TABLE OF CONTENTS

EX-10.52 AMEND. DIRECTORS' DEFERRED COMPENSATION

EX-10.53 GENUINE PARTS COMPANY PARTNERSHIP PLAN

EX-10.54 GENUINE PARTS COMPANY PENSION PLAN

EX-10.55 1999 LONG-TERM INCENTIVE PLAN

EX-10.56 AMENDMENT TO THE 1992 STOCK OPTION PLAN

EX-13 SECTIONS AND PAGES OF THE 2002 ANNUAL REPORT

EX-21 SUBSIDIARIES OF THE COMPANY

EX-23 CONSENT OF INDEPENDENT AUDITORS

selected financial data

(in thousands, except per share data) Year ended December 31,	2002			2001			2000		1999		1998
Net sales	$	8,258,927		$	8,220,668		$	8,369,857	$	7,950,822	$	6,587,576
Cost of goods sold		5,704,749			5,699,174	**		5,764,360		5,436,056		4,468,568
Selling, administrative and other expenses		1,948,442			1,951,559	**		1,958,747		1,886,699		1,529,891
Facility consolidation and impairment charges		—			73,922	**		—		—		—
Income before taxes and accounting change		605,736			496,013			646,750		628,067		589,117
Income taxes		238,236			198,866			261,427		250,445		233,323
Income before cumulative effect of a change in accounting principle		367,500			297,147			385,323		377,622		355,794
Cumulative effect of a change in accounting principle		395,090	*		—			—		—		—
Net (loss) income after cumulative effect of a change in accounting principle	$	(27,590	)	$	297,147		$	385,323	$	377,622	$	355,794
Average common shares outstanding during year - assuming dilution		175,104			173,633			175,327		179,238		180,081
Per common share:
Diluted net income, excluding cumulative effect and 2001 charges	$	2.10		$	2.08		$	2.20	$	2.11	$	1.98
Diluted net (loss) income		(0.16	)		1.71			2.20		2.11		1.98
Dividends declared		1.16			1.14			1.10		1.04		1.00
December 31 closing stock price		30.80			36.70			26.19		24.81		33.44
Long-term debt, less current maturities		674,796			835,580			770,581		702,417		588,640
Shareholders’ equity		2,130,009			2,345,123			2,260,806		2,177,517		2,053,332
Total assets	$	4,019,843		$	4,206,646		$	4,142,114	$	3,929,672	$	3,600,380

*

The cumulative effect of a change in accounting principle in 2002 represents a non-cash charge related to the impairment testing for goodwill in conjunction with the new Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets”. If the Company had applied the non-amortization provisions of Statement 142 for all periods presented, net income and diluted income per common share would have increased by approximately $11.9 million ($0.07 per share), $11.4 million ($0.06 per share), $10.7 million ($0.06 per share), and $4.1 million ($0.02 per share) for the years ended December 31, 2001, 2000, 1999 and 1998, respectively.

**

Facility Consolidation, Impairment and Other Charges (“2001 Charges”) totaled $107.8 million pre-tax in 2001 and $64.4 million after tax. The pre-tax charges include $17.4 million classified in cost of goods sold and $16.4 million classified in selling, administrative and other expenses.

market and dividend information

High and Low Sales Price and Dividends per Share of Common Shares Traded on the New York Stock Exchange

	Sales Price of Common Shares
Quarter	2002				2001
	High		Low		High		Low
First	$	38.08	$	33.92	$	28.45	$	23.91
Second		37.80		34.17		31.50		25.28
Third		33.63		27.64		34.56		26.93
Fourth		32.00		29.48		37.94		31.85

	Dividends Declared Per Share
	2002		2001
First	$	0.29	$	.285
Second		0.29		.285
Third		0.29		.285
Fourth		0.29		.285

Number of Record Holders of Common Stock: 7,773

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segment data

(dollars in thousands) Year ended December 31,					2002			2001			2000			1999			1998
Net sales:
	Automotive				$	4,335,362		$	4,252,913		$	4,163,814		$	4,084,775		$	3,262,406
	Industrial					2,246,124			2,234,241			2,342,686			2,156,134			2,008,789
	Office products					1,396,453			1,379,859			1,336,500			1,218,367			1,122,420
	Electrical/electronic materials					315,826			387,771			557,866			522,411			220,417
	Other					(34,838	)		(34,116	)		(31,009	)		(30,865	)		(26,456	)
				Total net sales	$	8,258,927		$	8,220,668		$	8,369,857		$	7,950,822		$	6,587,576
Operating profit:
	Automotive				$	381,771		$	378,162		$	381,250		$	383,830		$	330,988
	Industrial					178,027			172,208			206,193			186,203			176,456
	Office products					140,912			141,762			134,343			118,345			113,821
	Electrical/electronic materials					2,756			3,229			28,010			23,343			12,030
				Total operating profit		703,466			695,361			749,796			711,721			633,295
Interest expense						(59,640	)		(59,416	)		(63,496	)		(41,487	)		(20,096	)
Corporate expense						(33,354	)		(27,670	)		(23,277	)		(22,283	)		(19,545	)
Equity in (loss) income from investees						—			—			—			(3,675	)		3,329
Goodwill and intangible amortization						(2,421	)		(14,333	)		(13,843	)		(12,708	)		(5,157	)
Minority interests						(2,315	)		(3,077	)		(2,430	)		(3,501	)		(2,709	)
Facility consolidation and impairment charges						—			(94,852	)		—			—			—
	Income before income taxes and accounting change				$	605,736		$	496,013		$	646,750		$	628,067		$	589,117
Assets:
	Automotive				$	2,242,227		$	2,219,503		$	2,099,610		$	2,034,417		$	1,966,774
	Industrial					1,013,259			867,716			840,585			758,206			671,454
	Office products					581,203			538,468			542,406			503,904			442,220
	Electrical/electronic materials					98,225			121,721			190,635			174,258			147,074
	Corporate					26,224			17,160			17,443			18,588			18,385
	Goodwill and intangible assets					58,705			442,078			451,435			440,299			354,473
				Total assets	$	4,019,843		$	4,206,646		$	4,142,114		$	3,929,672		$	3,600,380
Depreciation and amortization:
	Automotive				$	43,007		$	45,094		$	51,546		$	51,563		$	43,637
	Industrial					10,789			11,992			11,617			10,926			8,619
	Office products					9,856			9,345			9,598			8,814			8,391
	Electrical/electronic materials					3,422			4,009			4,391			4,173			1,508
	Corporate					656			1,020			1,308			1,783			1,993
	Goodwill and intangible amortization					2,421			14,333			13,843			12,708			5,157
		Total depreciation and amortization			$	70,151		$	85,793		$	92,303		$	89,967		$	69,305
Capital expenditures:
	Automotive				$	38,599		$	26,766		$	35,031		$	57,710		$	69,154
	Industrial					10,868			6,388			20,054			11,275			6,972
	Office products					13,376			5,941			9,116			16,085			6,901
	Electrical/electronic materials					224			2,466			3,183			3,113			4,688
	Corporate					1,691			383			3,745			100			546
				Total capital expenditures	$	64,758		$	41,944		$	71,129		$	88,283		$	88,261
Net sales:
	United States				$	7,568,926		$	7,526,631		$	7,665,498		$	7,345,707		$	6,535,020
	Canada					623,686			629,330			633,715			585,504			79,012
	Mexico					101,153			98,823			101,653			50,476			—
	Other					(34,838	)		(34,116	)		(31,009	)		(30,865	)		(26,456	)
		Total net sales			$	8,258,927		$	8,220,668		$	8,369,857		$	7,950,822		$	6,587,576
Net long-lived assets:
	United States				$	339,495		$	579,635		$	618,818		$	620,837		$	545,452
	Canada					47,522			182,041			201,895			207,672			187,951
	Mexico					4,739			25,534			25,982			25,333			15,338
			Total net long-lived assets		$	391,756		$	787,210		$	846,695		$	853,842		$	748,741

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management’s discussion and analysis of financial condition and results of operations

December 31, 2002

Results of Operations:

YEARS ENDED DECEMBER 31, 2002 AND 2001

Net sales for the year ended December 31, 2002, totaled $8.26 billion, which was a slight increase from 2001. Sales for the Automotive Group (“Automotive”) were $4.3 billion in 2002, an increase of 2% over 2001. Sales for S.P. Richards, our Office Products Group (“Office”), were $1.4 billion, up 1% over 2001. Sales for Motion Industries, our Industrial Group (“Industrial”), were $2.2 billion, a slight increase over the previous year; and sales for EIS, our Electrical and Electronic Group (“Electrical”), were down 19% to $316 million. All industry groups continue to be affected by the slow economy with the impact being greatest for EIS due to the telecommunication and manufacturing sectors of the economy. Prices were down slightly in the Automotive and Electrical segments, while pricing in the Industrial and Office segments increased 2% and .7%, respectively.

