UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

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Genuine Parts Company

(Name of Registrant as Specified in Its Charter)

 

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GENUINE PARTS COMPANY
2999 Circle 75 Parkway
Atlanta, Georgia 30339

 

 

 

 

NOTICE OF 2007 ANNUAL MEETING OF SHAREHOLDERS

 

April 23, 2007

 

 

 

 

TO THE SHAREHOLDERS OF GENUINE PARTS COMPANY:

 

The 2007 Annual Meeting of Shareholders of Genuine Parts Company, a Georgia corporation, will be held at the Company’s headquarters, 2999 Circle 75 Parkway, Atlanta, Georgia, on Monday, the 23rd day of April, 2007, at 10:00 a.m., for the following purposes:

 

(1) To elect all of the members of the Board of Directors;

 

(2) To amend the Amended and Restated Articles of Incorporation to eliminate all shareholder supermajority vote provisions;

 

(3) To ratify the selection of Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending December 31, 2007;

 

(4) To act upon such other matters as may properly come before the meeting or any reconvened meeting following any adjournment thereof.

 

Information relevant to these matters is set forth in the attached proxy statement. Only holders of record of Common Stock at the close of business on February 16, 2007 will be entitled to vote at the meeting.

 

By Order of the Board of Directors,

 

 

CAROL B. YANCEY

Senior Vice President — Finance

and Corporate Secretary

 

Atlanta, Georgia

March 2, 2007

 

 

WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING IN PERSON, PLEASE VOTE, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED BUSINESS REPLY ENVELOPE, OR YOU CAN VOTE BY TELEPHONE OR INTERNET PURSUANT TO THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD. IF YOU DO ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.

 

 

TABLE OF CONTENTS

 

GENUINE PARTS COMPANY
2999 Circle 75 Parkway
Atlanta, Georgia 30339

 

PROXY STATEMENT

 

This Proxy Statement is being furnished to the shareholders of Genuine Parts Company in connection with the solicitation of proxies by the Board of Directors of the Company for use at the Company’s 2007 Annual Meeting of Shareholders to be held on Monday, April 23, 2007, at 10:00 a.m. local time and at any reconvened meeting following any adjournment thereof. The Annual Meeting will be held at the Company’s headquarters, 2999 Circle 75 Parkway, Atlanta, Georgia.

 

This proxy statement and the accompanying proxy card are first being mailed to shareholders on or about March 2, 2007. The Company’s 2006 annual report to the shareholders, including consolidated financial statements for the year ended December 31, 2006, is enclosed herewith.

 

VOTING

 

Shareholders of record can simplify their voting and reduce the Company’s costs by voting their shares via telephone or the Internet. Instructions for voting via telephone or the Internet are set forth on the enclosed proxy card. The telephone and Internet voting procedures are designed to authenticate votes cast by use of a personal identification number. These procedures enable shareholders to appoint a proxy to vote their shares and to confirm that their instructions have been properly recorded. If your shares are held in the name of a bank or broker, the availability of telephone and Internet voting will depend on the voting processes of the applicable bank or broker; therefore, it is recommended that you follow the voting instructions on the form you receive. If you do not choose to vote by telephone or the Internet, please mark your choices on the enclosed proxy card and then date, sign and return the proxy card at your earliest opportunity.

 

All proxies properly voted by telephone or the Internet and all properly executed written proxy cards that are delivered to the Company (and not later revoked) will be voted in accordance with instructions given in the proxy. When voting for director nominees, you may (1) vote FOR all nominees, (2) WITHHOLD AUTHORITY to vote for all nominees, or (3) WITHHOLD AUTHORITY to vote for one or more nominees but vote FOR the other nominees. With regard to the proposals to amend the Amended and Restated Articles of Incorporation and ratify the selection of independent auditors, you may vote FOR or AGAINST the proposal or you may ABSTAIN from voting.

 

A shareholder who submits a proxy pursuant to this solicitation may revoke it at any time prior to its exercise at the Annual Meeting. Such revocation may be by delivery of written notice to the Corporate Secretary of the Company at the Company’s address shown above, by delivery of a proxy bearing a later date, or by voting in person at the Annual Meeting.

