been our opportunistic share repurchase.

And as part of our share repurchase program, we did purchase approximately 2.8 million shares of our Company's stock in 2005. We've also repurchased another 450,000 shares thus far in 2006. And that leaves us with an additional 2.8 million shares authorized for repurchase as of today. We have no set pattern for this repurchase program but will remain active in the program as we continue to see that investment in GPC stock will provide a good return to our shareholders. We continue to believe the use of cash in these areas serves to maximize the total return to our shareholders.

I should add here that after reducing our debt over $100 million a year for the last three years, we made no payment on our outstanding debt during 2005 and total debt of $501 million remained unchanged from December of 2004. Total debt at December 31, 2005 represents 15.7% of our total capitalization compared to 16.5 the prior year. We discussed this in previous calls. We expect our debt to remain at its current level until our first $250 million credit facility is due in 2008. The second $250 million is due in 2011. And prepayment of this debt is cost prohibitive due to make-hold provisions included in the debt agreements.

We're pleased with the overall results for the fourth quarter and the full year of 2005. We work towards continuing those positive trends in 2006, we remain focused on growing sales, controlling costs and improving our operating margins. We'll be able to support this growth plan with a strong and healthy balance sheet and continued strong cash flows, further maximizing our return to the shareholders.

Tom, I'll turn it back to you at this point.

All right, thank you, Jerry. Well that recaps our performance for the fourth quarter and year end. And we are pleased to report that it was another record year for Genuine Parts Company. Sales up 8%. Earnings per share up 11%. On top of an 8% sales increase, an EPS increase of 11% in 2004.

Solid progress was made throughout most parts of the company in 2005, and we go into 2006 with expectations that it will be another good year. Our management team will continue to be focused on maintaining our revenue growth in the 6 to 8% range, and revenue growth in this range should enable us to produce earnings in the range of $2.65 to $2.75 per share.

Each of our businesses will continue to be focused on operating margin expansion, asset management improvements and working capital efficiency. And we will look forward to reporting on our progress on a quarterly basis throughout the year. At this point we'll turn it back over to Toni, and open it up to your questions.

[OPERATOR INSTRUCTIONS].

Your first question comes from Darren Kimball with Lehman Brothers.

Hi, guys.

Good morning, Darren.

I think maybe you -- you said this, but I'm not sure. Just wanted to make sure I followed it. The -- the working capital change in the fourth quarter was -- was a little bit more negative than -- than we expected. Is -- does that relate to a pension contribution? Is that what you were saying?

That's correct. We made an additional for the year, $90 million contribution to the pension plan, $30 million of that came in the fourth quarter.

30 million came in the fourth quarter.

Right.

So even considering that. Was there anything,-- the year was strong but on balance it looks like there was a net increase in working capital. I mean, was there anything in the fourth quarter that you wanted to call out? It sounded like with the SPR division you put off some forward buys which might have improved the performance even more.

Well, it -- it could have, Darren, but it also would increase our inventories so the decision was made not to do that. I -- I'm not aware that there was anything unusual in the fourth quarter.

Okay. And -- and just as a follow-up, can you talk a little bit about the -- the issues with -- with discounts and -- and rebates as they affect margins? Is 2006 essentially a clean comparison?

I believe so, Darren. We -- we're continuing to try to bring our inventories down. And you -- you have to assume that business is going to stay good. And those -- those volume incentives are based on purchases. We -- we're going to continue to try to bring inventory levels down. But that assumes that business is going to be good. And we're able to earn the same number of volume incentives that we've earned in 2005.

Thanks very much.

Okay, thanks.

Your next question comes from John Murphy with Merrill Lynch.

Good morning, guys.

Good morning, John.

A question on -- on Johnson Industries in the auto segment. I mean, if -- if we were to think about that, maybe on a normalized basis going forward into 2006, The $10 million in expense you had for selling down those four additional stores or locations in the fourth quarter will not continue. So if -- if I were to think about it, sort of a run rate operating margin in the auto business was about 7.7% in the fourth quarter? Am I thinking about that correctly?