Cost of goods sold was 69.1% of net sales in 2002 as compared to 69.3% in 2001. The decrease can be attributed to more efficient supply chain costs, inventory mix and certain inventory related exit costs in 2001. Selling, administrative, and other expenses of $1.9 billion were flat as compared to 2001, and slightly down from the previous year as a percentage of sales.

Operating profit as a percentage of sales was 8.5% for the year, which was flat with 2001. These results are reflective of the overall economic conditions, as well as the fixed costs inherent in distribution, which have continued to impact operating margins. Automotive operating margins decreased slightly from 8.9% in 2001 to 8.8% in 2002. Costs associated with new store openings were only partially offset by cost reductions associated with distribution center closings and other headcount reductions. Industrial operating margins increased from 7.7% in 2001 to 7.9% in 2002, reflecting cost and headcount reductions resulting from branch closings. Office Products margins decreased slightly from 10.3% in 2001 to 10.1% in 2002. Our Electrical and Electronic segment increased their margins slightly.

The effective income tax rate decreased from 40.1% to 39.3% for the year, primarily as a result of the decrease in non-deductible goodwill amortization due to the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). Net income, before the cumulative effect of a change in accounting principle related to goodwill, was 4.5% of net sales as compared to 3.6% in 2001. Net income for 2002, before the cumulative effect of a change in accounting principle related to goodwill impairment was $368 million, an increase of 2%, compared to $362 million, before the Facility Consolidation, Impairment and Other Charges (“2001 Charges”) as discussed below, for the same period in the prior year. On a per share diluted basis, net income for the period, before the 2002 cumulative effect of a change in accounting principle related to goodwill and the 2001 Charges equaled $2.10, as compared to $2.08 reported in 2001. After the 2002 cumulative effect of a change in accounting principle related to goodwill and the 2001 Charges, the net loss was $28 million, or $.16 diluted loss per share for 2002, as compared to net income in 2001 of $297 million, or $1.71 diluted earnings per share.

YEARS ENDED DECEMBER 31, 2001 AND 2000

Net sales in 2001 were $8.2 billion, a decline of 2% as compared to 2000. The Automotive Group and Office Products Group increased sales by 2% and 3%, respectively. Price increases for Automotive were 2% in 2001 and 1% in 2000 and, for Office, 2% in 2001 and 1.7% in 2000. Industrial and EIS reported sales decreases of 5% and 30%, respectively, resulting from the economic slowdown in the industrial manufacturing and telecommunication sectors of the economy. Although Industrial and Electrical each had price increases of 1% in 2001 and 2% and 1%, respectively, in 2000, the effect of such increases was more than offset by volume declines.

Cost of goods sold was 69.3% of net sales in 2001 as compared to 68.9% in 2000. The slight increase in cost of goods sold as a percentage of net sales is primarily attributable to continued pricing pressures resulting from the recessionary economic conditions coupled with inventory-related exit costs discussed below totaling approximately $17.4 million. Selling, administrative and other expenses of $1.9 billion were flat

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from 2001 to 2000. At 23.7% of net sales in 2001, these expenses increased slightly from 23.4% in 2000. Excluding the effect of the 2001 Charges, selling, administrative, and other expenses declined by just over 1%, generally consistent with the sales decrease.

Operating profit as a percentage of sales was 8.5% in 2001 as compared to 9.0% in 2000. These results are reflective of the overall economic conditions in 2001 and the fixed costs inherent in distribution. Automotive operating margins decreased slightly from 9.2% in 2000 to 8.9% in 2001. Office operating margins showed slight improvement from 10.1% in 2000 to 10.3% in 2001. The current economic conditions continued to place the most pressure on the Industrial and Electrical segment. Industrial margins declined to 7.7% in 2001 from 8.8% in 2000. EIS, with a sales decrease in 2001 of 30%, had an operating margin of 1% in 2001 and 5% in 2000. The margin decline at EIS is because the operating expenses associated with EIS’ business could not be reduced to the extent of the sales decline.

The effective income tax rate was 40.1% in 2001 as compared to 40.4% in 2000. Net income in 2001 was $297 million, reflecting a 23% decrease over 2000 net income. Net income as a percent of net sales was 3.6% in 2001 as compared to 4.6% in 2000. Excluding the effect of the Facility Consolidation, Impairment and Other Charges, net income was down 6% from 2000 and was 4.4% of sales. This decrease in net income is primarily attributable to the sales decline. In 2001, diluted earnings per share were $1.71, a 22% decrease from $2.20 reported in 2000. Excluding the 2001 Charges, diluted earnings per share were $2.08, a 5% decrease from 2000.

FACILITY CONSOLIDATION, IMPAIRMENT AND OTHER CHARGES

In the fourth quarter of 2001, the Company’s management approved a plan to close and consolidate certain Company-operated facilities, terminate certain employees, and exit certain other activities. The Company also determined that certain assets were impaired. Following is a summary of the charges ($107.8 million pre-tax; $64.4 million, net of tax) and accruals related to continuing liabilities associated with the plan (in thousands):

						Paid in			Liability at		Paid in			Liability at
	Total		Non-cash			2001			Dec. 31, 2001		2002			Dec. 31, 2002
Impairment charges	$	49,400	$	(49,400	)	$	—		$	—	$	—		$	—
Facility consolidation expenses		17,900		(6,900	)		(300	)		10,700		(4,800	)		5,900
Severance expenses		6,700		—			(100	)		6,600		(4,800	)		1,800
Inventory-related exit costs - cost of goods sold		17,400		(17,400	)		—			—		—			—
Other — selling, administrative and other expenses		16,400		(15,800	)		—			600		(300	)		300
	$	107,800	$	(89,500	)	$	(400	)	$	17,900	$	(9,900	)	$	8,000

Impairment charges are primarily comprised of two separate technology projects: (1) an abandoned software system implementation in the Office Products Group totaling approximately $30 million, and (2) an impaired technology-related venture in the Automotive Group totaling approximately $15 million for which the Company projects the undiscounted cash flows to be less than the carrying amount of the related investment. Facility consolidation expenses relate to facility consolidations in each of the Company’s business segments. In 2001, the Company identified certain distribution, branch and retail facilities that were to be closed prior to December 31, 2002. The Company appropriately accrued the estimated lease obligation from the planned exit date through the end of the contractual lease term, net of estimated sublease income. The facility consolidations did not result in any material decline in net sales, as all such closed facilities have been served by other Company-operated facilities.

Severance expenses include charges for employees who have been involuntarily terminated in connection with the Company’s facility consolidations. All terminations occurred prior to December 31, 2002. Inventory-related exit costs relate to inventory considered by the Company to be impaired as a result of the facility consolidations described above and related inventory rationalization and optimization programs.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

All inventory-related exit costs have been classified as cost of goods sold in the accompanying consolidated statement of income. Other charges have been classified as a component of selling, administrative, and other expenses.

FINANCIAL CONDITION

The major balance sheet categories were relatively consistent with the December 31, 2001 balance sheet. Prepaid expenses and other current assets declined primarily due to the realization of a significant income tax receivable. Goodwill and other intangible assets declined due to the January 1, 2002 adoption of a new accounting principle, as discussed below. The Company’s cash balance at December 31, 2002 was $20 million, down $66 million as compared to December 31, 2001, primarily due to a reduction of debt. Due to our Automotive Group’s new store acquisitions, and favorable buying opportunities in the Industrial and Office Groups, inventory increased 13.5% as compared to December 31, 2001. In connection with the Company’s continuing focus on negotiating extended payment terms with vendors, accounts payable at December 31, 2002 increased approximately $91 million as compared to 2001. The change in long-term debt is discussed below.

During the first quarter of 2002, the Company completed its transitional impairment testing of goodwill as required by SFAS 142. As a result, a non-cash charge of $395.1 million was recorded as of January 1, 2002 representing the cumulative effect of a change in accounting principle. Most of the goodwill written down is in connection with acquisitions made in 1998 and 1999 where the discounted cash flows was estimated to be less than the carrying amount of the goodwill recorded. The breakdown of this impairment by reportable segment is summarized as follows, in thousands:

	Transitional impairment losses
Automotive	$	213,401
Industrial		19,512
Office products		6,566
Electrical/electronic materials		155,611
Total	$	395,090

In addition, the adoption of the non-amortization provisions of SFAS 142 resulted in a decrease in amortization expense of approximately $12 million, or $.07 per share, for the year ended December 31, 2002.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s long-term debt decreased by approximately $100 million in 2002 as compared to 2001. The decline in borrowings is primarily attributable to cash generated from operating activities of $272 million and $36 million in cash generated from stock option exercises. In addition, the Company had minimal stock repurchases during 2002, and capital expenditures and other investing activities were comparable to 2001.