 

If you hold your shares in “street name” through a brokerage firm and you do not vote your shares, your brokerage firm can vote your shares in its discretion on any of the matters scheduled to come before the Annual Meeting.

 

At the close of business on the record date for the Annual Meeting, which was February 16, 2007, the Company had outstanding and entitled to vote at the Annual Meeting [170,600,000] shares of Common Stock. On each proposal presented for a vote at the Annual Meeting, each shareholder is entitled to one vote per share of Common Stock held as of the record date. A quorum for the purposes of all matters to be voted on shall consist of shareholders representing, in person or by proxy, a majority of the outstanding shares of Common Stock entitled to vote at the Annual Meeting. Shares represented at the Annual Meeting that are abstained or withheld from voting will be considered present for purposes of determining a quorum at the Annual Meeting. If less than a majority of the outstanding shares of Common Stock are represented at the Annual Meeting, a majority of the shares so represented may adjourn the Annual Meeting to another date, time or place.

 

The vote required for the election of directors and the ratification of the selection of independent auditors is a majority of the shares of Common Stock present or represented by proxy and entitled to vote at the Annual Meeting. The amendment of the Amended and Restated Articles of Incorporation must be approved by the holders of not less than two-thirds of the outstanding shares of the Company. Because votes withheld and abstentions will be considered as present and entitled to vote at the Annual Meeting, they will have the same effect as votes “against” all three proposals.

 

The Board of Directors of the Company currently consists of thirteen directorships, divided into three classes of four directors each and one recently appointed director at-large. Previously, the directors in each class served three year terms, with the term of office of one class expiring at each annual meeting of shareholders. However, at the 2006 annual meeting, the shareholders approved the recommendation of the Board of Directors to declassify the Board and provide for the implementation of the annual election of directors at the 2007 annual meeting of shareholders. Consequently, the Board of Directors, based on the recommendation of its Compensation, Nominating and Governance Committee, has nominated the current thirteen directors to serve for one year terms, expiring on the date of the 2008 Annual Meeting and until their successors are duly elected and qualified or until their earlier resignation, retirement, disqualification, removal from office or death.

 

In the absence of contrary instructions, all valid proxies will be voted for the election of each of the thirteen nominees whose names appear below. In the event that any nominee is unable to serve (which is not anticipated), the Board of Directors may:

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE ELECTION OF ALL OF THE NOMINEES. ALL VALID PROXIES RECEIVED WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.

 

Set forth below are the names of the nominees, their principal occupations, certain other directorships, their ages as of the date of this proxy statement and the year each of them first joined the Board. For information concerning the nominees who are “independent directors” of the Company within the meaning of the New York Stock Exchange’s corporate governance standards and concerning membership of the nominees on committees of the Board of Directors, see “Corporate Governance — Independent Directors” and “— Board Committees” below.

 

NOMINEES FOR DIRECTOR

 

 

In its continuing review of corporate governance matters, the Board of Directors, after careful consideration and in accordance with the recommendation of the Compensation, Nominating and Governance Committee of the Board, has concluded that it is advisable and in the best interests of the Company and its shareholders to remove the shareholder supermajority vote provisions from the Company’s Amended and Restated Articles of Incorporation. Articles Six and Nine of our Amended and Restated Articles of Incorporation contain provisions for certain actions that would require approval of the holders of not less than two-thirds of the outstanding shares of the voting stock of the Company (“supermajority” voting provisions). These actions include:

 

 

The Board’s proposal, if adopted, would reduce the shareholder approval thresholds from two-thirds to a majority of the Company’s outstanding shares, as more fully described below.

 

In reaching their decision, the Committee and the Board considered the benefits of the supermajority voting requirements that were intended to encourage potential acquirers to negotiate with the Board before attempting to buy a controlling interest in the Company and to make it more difficult for an acquirer who has bought such a controlling interest to take actions that might not be beneficial to all shareholders.