John, we don't know at this point on Johnson industries. You -- you are right on the operating margin in the fourth quarter. But we don't know on Johnson Industries where we're going because we've got four operations left. We have an infrastructure over there that -- that we haven't brought it down to size for distribution center operations, so we've got some costs to take out there, we're just not sure on where we're going with that and the impact its going to have on us in 2006, but it certainly will be less than the impact it had in 2005.

John, I think the other thing that we look at, and we look at the operating margin improvement in our core NAPA business, and we were pleased to see that that segment of automotive did in fact improve operating margins for the year. So the bulk of our automotive business is performing well. We're in a situation right now where we're downsizing Johnson and we mentioned it earlier, Jerry and I both did, we're looking at all of our options there. And it will not impact us in 2006 to the degree that it impacted us in 2005 for sure.

And -- and John, one other thing is we will have anniversaried the $11 million electrical pricing adjustment.

Got it, got it. But what are the big hurdles there in getting out of that business? What is stopping you from, you know, just selling that stuff outright?

The JI business? Is that what you are talking about?

I'm sorry, yes.

Right now, we're locking at all of the options, John, and we want to do the right thing for Genuine Parts company and we want to do the right thing for the folks at Johnson Industries and we'll work our way through that as the year progresses.

Okay. Then if we think about the operating margin improvements in the other segments, how much of that do you believe is external and how much is internal? And if -- if it is internal, how much more room is there for you to improve those margins going forward in 2006 or should we be thinking about those as -- I mean, the fourth quarter margins were very impressive as continuing going forward.

John, you know, most of that is internal. Keep in mind that this is a leverage issue for us. As long as they have those kind of sales increases, they can continue to grow profits at a faster rate than those sales increases so it really is a leverage issue. Motion Industries did have 5.7% price inflation in 2005. But, again, not all of that flows through the inventory side of things. But it's more a function -- keep in mind that our head count at our business units has stayed flat over the last few years, and so when we get these sales increases and we should be able to benefit and show margin improvement.

Perhaps another way to look at it, John, is just to remind you what our stated objectives are for margins by segment. We've said that our plan is to get automotive up to 9 to 9.5%, the industrial 8 to 8.5, office products 9.5 to 10 and the industrial electronic 5 to 5.5 and when we blend all of that out, that would get GPC to 9%. We've also said that we're not planning to do that from one year to the next. But to show steady and consistent improvement year on year until we get there, and then we'll start to assess where we take it from there.

Great. And then just one last question on the -- the store adds in 2006. I mean, how -- what's the net number your looking for in 2006 to add?

100.

100? Okay. Great. Thanks very much, guys.

Thank you very much.

Thank you.

Your next question comes from Jonathan Steinmetz from Morgan Stanley.

Thanks, good morning everyone.

Good morning, Jonathan.

Good morning, Jon.

I just want to follow up with some questions on Johnson Industries. If we were to exclude the $10 million of expense, is the current constitution of Johnson industries earning money or is that a money loser at this point?

It is marginally negative at this point and that's what Jerry was referring to when he said we've still got some infrastructure to take out over there.

Okay. And the auto margins look like, when we excluded, one of the previous questions said we're down a little bit, is there anything else going on with the 5% sales growth in terms of business mix, or anything like that that's not allowing for more leverage, even on an apple to apple basis?

I think, Jonathan, if you look at the combination of the impact of Johnson Industries and the impact of the rotating electrical, I believe you'll find that the margins actually improved in the remaining businesses.

Okay. So it's the rotating electrical that's sort of crimping it.

Well, that -- that was an impact, I think Jerry referenced $11 million for the year, and we will anniversary that in 2006 and -- and go forward. I should also point out that we did that to reposition the product line. We are seeing increased sales in units, but we're not getting the impact yet until we anniversary on the dollar side.

Okay. And last question, Jerry, I think you mentioned increase technology sales on the office side enabling some of the sales growth without maybe as much accompanying margin. I -- is there a rough -- cut number on how much extra IT-type spend you saw there?

No. I don't have a good feel for that. I'm sure the folks at the Office Products side do, Jonathan but I do not have a good feel for that. That toner cartridge stuff is lower margin business.