On November 30, 2001, the Company completed a $500 million financing arrangement with a consortium of financial institutions and insurance companies. At December 31, 2002, the Company had unsecured Senior Notes outstanding under this financing arrangement as follows: $250 million, Series A, 5.86% fixed, due 2008; and $250 million, Series B, 6.23% fixed, due 2011. In addition, at December 31, 2002, the Company had $100 million outstanding on a $200 million unsecured revolving line of credit, LIBOR plus .55%, due 2003, and an unsecured term note in the amount of $171 million, LIBOR plus .55%, due 2004; and $20 million in other borrowings. Certain borrowings contain covenants related to a maximum debt-to-equity ratio, a minimum fixed-charge coverage ratio, and certain limitations on additional borrowings. At December 31, 2002, the Company was in compliance with all such covenants. The weighted average interest rate on the Company’s outstanding borrowings was approximately 4.8% and 5.3% at December 31, 2002 and 2001, respectively. Total interest expense for all borrowings was $59.6 million and $59.4 million 2002 and 2001, respectively.

The Company also has an $85 million construction and lease facility. Properties acquired by the lessor are constructed and then leased to the Company under operating lease agreements. The total amount advanced and outstanding under this facility at December 31, 2002 was approximately $66 million. Since the resulting leases are operating leases, no debt obligation is recorded on the Company’s balance sheet. This construction and lease facility expires in 2008. Lease pay-

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ments fluctuate based upon current interest rates and are generally based upon LIBOR plus .55%. The lease facility contains residual value guarantee provisions and guarantees under events of default. Although management believes the likelihood of funding to be remote, the maximum guarantee obligation under the construction and lease facility is approximately $66 million at December 31, 2002. In addition, the Company guaranteed borrowings of affiliates totaling approximately $61.4 million and $59.7 million at December 31, 2002 and 2001, respectively.

In August 1999, the Company completed the repurchase of 15 million shares authorized by the Board of Directors in 1994. The Board authorized the repurchase of an additional 15 million shares on April 19, 1999. Through December 31, 2002, approximately 7.8 million shares have been repurchased under this new authorization.

The following table shows the Company’s approximate obligations and commitments to make future payments under contractual obligations as of December 31, 2002 (in thousands):

			Period less		Period 1-3		Period 4-5		Period over
	Total		than 1 year		years		years		5 years
Credit facilities	$	791,701	$	116,905	$	174,796		—	$	500,000
Operating leases		375,850		101,728		125,877		60,921		87,324
Total Contractual
Cash Obligations	$	1,167,551	$	218,633	$	300,673	$	60,921	$	587,324

The Company has certain commercial commitments related to affiliate borrowing guarantees and residual values under operating leases. The Company believes the likelihood of any significant amounts being funded in connection with these commitments to be remote. The following table shows the Company’s approximate commercial commitments as of December 31, 2002 (in thousands):

	Total		Period		Period		Period		Period
	Amounts		less than		1-3		4-5		over
	Committed		1 year		years		years		5 years
Guaranteed borrowings of affiliates	$	61,350	$	21,372	$	6,903	$	4,701	$	28,374
Residual value guarantee under operating leases		52,800		—		—		—		52,800
Total Commercial Commitments	$	114,150	$	21,372	$	6,903	$	4,701	$	81,174

The Company manages its exposure to changes in short-term interest rates, particularly to reduce the impact on its floating-rate term notes, by entering into interest rate swap agreements. The Company has interest rate swaps with fair value of approximately $15.6 million and $31.6 million outstanding as of December 31, 2002 and December 31, 2001, respectively. The decrease in fair values since December 31, 2001 is primarily due to normal settlement of monthly payments due on swaps during the year ended December 31, 2002, as well as the early termination of certain swaps, offset by increases in the fair value of the liability on outstanding swaps during the period.

The following table shows the activity of the Company’s liability for interest rate swap agreements for the period from December 31, 2001 to December 31, 2002 (in thousands):

Fair value of contracts outstanding at December 31, 2001	$	31,570
Contracts realized or otherwise settled during the period (cash paid)		(35,580	)
Other changes in fair values		19,653
Fair value of contracts outstanding at December 31, 2002	$	15,643

This interest rate swap liability is included in other accrued expenses in the Company’s consolidated balance sheet. Other than interest rate swaps, the Company does not have any other derivative instruments. The Company does not enter into derivatives for speculative or trading purposes.

The Company’s exposure to future declines in interest rates associated with fixed rate interest rate swap agreements has been reduced significantly since December 31, 2001. At December 31, 2001, the Company had fixed interest rate payment swap agreements outstanding in the notional amount of approximately $600 million. At December 31, 2002, the notional amount of these outstanding interest swap agreements was approximately $100 million, comprised of two $50 million notional swaps with maturity dates of 2005 and 2008. In addition, at December 31, 2002, approximately $500 million of the Company’s total borrowings, which mature in approximately six and nine years, are at fixed rates of interest. A 1% adverse change in interest rates would not have a material adverse impact on future earnings and cash flows of the Company.

21

management’s discussion and analysis of financial condition and results of operations (continued)

The ratio of current assets to current liabilities is 3.1 to 1 at December 31, 2002, and the Company’s cash position is good. The Company believes existing credit facilities and cash generated from operations will be sufficient to fund future operations.

Critical Accounting Estimates

Inventories — Provisions for Slow Moving and Obsolescence

The Company identifies slow moving or obsolete inventories and estimates appropriate loss provisions related thereto. Historically, these loss provisions have not been significant as the vast majority of the Company’s inventories are not highly susceptible to obsolescence and are eligible for return under various vendor return programs. While the Company has no reason to believe its inventory return privileges will be discontinued in the future, its risk of loss associated with obsolete or slow moving inventories would increase if such were to occur.

Allowance for Doubtful Accounts — Methodology

The Company evaluates the collectibility of accounts receivable based on a combination of factors. Initially, the Company estimates an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience. This initial estimate is periodically adjusted when the Company becomes aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While the Company has a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which the Company operates could result in higher than expected defaults, and, therefore, the need to revise estimates for bad debts. For the years ended December 31, 2002, 2001 and 2000, the Company recorded provisions for bad debts of $20.9 million, $26.5 million and $13.9 million, respectively.

Consideration Received from Vendors

The Company enters into agreements at the beginning of each year with many of its vendors providing for inventory purchase rebates and advertising allowances. Generally, the Company earns inventory purchase rebates upon achieving specified volume purchasing levels and advertising allowances upon fulfilling its obligations related to cooperative advertising programs. The Company accrues for the receipt of inventory purchase rebates as part of its inventory cost based on cumulative purchases of inventory to date and projected inventory purchases through the end of the year, and, in the case of advertising allowances, upon completion of the Company’s obligations related thereto. While management believes the Company will continue to receive such amounts in 2003 and beyond, there can be no assurance that vendors will continue to provide comparable amounts of rebates and allowances in the future.

Impairment of Property, Plant and Equipment and Goodwill and Other Intangible Assets

At least annually, the Company evaluates property, plant and equipment and goodwill and other intangible assets for potential impairment indicators. The Company’s judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance. Future events could cause the Company to conclude that impairment indicators exist and that assets associated with a particular operation are impaired. Evaluating the impairment also requires the Company to estimate future operating results and cash flows which require judgment by management. Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations.

Quarterly Results of Operations:

The preparation of interim consolidated financial statements requires management to make estimates and assumptions for the amounts reported in the condensed consolidated financial statements. Specifically, the Company makes certain estimates in its interim consolidated financial statements for the accrual of bad debts, inventory adjustments, and volume rebates earned. Bad debts are accrued based on a percentage of sales and volume rebates are estimated based upon cumulative and projected purchasing levels. Inventory adjustments are accrued on an interim basis and adjusted in the fourth quarter based on the annual October 31 book-to-physical inventory adjustment. The methodology and practices

22

used in deriving estimates for interim reporting typically result in adjustments upon accurate determination at year-end. The effect of these adjustments in 2002 and 2001 was not significant.

The cumulative effect of a change in accounting principle related to goodwill impairment as discussed above resulted in a decrease in net income in the first quarter of 2002 of $2.26 per share. Without the cumulative effect adjustment, diluted income per share would have been $.50 in the quarter ended March 31, 2002. The 2001 Facility Consolidation, Impairment and Other Charges discussed above resulted in a decrease in net income in the fourth quarter of 2001 of $.37 per share diluted. Without the 2001 Charges, diluted income per share would have been $.51 per share in the quarter ended December 31, 2001.

The following is a summary of the quarterly results of operations for the years ended December 31, 2002 and 2001.

	Three Months Ended
	March 31,			June 30,		Sept. 30,		Dec. 31,
	(in thousands except for per share data)
2002
Net Sales	$	1,977,743		$	2,130,924	$	2,156,759	$	1,993,501
Gross Profit		603,969			644,232		649,793		656,184
Net Income before cumulative effect of a change in accounting principle		87,027			96,047		94,027		90,399
Cumulative effect of a change in accounting principle		(395,090	)		—		—		—
Net(Loss)/lncome		(308,063	)		96,047		94,027		90,399
Diluted Earnings/ (Loss) per share:
Before change in accounting principle		.50			.55		.54		.52
After change in accounting principle		(1.76	)		.55		.54		.52
2001
Net Sales	$	2,054,972		$	2,118,976	$	2,099,191	$	1,947,529
Gross Profit		623,159			642,977		630,312		625,046
Net Income		89,273			94,688		88,216		24,970
Diluted Earnings per share		.52			.55		.51		.14

Forward-looking Statements:

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 Company’s beliefs, expectations, and plans as of the present. 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 Company’s products and services, the ability to maintain favorable supplier arrangements and relationships, competitive product and pricing pressures, the effectiveness of the Company’s 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 Company’s filings with the Securities and Exchange Commission.

23

report of management

Genuine Parts Company

We have prepared the accompanying consolidated financial statements and related information included herein for the years ended December 31, 2002, 2001 and 2000. The opinion of Ernst & Young LLP, the Company’s independent auditors, on those financial statements is included herein. The primary responsibility for the integrity of the financial information included in this annual report rests with management. Such information was prepared in accordance with generally accepted accounting principles appropriate in the circumstances based on our best estimates and judgements and giving due consideration to materiality.

Genuine Parts Company maintains internal accounting control systems which are adequate to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and which produce records adequate for preparation of financial information. The system and controls and compliance therewith are reviewed by an extensive program of internal audits and by our independent auditors. There are limits inherent in all systems of internal accounting control based on the recognition that the cost of such a system should not exceed the benefits to be derived. We believe the Company’s system provides this appropriate balance.

The Audit Committee of Genuine Parts Company’s Board of Directors is responsible for reviewing and monitoring the Company’s financial reports and accounting practices to ascertain that they are within acceptable limits of sound practice in such matters. The membership of the Committee consists of non-employee Directors. At periodic meetings, the Audit Committee discusses audit and financial reporting matters and the internal audit function with representatives of financial management and with representatives from Ernst & Young LLP.

JERRY W. NIX
Executive Vice President -
Finance and Chief Financial Officer
February 4, 2003

report of independent auditors

Board of Directors
Genuine Parts Company

We have audited the accompanying consolidated balance sheets of Genuine Parts Company and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Genuine Parts Company and subsidiaries at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 2, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

ERNST & YOUNG LLP
February 4, 2003
Atlanta, Georgia

24

consolidated balance sheets

(dollars in thousands) December 31,			2002			2001
Assets
Current Assets:
	Cash and cash equivalents		$	19,995		$	85,770
	Trade accounts receivable			1,039,843			1,010,728
	Merchandise inventories			2,144,787			1,890,037
	Prepaid expenses and other assets			131,150			159,677
		Total Current Assets		3,335,775			3,146,212
Goodwill and Intangible Assets, less accumulated amortization				58,705			442,078
Other Assets				292,312			273,224
Property, Plant and Equipment:
	Land			36,562			37,465
	Buildings, less allowance for depreciation (2002-$105,348; 2001-$101,914)			124,546			127,639
	Machinery and equipment, less allowance for depreciation (2002-$360,732; 2001-$341,933)			171,943			180,028
		Net Property, Plant and Equipment		333,051			345,132
			$	4,019,843		$	4,206,646
Liabilities and Shareholders’ Equity
Current Liabilities:
	Trade accounts payable		$	735,183		$	644,084
	Current portion of long-term debt and other borrowings			116,905			57,190
	Accrued compensation			63,825			62,395
	Other accrued expenses			81,882			106,099
	Dividends payable			50,557			49,413
	Income taxes payable			21,366			—
		Total Current Liabilities		1,069,718			919,181
Long-Term Debt				674,796			835,580
Deferred Income Taxes				97,912			60,985
Minority Interests in Subsidiaries				47,408			45,777
Shareholders’ Equity:
	Preferred Stock, par value $1 per share—authorized 10,000,000 shares; none issued			—			—
	Common Stock, par value $1 per share—authorized 450,000,000 shares; issued 174,380,634 shares in 2002 and 173,473,944 shares in 2001			174,381			173,474
	Additional paid-in capital			44,371			16,080
	Accumulated other comprehensive loss			(60,522	)		(46,094	)
	Retained earnings			1,971,779			2,201,663
		Total Shareholders’ Equity		2,130,009			2,345,123
			$	4,019,843		$	4,206,646

     See accompanying notes.

25

consolidated statements of income

(in thousands, except per share data) Year ended December 31,		2002			2001		2000
Net sales		$	8,258,927		$	8,220,668	$	8,369,857
Cost of goods sold			5,704,749			5,699,174		5,764,360
			2,554,178			2,521,494		2,605,497
Selling, administrative and other expenses			1,948,442			1,951,559		1,958,747
Facility consolidation and impairment charges			—			73,922		—
Income before income taxes and cumulative effect of a change in accounting principle			605,736			496,013		646,750
Income taxes			238,236			198,866		261,427
Income before cumulative effect of a change in accounting principle			367,500			297,147		385,323
Cumulative effect of a change in accounting principle			(395,090	)		—		—
Net (loss) income		$	(27,590	)	$	297,147	$	385,323
Basic net income (loss) per common share:
	Before cumulative effect of a change in accounting principle	$	2.11		$	1.72	$	2.20
	Cumulative effect of a change in accounting principle		(2.27	)		—		—
	Basic net (loss) income	$	(0.16	)	$	1.72	$	2.20
Diluted net income (loss) per common share:
	Before cumulative effect of a change in accounting principle	$	2.10		$	1.71	$	2.20
	Cumulative effect of a change in accounting principle		(2.26	)		—		—
	Diluted net (loss) income	$	(0.16	)	$	1.71	$	2.20
Weighted average common shares outstanding			174,369			172,765		175,009
Dilutive effect of stock options and non-vested restricted stock awards			735			868		318
Weighted average common shares outstanding- assuming dilution			175,104			173,633		175,327

     See accompanying notes.

26

consolidated statements of shareholders’ equity

											Accumulated
		Common Stock						Additional			Other						Total
								Paid-in			Comprehensive			Retained			Shareholders'
dollars in thousands		Shares			Amount			Capital			Income (Loss)			Earnings			Equity
Balance at January 1, 2000			177,275,602		$	177,276		$	—		$	(6,857	)	$	2,007,098		$	2,177,517
	Net income		—			—			—			—			385,323			385,323
	Foreign currency translation adjustment		—			—			—			(6,184	)		—			(6,184	)
	Comprehensive income																	379,139
	Cash dividends declared, $1.10 per share		—			—			—			—			(192,455	)		(192,455	)
	Stock options exercised, including tax benefit		386			—			8			—			—			8
	Purchase of stock		(5,466,029	)		(5,466	)		(13,840	)		—			(98,509	)		(117,815	)
	Stock issued in connection with acquisitions		579,729			580			13,832			—			—			14,412
Balance at December 31, 2000			172,389,688			172,390			—			(13,041	)		2,101,457			2,260,806
	Net income		—			—			—			—			297,147			297,147
	Foreign currency translation adjustment		—			—			—			(12,252	)		—			(12,252	)
	Changes in fair value of derivative instruments, net of income taxes of $13,867		—			—			—			(20,801	)		—			(20,801	)
	Comprehensive income																	264,094
	Cash dividends declared, $1.14 per share		—			—			—			—			(196,941	)		(196,941	)
	Stock options exercised, including tax benefit		936,978			937			13,464			—			—			14,401
	Purchase of stock		(496,025	)		(496	)		(12,162	)		—			—			(12,658	)
	Stock issued in connection with acquisitions		643,303			643			14,778			—			—			15,421
Balance at December 31, 2001			173,473,944			173,474			16,080			(46,094	)		2,201,663			2,345,123
	Net loss		—			—			—			—			(27,590	)		(27,590	)
	Foreign currency translation adjustment		—			—			—			(17,960	)		—			(17,960	)
	Changes in fair value of derivative instruments, net of income taxes of $2,686		—			—			—			3,532			—			3,532
	Comprehensive loss																	(42,018	)
	Cash dividends declared, $1.16 per share		—			—			—			—			(202,294	)		(202,294	)
	Stock options exercised, including tax benefit		1,286,697			1,287			39,190			—			—			40,477
	Purchase of stock		(389,434	)		(389	)		(11,226	)		—			—			(11,615	)
	Stock issued in connection with acquisition		9,427			9			327			—			—			336
Balance at December 31, 2002			174,380,634		$	174,381		$	44,371		$	(60,522	)	$	1,971,779		$	2,130,009