One thing I could say, I don't have the specifics, but I do know the -- that segment had its stronger part of the year in the fourth quarter.

Okay. Thank you very much.

Alrighty. Thank you.

Thank you.

Your next question comes from David Siino with Gabelli and Company.

Hi, good morning.

Good morning, David.

Just one last question on Johnson Industries. So what -- what's left on an annual run rate revenue basis?

$150 million.

And, David, we do hope that's one last question on Johnson Industries. We're taking care of Johnson. It's been a problem. And we're going to work our way through it and hopefully when we have this call next year we won't be having this discussion.

Sure, understood. Jerry, just a couple of housekeeping questions was there a LIFO charge in '05.

No. It was a neutral for us.

Okay.

We have -- we have inventory gains to offset the gains to LIFO.

Do you expect a net decrease in shares outstanding in '06?

Yes. I -- I can't tell you how much because it depends on how active we are in the share repurchase program. We will grant some options but it depends how active we'll be in the share repurchase program.

Okay. And so the -- the ongoing EBIT pretext for electrical and electronics should resemble what the fourth quarter looked like?

Well, it should be 5 to 5.5% and for the year they ended up at 5.1 and 5.5 in the quarter, and so some place between 5.5, 5 to 5.5% should be the right number.

Okay. And -- and last question, what was the NAPA Auto Care Center Count at year end versus the prior year.

Right at 13,000 I think, David.

So you added about 1500 during the year?

No, no, I think that the account held relatively constant for the year. We did increase the through put for auto care center, and that's the reason we got that nice increase. But I think the count was relatively constant for the year.

Okay. Thank you.

All right. Thanks, Dave.

Your next question comes from Dax Vlassis with Gates Capital Management.

Yes. I was wondering, for the fourth quarter the other net was basically 10 million versus 25 million on the P&L. Can -- can you give a breakdown of what that is?

Yes. It's -- it's corporate expense. It's -- yes. The corporate expense is $9 million. We got the amortization of the DNA and we've got the minority interest. If you look at the quarter, we had 9, had about $100,000 in goodwill amortization and the minority interest was the remainder.

How does that compare to a year ago?

Year ago it would have been 25 million in the corporate expense side with about $100,000 in the amortization and goodwill and about $300,000 minority interest.

And -- and why was there such a decrease in -- in corporate expense? Was there a charge a year ago?

No. Last -- last year we had a spike up in our corporate expense because of adjustments for leases and insurance reserve and so forth that we discussed in the quarter at that time but it was because last year's fourth quarter was out of line. This -- this had been pretty consistent now, where we are. It was the first three quarters of 2005. And going forward, it should be 50 to 60 million for the year.

Right. But excluding -- excluding those kind of one time items from last year, it looks like the EBIT margins were actually down year-over-year. Is that fair?

It -- it might be but we don't look at EBIT the margins, we just look at net income.

Oh, really?

Yes.

Okay. And then also on the balance sheet, other assets were basically $510 million versus 384. What caused that huge increase?

That's the pension we -- we made $130 million contribution to our pension plan, of which $90 million of that was an additional over and above the actuarial calculated amount.

So the total was 130.

That's correct.

Okay. And then -- then how much of a benefit will you get for that contribution for next year? What was the pension expense this -- in this year? I think you said it was going to be around 32 million.

Yes. The pension expense is going to go up if you do do things like this, it is going to be 30 to $35 million in '06, but because the discount rate and the rate on the asset -- the return on your assets and so forth, and so that pension expense, we'll get a savings as a result of putting that money in there. We also got the benefit of -- of lower tax payments from a cash standpoint by making that contribution.

Right. But -- but wasn't 32 -- two million in the -- in the 2005 year?

That's correct,, yes.

Okay. And then you said -- I was kind of writing and couldn't catch it, did you say 2006 revenue you expect to be up 6 to 8%?

Yes, sir, that's right.

Okay. And is that sort of -- how would you characterize that across the segments?

About equal across each of the four.

Equal across each of the four?

Yes, sir.

Okay. Thanks so much.

Thank you.

Thank you.