27

consolidated statements of cash flows

(dollars in thousands) Year ended December 31,			2002			2001			2000
Operating activities
Net (loss) income			$	(27,590	)	$	297,147		$	385,323
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
	Depreciation and amortization			70,151			85,793			92,303
	Gain on sale of property, plant and equipment			(25	)		(1,626	)		(5,674	)
	Deferred income taxes			43,995			(21,704	)		(6,714	)
	Cumulative effect of a change in accounting principle			395,090			—			—
	Non-cash portion of facility consolidation and impairment charges			—			89,500			—
	Income applicable to minority interests			2,315			3,077			2,430
	Income tax benefit of stock options exercised			4,468			2,488			—
	Changes in operating assets and liabilities:
		Trade accounts receivable		(27,380	)		6,974			(14,298	)
		Merchandise inventories		(243,005	)		(45,063	)		(84,508	)
		Trade accounts payable		88,215			7,354			50,899
		Other, net		(33,826	)		(88,300	)		(105,336	)
				299,998			38,493			(70,898	)
	Net cash provided by operating activities			272,408			335,640			314,425
Investing activities
Purchases of properly, plant and equipment				(64,758	)		(41,944	)		(71,129	)
Proceeds from sale of property, plant and equipment				10,137			5,261			10,605
Acquisition of businesses and other investments, net of cash acquired				(6,042	)		(16,358	)		(46,226	)
	Net cash used in investing activities			(60,663	)		(53,041	)		(106,750	)
Financing activities
Proceeds from credit facilities				1,021,168			3,223,466			2,813,820
Payments on credit facilities				(1,122,237	)		(3,251,769	)		(2,731,601	)
Stock options exercised				36,009			11,913			8
Dividends paid				(201,150	)		(195,022	)		(189,995	)
Purchase of stock				(11,615	)		(12,658	)		(117,815	)
	Net cash used in financing activities			(277,825	)		(224,070	)		(225,583	)
	Effect of exchange rate changes on cash			305			(497	)		(89	)
	Net (decrease) increase in cash and cash equivalents			(65,775	)		58,032			(17,997	)
	Cash and cash equivalents at beginning of year			85,770			27,738			45,735
	Cash and cash equivalents at end of year		$	19,995		$	85,770		$	27,738
Supplemental disclosure of cash flow information
Cash paid during the year for:
	Income taxes		$	173,595		$	257,280		$	252,416
	Interest		$	60,807		$	60,461		$	61,750

See accompanying notes.

28

notes to consolidated financial statements

December 31, 2002

1. Summary of Significant Accounting Policies

Business

Genuine Parts Company and all of its majority-owned subsidiaries (“the Company”) is a distributor of automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials. The Company serves a diverse customer base through more than 1,850 locations in North America and, therefore, has limited exposure from credit losses to any particular customer or industry segment. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral.

Principles of Consolidation

The consolidated financial statements include all of the accounts of the Company. Income applicable to minority interests is included in other expenses. Significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates and the differences could be material.

Revenue Recognition

The Company recognizes revenues from product sales upon shipment to its customers.

Foreign Currency Translation

The consolidated balance sheets and statements of income of the Company’s foreign subsidiaries have been translated into U.S. dollars at the current and average exchange rates, respectively. The foreign currency translation adjustment is included as a component of accumulated other comprehensive loss.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Trade Accounts Receivable and the Allowance for Doubtful Accounts

The Company evaluates the collectibility of trade accounts receivable based on a combination of factors. Initially, the Company estimates an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience. This initial estimate is periodically adjusted when the Company becomes aware of a specific customer’s inability to meet its financial obligations (e.g. bankruptcy filing) or as a result of changes in the overall aging of accounts receivable. While the Company has a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which the Company operates could result in higher than expected defaults, and, therefore, the need to revise estimates for bad debts. For the years ended December 31, 2002, 2001, and 2000, the Company recorded provisions for bad debts of approximately $20,900,000, $26,500,000, and $13,900,000, respectively.

Merchandise Inventories, including Consideration Received from Vendors

Merchandise inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for a majority of automotive parts, electrical/electronic materials, and industrial parts, and by the first-in, first-out (FIFO) method for office products and certain other inventories. If the FIFO method had been used for all inventories, cost would have been approximately $181,220,000 and $173,488,000 higher than reported at December 31, 2002 and 2001, respectively.

The Company identifies slow moving or obsolete inventories and estimates appropriate provisions related thereto. Historically, these losses have not been significant as the vast majority of the Company’s inventories are not highly susceptible to obsolescence and are eligible for return under various vendor return programs. While the Company has no reason to believe its inventory return privileges will be discontinued in the future, its risk of loss associated with obsolete or slow moving inventories would increase if such were to occur.

The Company enters into agreements at the beginning of each year with many of its vendors providing for inventory purchase rebates and advertising allowances. Generally, the Company earns inventory purchase rebates upon achieving specified volume purchasing levels and advertising allowances upon fulfilling its obligations related to cooperative advertising programs. The Company accrues for the receipt of inventory purchase rebates as part of its inventory cost based on cumulative purchases of inventory to date and projected inventory purchases through the end of the year, and, in the case of advertising allowances, upon completion of the Company’s obligations related thereto. While management believes the Company will continue to receive consideration from vendors in 2003 and beyond, there can be no assurance that vendors will continue to provide comparable amounts of rebates and allowances in the future.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist primarily of prepaid expenses, amounts due from vendors, income taxes receivable in 2001, and deferred income taxes.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets primarily represents the excess of the purchase price paid over the fair value of the net assets acquired in connection with business acquisitions. Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). SFAS No. 142 requires that entities assess the fair value of the net assets underlying all acquisition-related goodwill on a reporting unit basis effective beginning in 2002. When the fair value is less than the related carrying value, entities are required to reduce the amount of goodwill (see Note 2). The approach to evaluating the recoverability of goodwill as outlined in SFAS No. 142 requires the use of valuation techniques utilizing estimates and assumptions about projected future operating results and other variables. The impairment only approach required by SFAS No. 142 may have the effect of increasing the volatility of the Company’s earnings if additional goodwill impairment occurs at a future date.

29

notes to consolidated financial statements, continued

SFAS No. 142 also requires that entities discontinue amortization of all purchased goodwill, including amortization of goodwill recorded in past business combinations. Accordingly, the Company no longer amortized goodwill beginning in 2002.

Goodwill amortization expense was $11,912,000 and $11,422,000 in 2001 and 2000, respectively. Accumulated amortization for goodwill at December 31, 2001 was $51,134,000.

Other Assets

Other assets consist primarily of a prepaid pension asset, an investment accounted for under the cost method, and certain costs of internal-use information systems under development.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is primarily determined on a straight-line basis over the following estimated useful life of each asset: buildings and improvements, 10 to 40 years; machinery and equipment, 5 to 15 years.

Long-Lived Assets Other Than Goodwill

The Company assesses its long-lived assets other than goodwill for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining life of such assets. If these projected cash flows are less than the carrying amount, an impairment would be recognized, resulting in a write-down of assets with a corresponding charge to earnings. Impairment losses, if any, are measured based upon the difference between the carrying amount and the fair value of the assets.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is comprised of the following:

(Dollars in Thousands) December 31	2002		2001
Foreign currency translation	$	43,253	$	25,293
Net unrealized loss on derivative instruments, net of taxes		17,269		20,801
Total accumulated other comprehensive loss	$	60,522	$	46,094

Fair Value of Financial Instruments

The carrying amount reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate their respective fair values based on the short-term nature of these instruments. The fair value of interest rate swap agreements, included in other accrued expenses in the consolidated balance sheet, was approximately $15,643,000 and $31,570,000 at December 31, 2002 and 2001, respectively. The fair value of derivative financial instruments has been determined based on quoted market prices. At December 31, 2002 and 2001, the carrying amount for variable rate long-term debt approximates fair market value since the interest rates on these instruments are reset periodically to current market rates. At December 31, 2002 and 2001, the fair market value of fixed rate long-term debt was approximately $537,000,000 and $500,000,000, respectively, based primarily on quoted prices for these or similar instruments. The fair value of fixed rate long-term debt was estimated by calculating the present value of anticipated cash flows. The discount rate used was an estimated borrowing rate for similar debt instruments with like maturities.

Derivative Instruments and Hedging Activities

From time to time, the Company uses interest rate swap agreements to synthetically manage the interest rate characteristics of a portion of its outstanding debt and to limit the Company’s exposure to rising interest rates. The Company designates at inception that interest rate swap agreements hedge risks associated with future variable interest payments and monitors each swap agreement to determine if it remains an effective hedge. The effectiveness of the derivative as a hedge is based on a high correlation between changes in the value of the underlying hedged item. Ineffectiveness related to the Company’s derivative transactions is not material. The Company records amounts to be received or paid as a result of interest swap agreements as an adjustment to interest expense. All of the Company’s interest rate swaps are designated as cash flow hedges. Gains or losses on terminations or redesignation of interest rate swap agreements are deferred and amortized as an adjustment to interest expense of the related debt instrument over the remaining term of the original contract life of the agreements. The Company does not enter into derivatives for speculative or trading purposes.

Shipping and Handling Costs

Shipping and handling costs are classified as selling, administrative and other expenses in the accompanying consolidated statements of income and totaled approximately $200,000,000, $198,000,000 and $200,000,000 in the years ended December 31, 2002, 2001, and 2000, respectively.

Stock Compensation

Until January 1, 2003, the Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related Interpretations in accounting for stock compensation. Under APB 25, no compensation expense is recognized if the exercise price of stock options equals the market price of the underlying stock on the date of grant. Note 7 contains a tabular presentation as if the Company had applied the alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, to all stock options. See Recently Issued Accounting Pronouncements below.

Net (Loss) Income Per Common Share

Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the year. The computation of diluted net (loss) income per common share includes the dilutive effect of stock options and non-vested restricted stock awards. Options to purchase 679,000, 3,485,000 and 4,325,000, shares of common stock at prices ranging from $23 to $38 per share were outstanding at December 31, 2002, 2001 and 2000, respectively, but were not included in the computation of diluted net (loss) income per common share because the options’ exercise price was greater than the average market price of the common shares. At December 31, 2002, 2001 and 2000, the dilutive effect of options to purchase approximately 56,000, 199,000, and 748,000 shares of common stock at an average exercise price of approximately $18, $18, and $9 per share, respectively, issued in connection with a 1998 acquisition have

30

been included in the computation of diluted net (loss) income per common share since the date of the acquisition.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to current year presentation.

Recently Issued Accounting Pronouncements

Effective January 1, 2002, the Company adopted SFAS No. 141, Business Combinations (“SFAS No. 141”), and SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 requires that entities assess the fair value of the net assets underlying all acquisition-related goodwill on a reporting unit basis (see Note 2).

In June 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS No. 146”) which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) (“EITF 94-3”). SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred as opposed to the date of an entity’s commitment to an exit plan. SFAS No. 146 also establishes fair value as the objective for initial measurement of the liability. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS No. 148”). SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and Accounting Principles Board Opinion No. 28, Interim Financial Reporting, to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. The disclosure provisions of SFAS No. 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS No. 123 or the intrinsic value method of APB Opinion No. 25. SFAS No. 148’s amendment of the transition and annual disclosure requirements of SFAS No. 123 are effective for fiscal years ending after December 15, 2002. The additional disclosures required under SFAS No. 148 have been included in Note 7.

Beginning on January 1, 2003, the Company will prospectively account for all future stock compensation awards in accordance with SFAS No. 123’s fair value method. The adoption of the preferred recognition provisions of SFAS No. 123 is not expected to have a material impact on the Company’s financial position or results of operations in 2003, and the effect on periods thereafter, while entirely dependent on the terms of future stock compensation awards, is not expected to be significant.

In November 2002, the FASB issued Interpretation Number 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”). FIN 45 requires an entity to disclose in its interim and annual financial statements information with respect to its obligations under certain guarantees that it has issued. It also requires an entity to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN 45 are effective for interim and annual periods ending after December 15, 2002. These disclosures are presented in Note 10. The initial recognition and measurement requirements of FIN 45 are effective prospectively for guarantees issued or modified after December 31, 2002. The Company is currently assessing the initial measurement requirements of FIN 45. However, management does not believe that the recognition requirements will have a material impact on the Company’s financial position, cash flows or results of operations.

In January 2003, the FASB issued Interpretation No. 46 Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (“FIN 46”). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company is currently evaluating the effect that the adoption of FIN 46 will have on its financial statements.

In January 2003, the Emerging Issues Task Force (“EITF”) of the FASB issued EITF Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor (“EITF 02-16”). EITF 02-16 addresses accounting and reporting issues related to how a reseller should account for cash consideration received from vendors. Generally, cash consideration received from vendors is presumed to be a reduction of the prices of the vendor’s products or services and should, therefore, be characterized as a reduction of cost of sales when recognized in the customer’s income statement. However, under certain circumstances this presumption may be overcome and recognition as revenue or as a reduction of other costs in the income statement may be appropriate. While the Company does receive cash consideration from vendors subject to the provisions of EITF 02-16, the Company has not yet completed its evaluation of the potential impact on its financial statements. EITF 02-16 is effective for fiscal periods beginning after December 15, 2002.

2. Goodwill and Other Intangible Assets

Effective January 1, 2002, the Company adopted SFAS No. 141 and SFAS No. 142. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 requires that entities assess the fair value of the net assets underlying all acquisition-related goodwill on a reporting unit basis effective beginning in 2002. When the fair value is less than the related carrying value, entities are required to reduce the amount of goodwill.

31

notes to consolidated financial statements, continued

Within the Company’s four reportable segments, the Company identified reporting units as defined in SFAS No. 142. The reporting units’ goodwill was tested for impairment during the first quarter of 2002 as required by SFAS No. 142 based on the expected present value of future cash flows approach. As a result of this valuation process as well as the application of the remaining provisions of SFAS No. 142, the Company recorded a transitional impairment loss of approximately $395.1 million ($2.27 basic loss per share and $2.26 diluted loss per share) as of January 1, 2002. This write-off was reported as a cumulative effect of a change in accounting principle in the Company’s consolidated statement of income as of January 1, 2002. No tax benefits were recorded in connection with this goodwill impairment. For the year ended December 31, 2002, additions to goodwill of approximately $14.7 million relate to a balance sheet reclassification and additional consideration for earnouts on prior acquisitions. The Company also assessed the finite-lived, identifiable intangible assets for impairment under the undiscounted cash flows approach and concluded there was no impairment.

The changes in the carrying amount of goodwill during the period by reportable segment, as well as other identifiable intangible assets, are summarized as follows (in thousands):

	Goodwill
										Electrical			Identifiable
							Office			Electronic			Intangible
	Automotive			Industrial			Products			Materials			Assets			Total
Balance as of January 1, 2002	$	221,752		$	50,304		$	8,297		$	155,611		$	6,114		$	442,078
Goodwill and intangible assets acquired during the year		13,266			31			400			—			956			14,653
Amortization during the year		—			—			—			—			(2,421	)		(2,421	)
Other impairment charges		—			(515	)		—			—			—			(515	)
Transitional impairment losses		(213,401	)		(19,512	)		(6,566	)		(155,611	)		—			(395,090	)
Balance as of December 31, 2002	$	21,617		$	30,308		$	2,131		$	—		$	4,649		$	58,705

Prior to the adoption of SFAS No. 142, the Company amortized goodwill over estimated useful lives ranging from 10 years to 40 years. Had the Company accounted for goodwill consistent with the provisions of SFAS No. 142 in prior years, the Company’s income would have been affected as follows, in thousands, except per share data:

Year ended December 31,		2002		2001		2000
Reported income before the cumulative effect of an change in accounting principle		$	367,500	$	297,147	$	385,323
Add back: Goodwill amortization			—		11,912		11,422
	Adjusted income before the cumulative effect of a change in accounting principle	$	367,500	$	309,059	$	396,745
Basic income per common share before the cumulative effect of a change in accounting principle:
	As reported	$	2.11	$	1.72	$	2.20
	Add back: Goodwill amortization		—		0.07		0.07
	As adjusted	$	2.11	$	1.79	$	2.27
Diluted income per common share before the cumulative effect of a change in accounting principle:
	As reported	$	2.10	$	1.71	$	2.20
	Add back: Goodwill amortization		—		0.07		0.07
	As adjusted	$	2.10	$	1.78	$	2.27

3. Facility Consolidation, Impairment and Other Charges

Prior to December 31, 2001, the Company’s management approved a plan to close and consolidate certain facilities, terminate certain employees, and exit certain other activities. The Company also determined certain assets were impaired. Following is a summary of the charges and the related accruals for continuing liabilities associated with the plan (in thousands):