Your next question comes from [Tim Cullen with Darrow Hensley].

Good morning, guys.

Good morning, Tim.

Just one question. Jerry, I know you said a lot of the margin improvement outside of Auto was coming from just sales leverage and yet it still seemed to me awfully strong and I also -- and I may be wrong on this in my memory, but it seemed to me that the pricing numbers that you gave out by division were stronger than what we'd been seeing. I'd like you to, number one, confirm that and then secondly tell me if the strong pricing was kind of an inventory profit type of enhancing of your margins and maybe that would be not as strong next year against these comparisons.

Tim, a couple of things there, in the industrial side, remember, one of the reasons that their margin was going down because we stopped taking advantage of volume incentives to bring that inventory down over there and then it's been offset with the fact that this strong business that they've had and they've been able to continue to receive about the same amount in volume incentives that they had in the past, and -- and also on the -- from the pricing side for them, at the end of 9 months they had 4.7% pricing and they ended the year with 5.7. And they're on LIFO over there.

And so the problem with the price increase for them is sometimes they struggle to pass all of that through to their customers because they have some customers on a national annual contract basis and so that creates gross margin pressure for them but most of the time through, working with our suppliers and our customers, they're able to push most of those increases through and so I don't think that that is where the -- the margin enhancement did not really come from a price inflation issue, it just came from keeping the SG&A expenses under control in the additional sales volume they had.

Tim, I might just add one thing, you know that some of our cap ex has been going up for the last couple of years and we've been making some reasonably good-sized investments in some of our IT areas to help drive productivity and across all of the businesses we continue to see nice productivity gains and that's part of the contributing factor from Motion Industries.

Okay. Great. Thanks.

Okay. Appreciate the call.

Your next question comes from Jason Rogers with Great Lakes Review.

Hello.

Good morning.

Looking at the Office Products division, I think you mentioned that the margin goal is 9.5 to 10%.

That's right.

Given that you're pretty much at those levels now, is the implication that you're not expecting much in the way of margin expansion in that segment over the next few years?

I would say that we want to continue to see them in that 9.5 to 10% range. And historically we've run between 9 and 10. We want to keep it up in the upper half. And we may see from quarter-to-quarter some movement towards the high end or some movement towards the 9.5, but our overall goal is to keep them at that level and then we'll -- as I said earlier with the total margin improvement objectives, we'll be looking on an ongoing basis just to see if we can move them up but they already operate at the top end of the office products industry and so I'm not sure how much further we can really push them.

Okay. And then speaking of the industry, one of our competitors, United Stationers has margins I think less than half of yours. What do you think that are you doing so much better than them to be able to achieve those high margins?

I do not know that we can answer that. The only thing we say is that they are a fine company, making good progress and they are a good competitor.

Okay. Thank you.

[OPERATOR INSTRUCTIONS]. You have a follow-up question from Jonathan Steinmetz with Morgan Stanley.

Thanks. Can you guys talk a little bit about how January and early February has started, especially on the auto side? Some of the competitors have been out there saying perhaps the weather made things a little softer than they had been. Any color on that?

We could tell you that the -- the numbers are -- are in-line with what we've been producing. There's no question that the soft winter, the warmer winter has had an impact, but our team seems to be generating pretty consistent results for us right now.

Okay. And apart from the Johnson, if you think through in 2006 the biggest opportunities to improve margins on the auto side, what are the one or two things you would highlight and what sort of improvement might we see?

Well, I think there's always an opportunity on the gross profit side, whether it be on the buy side of gross profit or the sell side of gross profit so that's always an opportunity for us. As far as the expectation as to what you would see, I do not think we want to speculate on that. I think we can say that you should expect to see us show gradual improvement until we get to the 9 to 9.5% that we're looking for.

Okay. Thanks so much.

All right. Thanks, John. Toni, do you have any other calls -- or questions?

No, sir, there are no further questions at this time.

Okay. If not we'll go ahead and close the call off. We do appreciate your continued interest in and support of Genuine Parts Company and we look forward to talking to you after we have our first quarter results. Thanks for joining us.

This concludes today's conference call. You may now disconnect.