									Liability at					Liability at
						Paid in			December 31,		Paid in			December 31,
	Total		Non-cash			2001			2001		2002			2002
Impairment charges	$	49,400	$	(49,400	)	$	—		$	—	$	—		$	—
Facility consolidation expenses		17,900		(6,900	)		(300	)		10,700		(4,800	)		5,900
Severance expenses		6,700		—			(100	)		6,600		(4,800	)		1,800
Inventory-related exit costs		17,400		(17,400	)		—			—		—			—
Other		16,400		(15,800	)		—			600		(300	)		300
	$	107,800	$	(89,500	)	$	(400	)	$	17,900	$	(9,900	)	$	8,000

32

Impairment charges are primarily comprised of two separate technology projects: (1) an abandoned software system implementation of the Company’s office products segment totaling approximately $30,000,000, and (2) an impaired technology-related venture of the Company’s automotive segment totaling approximately $15,000,000 for which the Company projected the undiscounted cash flows to be less than the carrying amount of the related investment. Facility consolidation expenses relate to facility consolidations in each of the Company’s business segments. In 2001, the Company identified certain distribution, branch and retail facilities that were to be closed prior to December 31, 2002. The Company appropriately accrued the estimated lease obligation from the planned exit date through the end of the contractual lease term, net of estimated sublease income. The facility consolidations did not result in any material decline in net sales, as all such closed facilities have been served by other Company-operated facilities.

Severance expenses include charges for employees who have been involuntarily terminated in connection with the Company’s facility consolidation. All terminations occurred prior to December 31, 2002. Inventory-related exit costs relate to inventory considered by the Company to be impaired as a result of the facility consolidations described above and related inventory rationalization and optimization programs. All inventory-related exit costs have been classified as cost of goods sold in the accompanying consolidated statement of income. Other charges have been classified as a component of selling, administrative and other expenses.

4. Credit Facilities

The principal amount of the Company’s borrowings subject to variable rates before interest rate swap agreements totaled approximately $287,666,000 and $378,892,000 at December 31, 2002 and 2001, respectively. The weighted average interest rate on the Company’s outstanding borrowings was approximately 4.76% and 5.30% at December 31, 2002 and 2001, respectively.

On November 30, 2001, the Company completed a $500,000,000 financing with a consortium of financial institutions and insurance companies (the “Notes”). The proceeds of the Notes were primarily used to repay certain variable rate borrowings.

Certain borrowings contain covenants related to a maximum debt-to-equity ratio, a minimum fixed-charge coverage ratio, and certain limitations on additional borrowings. At December 31, 2002, the Company was in compliance with all such covenants. Total interest expense for all borrowings was $59,640,000 in 2002, $59,416,000 in 2001 and $63,496,000 in 2000.

Amounts outstanding under the Company’s credit facilities consist of the following:

(In Thousands) December 31			2002		2001
U.S. dollar denominated borrowings:
	Unsecured revolving line of credit, $200,000,000, Libor plus .55%, due December 2003		$	100,000	$	7,000
	Unsecured term notes:
		November 30, 2001, Series A Senior Notes, $250,000,000 5.86% fixed, due November 30, 2008		250,000		250,00
		November 30, 2001, Series B Senior Notes, $250,000,000, 6.23% fixed, due November 30, 2011		250,000		250,000
		December 1, 1998, Libor plus .55%, due February 2004		171,367		231,367
		July 1, 1998, Libor plus .25%, due July 2005		—		50,000
		October 1, 1998, Libor plus .25%, due October 2008		—		50,000
		Other borrowings		11,370		27,375
Canadian dollar (CND) denominated borrowings translated into U.S. dollars:
	Line of credit, CND$65,000,000 secured by accounts receivable, Banker’s Acceptance rate plus .27%, cancelable on 30 days notice or due March 2003			—		18,846
	Unsecured revolving lines of credit, CND$25,000,000, Banker’s Acceptance rate plus .55%, due October 2002			—		8,041
	Unsecured revolving lines of credit, CND$100,000,000, Banker’s Acceptance rate plus .55%, due May 2003			8,964		141
				791,701		892,770
Current portion of long-term debt and other borrowings				116,905		57,190
			$	674,796	$	835,580

Approximate maturities under the Company’s credit facilities are as follows (in thousands):

2003	$	116,905
2004		171,770
2005		3,026
2006		—
2007		—
Subsequent to 2007		500,000
	$	791,701

5. Shareholders’ Equity

The Company has a Shareholder Protection Rights Agreement which includes the distribution of rights to common shareholders under certain defined circumstances. The rights entitle the holder, upon occurrence of certain events, to purchase additional stock of the Company. The rights will be exercisable only if a person, group or company acquires 20% or more of the Company’s common stock or commences a tender offer that would result in ownership of 20% or more of the common stock. The Company is entitled to redeem each right for one cent.

33

notes to consolidated financial statements, continued

6. Leased Properties

The Company leases land, buildings and equipment. Certain land and building leases have renewal options generally for periods ranging from two to ten years. In addition, certain properties occupied under operating leases contain normal purchase options. The Company also has an $85,000,000 construction and lease facility. Properties acquired by the lessor are constructed and then leased to the Company under operating lease agreements. The total amount advanced and outstanding under this facility at December 31, 2002 was approximately $66,000,000. Since the resulting leases are accounted for as operating leases, no debt obligation is recorded on the Company’s balance sheet. Future minimum payments, by year and in the aggregate, under the non-cancelable operating leases with initial or remaining terms of one year or more consisted of the following at December 31, 2002 (in thousands):

2003	$	101,728
2004		74,143
2005		51,734
2006		34,852
2007		26,069
Subsequent to 2007		87,324
		$375,850

Rental expense for operating leases was approximately $114,352,000 in 2002, $112,470,000 in 2001, and $106,689,000 in 2000.

7. Stock Options and Restricted Stock Awards

In 1999, the Company authorized the grant of options of up to 9,000,000 shares of common stock. In accordance with stock option plans approved by shareholders, options are granted to key personnel for the purchase of the Company’s stock at prices not less than the fair market value of the shares on the dates of grant. Most options may be exercised not earlier than twelve months nor later than ten years from the date of grant.

Pro forma information regarding net income and earnings per share is required by SFAS No. 123, as amended by SFAS No. 148 and described in Note 1, determined as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of SFAS No. 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2002, 2001 and 2000, respectively: risk-free interest rates of 4.1%, 5.0%, and 5.9%; dividend yield of 4.0%; 3.8%, and 5.0%; annual volatility factor of the expected market price of the Company’s common stock of 0.22, 0.26, and 0.18, and an expected life of the options of 8 years, 5 years, and 6 years.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures under SFAS No. 123 as amended by SFAS No. 148, the estimated fair value of the options is amortized to expense over the options’ vesting period. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period (in thousands, except per share amounts):

Year ended December 31,		2002			2001			2000
Net (loss) income, as reported		$	(27,590	)	$	297,147		$	385,323
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(3,376	)		(3,394	)		(5,354	)
Pro forma net (loss) income		$	(30,966	)	$	293,753		$	379,969
(Loss) income per share:
	Basic—as reported	$	(0.16	)	$	1.72		$	2.20
	Basic—pro forma	$	(0.18	)	$	1.70		$	2.17
	Diluted—as reported	$	(0.16	)	$	1.71		$	2.20
	Diluted—pro forma	$	(0.18	)	$	1.69		$	2.17

34

A summary of the Company’s stock option activity and related information are as follows:

	2002					2001					2000
				Weighted					Weighted					Weighted
				Average					Average					Average
	Shares			Exercise		Shares			Exercise		Shares			Exercise
	(000's)			Price		(000's)			Price		(000's)			Price
Outstanding at beginning of year		6,156		$	28		7,513		$	26		5,388		$	28
Granted		3,131			32		30			33		2,412			21
Exercised		(1,412	)		29		(1,049	)		14		(8	)		22
Forfeited		(301	)		34		(338	)		32		(279	)		27
Outstanding at end of year		7,574		$	29		6,156		$	28		7,513		$	26
Exercisable at end of year		3,337		$	28		4,477		$	29		3,760		$	28
Weighted-average fair value of options granted during the year	$	5.72				$	6.91				$	2.71
Shares available for future grants		4,080					6,910					6,602

Exercise prices for options outstanding as of December 31, 2002 ranged from approximately $21 to $35, except for 56,000 options granted in connection with a 1998 acquisition for which the exercise price is approximately $18. The weighted-average remaining contractual life of those options is approximately 5 years.

In 1999, the Company entered into restricted stock agreements with two officers which provide for the award of up to 150,000 and 75,000 shares, respectively, during the period 1999 through 2003 based on the Company achieving certain increases in net income per common share and stock price levels. Through December 31, 2002, the two officers have earned 15,000 and 7,500 shares, respectively. The Company recognizes compensation expense equal to the fair market value of the stock on the award date over the remaining vesting period which expires in 2009.

8. Income Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

(In Thousands)		2002		2001
Deferred tax assets related to:
	Expense not yet deducted for tax purposes	$	87,256	$	117,745
Deferred tax liabilities related to:
	Employee and retiree benefits		104,833		89,937
	Inventory		52,000		33,591
	Property and equipment		18,722		22,077
	Other		10,333		6,848
			185,888		152,453
Net deferred tax liability			98,632		34,708
Current portion of deferred tax liability (asset)			720		(26,277	)
Non-current deferred tax liability		$	97,912	$	60,985

The components of income tax expense are as follows:

(In Thousands)		2002		2001			2000
Current:
	Federal	$	165,289	$	188,040		$	223,452
	State		28,952		32,530			44,689
Deferred			43,995		(21,704	)		(6,714	)
		$	238,236	$	198,866		$	261,427

The reasons for the difference between total tax expense and the amount computed by applying the statutory Federal income tax rate to income before income taxes and the cumulative effect of an accounting change are as follows:

(In Thousands)		2002		2001		2000
Statutory rate applied to income before the cumulative effect of an accounting change		$	212,008	$	173,605	$	226,363
	Plus state income taxes, net of Federal tax benefit		23,081		19,064		28,322
Other			3,147		6,197		6,742
		$	238,236	$	198,866	$	261,427

35

notes to consolidated financial statements, continued

9. Employee Benefit Plans

The Company’s noncontributory defined benefit pension plan covers substantially all of its employees. The benefits are based on an average of the employees’ compensation during five of their last ten years of credited service. The Company’s funding policy is to contribute amounts deductible for income tax purposes. Contributions are intended to provide not only for benefits attributed for service to date but also for those expected to be earned in the future. Pension benefits also include amounts related to a supplemental retirement plan.

							Other
	Pension						Postretirement
	Benefits						Benefits
(In Thousands)	2002			2001			2002			2001
Changes in benefit obligation
Net benefit obligation at beginning of year	$	662,532		$	573,170		$	10,769		$	10,537
Service cost		25,622			19,935			235			177
Interest cost		49,810			44,525			877			816
Plan participants’ contributions		—			—			2,993			2,395
Plan amendments		(2,727	)		1,756			—			—
Actuarial loss		55,556			44,242			677			1,588
Gross benefits paid		(21,150	)		(21,096	)		(5,533	)		(4,744	)
Net benefit obligation at end of year	$	769,643		$	662,532		$	10,018		$	10,769
Changes in plan assets
Fair value of plan assets at beginning of year	$	707,158		$	702,282		$	—		$	—
Actual return on plan assets		(43,083	)		25,332			—			—
Employer contributions		12,085			640			2,540			2,349
Plan participants’ contribution		—			—			2,993			2,395
Gross benefits paid		(21,150	)		(21,096	)		(5,533	)		(4,744	)
Fair value of plan assets at end of year	$	655,010		$	707,158		$	—		$	—

The following table sets forth the funded status of the plans and the amount recognized in the consolidated balance sheets at December 31:

							Other
	Pension						Postretirement
	Benefits						Benefits
(In Thousands)	2002			2001			2002			2001
Funded status at end of year	$	(114,633	)	$	44,626		$	(10,018	)	$	(10,769	)
Unrecognized net actuarial loss		318,699			148,128			3,249			2,839
Unrecognized prior service (income) cost		(6,460	)		(6,702	)		5,492			5,980
Net amount recognized at end of year	$	197,606		$	186,052		$	(1,277	)	$	(1,950	)

Net periodic pension cost (income) included the following components:

										Other
	Pension									Postretirement
	Benefits									Benefits
(In Thousands)	2002			2001			2000			2002		2001		2000
Service cost	$	25,622		$	19,935		$	18,859		$	235	$	177	$	88
Interest cost		49,810			44,525			41,363			877		816		672
Expected return on plan assets		(72,887	)		(72,167	)		(69,154	)		—		—		—
Amortization of unrecognized transition obligation		—			260			260			—		—		—
Amortization of prior service (cost) income		(2,968	)		(2,871	)		(2,911	)		487		588		588
Amortization of actuarial loss		954			531			50			268		74		—
Net periodic pension cost (income)	$	531		$	(9,787	)	$	(11,533	)	$	1,867	$	1,655	$	1,348

The assumptions used in accounting for the defined benefit plans and other postretirement plan are as follows:

							Other
	Pension						Postretirement
	Benefits						Benefits
	2002			2001			2002			2001
Weighted-average discount rate		6.75	%		7.35	%		6.75	%		7.35	%
Rate of increase in future compensation levels		4.15	%		4.15	%		—			—
Expected long-term rate of return on assets		9.45	%		9.85	%		—			—
Health care cost trend on covered charges		—			—			10.00	%		7.00	%

36

The expected long-term rate of return on assets for measuring the pension expense or income for the year ending December 31, 2003 will be approximately 8.95%.

The effect of a one-percentage point change in the 2002 assumed health care cost trend is as follows:

(In Thousands)	Decrease			Increase
Total service and interest cost components on net periodic postretirement health care benefit cost	$	(2,015	)	$	3,072
Accumulated postretirement benefit obligation for health care benefits		(206	)		338

At December 31, 2002, the Company-sponsored pension plan held 1,619,480 shares of common stock of the Company with a market value of approximately $49,880,000. Dividend payments received by the plan on Company stock totaled approximately $1,867,000 and $1,780,000 in 2002 and 2001, respectively. Fees paid during the year for services rendered by parties-in-interest were based on customary and reasonable rates for such services.

The Company has a defined contribution plan which covers substantially all of its domestic employees. The Company’s contributions are determined based on 20% of the first 6% of the covered employee’s salary. Total plan expense was approximately $6,112,000 in 2002, $5,901,000 in 2001 and $5,751,000 in 2000.

10. Guarantees

Certain operating leases expiring in 2008 contain residual value guarantee provisions and other guarantees which would become due in the event of a default under the operating lease agreement, or at the expiration of the operating lease agreement if the fair value of the lease properties is less than the guaranteed residual value. The maximum amount of the Company’s potential guarantee obligation at December 31, 2002 is approximately $66,000,000. The Company believes the likelihood of funding the guarantee obligation under any provision of the operating lease agreements is remote.

The Company also guarantees borrowings of certain independently controlled automotive parts stores (the “independents”). The total borrowings of the independents at December 31, 2002 were approximately $160,000,000. Of the total borrowings, the Company has guaranteed approximately $61,350,000. These loans generally mature over periods from one to ten years. In the event that the Company is required to make payments in connection with guarantee obligations of the independents, the Company would obtain and liquidate certain collateral (e.g. accounts receivable and inventory) to recover all or a portion of the amounts paid under the guarantee. To date, the Company has had no significant losses in connection with guarantees of independents’ borrowings.

11. Segment Data

The segment data for the past five years presented on page 17 is an integral part of these financial statements.

The Company’s automotive segment distributes replacement parts (other than body parts) for substantially all makes and models of automobiles, trucks and buses.

The Company’s industrial segment distributes a wide variety of industrial bearings, mechanical and fluid power transmission equipment, including hydraulic and pneumatic products, material handling components, and related parts and supplies.

The Company’s office products segment distributes a wide variety of office products, computer supplies, office furniture and business electronics.

The Company’s electrical/electronic materials segment distributes a wide variety of electrical/electronic materials, including insulating and conductive materials for use in electronic and electrical apparatus.

Inter-segment sales are not significant. Operating profit for each industry segment is calculated as net sales less operating expenses excluding general corporate expenses, interest expense, equity in income from investees, goodwill and other amortization and minority interests. Net property, plant and equipment by country relate directly to the Company’s operations in the respective country. Corporate assets are principally cash and cash equivalents and headquarters’ facilities and equipment.

For the year ended December 31, 2001, Facility Consolidation and Impairment Charges discussed in Note 3 totaling approximately $12,900,000 have been classified as a reduction to operating profit of the office products segment for management reporting purposes. In connection with a 2000 management reporting change, certain corporate expenses were reclassified to the automotive segment for all years presented. Additionally, for management purposes, net sales by segment excludes the effect of certain discounts, incentives and freight billed to customers. The line item “other” represents the net effect of the discounts, incentives and freight billed to customers which are reported as a component of net sales in the Company’s consolidated statements of income.

37