 

The Board continues to believe that these shareholder supermajority vote requirements encourage persons making unsolicited bids for the Company to negotiate with the Board and that they provide some protection against self-interested actions by one or a few large shareholders. Although these measures can be beneficial, the Board recognizes that the requirement of a supermajority vote can limit the ability of a majority of the shareholders at any

particular time to effect change because a supermajority vote requirement essentially provides a veto to a large minority shareholder or group of shareholders. The Board also recognizes that a lower voting threshold can increase shareholders’ ability to participate effectively in corporate governance and that many shareholders now view supermajority provisions as inconsistent with principles of good corporate governance.

 

In recognition of this change in outlook and in support of providing our shareholders with the opportunity for meaningful participation, the Board of Directors has determined that the shareholder supermajority vote requirements should now be eliminated. The Board therefore recommends that the shareholders approve this proposal to eliminate the shareholder supermajority voting requirements in the Company’s Amended and Restated Articles of Incorporation. The applicable provisions of the Amended and Restated Articles of Incorporation and the proposed amendments are as follows:

 

The initial paragraph of Section 6.1 currently reads as follows:

 

6.1  Notwithstanding any other provisions of these Restated Articles of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote and in addition to any affirmative vote required of the holders of any particular class or series of “Voting Stock” (as hereinafter defined) by law, these Restated Articles of Incorporation or any Preferred Stock Designation (as hereinafter defined), the affirmative vote of the holders of not less than two-thirds (2/3) of the outstanding shares of Voting Stock of the Corporation, which shall include the affirmative vote of at least fifty percent (50%) of the outstanding shares of Voting Stock held by shareholders other than the “Related Person” (as hereinafter defined), shall be required for the approval or authorization of any Business Combination; provided, however, that the two-thirds (2/3) and fifty percent (50%) voting requirements shall not be required, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of these Restated Articles of Incorporation if: . . . .

 

If the proposal is approved, Section 6.1 would be amended to read as follows:

 

6.1  Notwithstanding any other provisions of these Restated Articles of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote and in addition to any affirmative vote required of the holders of any particular class or series of “Voting Stock” (as hereinafter defined) by law, these Restated Articles of Incorporation or any Preferred Stock Designation (as hereinafter defined), the affirmative vote of the holders of a majority of the outstanding shares of Voting Stock of the Corporation, which shall include the affirmative vote of a majority of the outstanding shares of Voting Stock held by shareholders other than the “Related Person” (as hereinafter defined) that is a party to such Business Combination, shall be required for the approval or authorization of any Business Combination; provided, however, that the affirmative vote of a majority of the outstanding shares of Voting Stock held by shareholders other than such Related Person shall not be required, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of these Restated Articles of Incorporation if: . . . .

 

Section 6.3 currently reads as follows:

 

6.3  Notwithstanding any other provisions of these Restated Articles of Incorporation or the Bylaws of the Corporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series or Voting Stock required by law, these Restated Articles of Incorporation or any Preferred Stock Designation, the provisions set forth in this Article Six may not be repealed or amended in any respect unless such action is approved by the affirmative vote of the holders of not less than two-thirds (2/3) of the outstanding shares of the Voting Stock of the Corporation; provided, however, that if there is a Related Person on the record date for the meeting at which such action is submitted to the shareholders for their consideration, such two-thirds (2/3) vote must include the affirmative vote of at least fifty percent (50%) of the outstanding shares of Voting Stock held by shareholders other than the Related Person.

 

If the proposal is approved, Section 6.3 would read as follows:

 

6.3  Notwithstanding any other provisions of these Restated Articles of Incorporation or the Bylaws of the Corporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to

any affirmative vote of the holders of any particular class or series or Voting Stock required by law, these Restated Articles of Incorporation or any Preferred Stock Designation, the provisions set forth in this Article Six may not be repealed or amended in any respect unless such action is approved by the affirmative vote of the holders of a majority of the outstanding shares of the Voting Stock of the Corporation; provided, however, that if there is a Related Person on the record date for the meeting at which such action is submitted to the shareholders for their consideration, such majority vote must include the affirmative vote of a majority of the outstanding shares of Voting Stock held by shareholders other than such Related Person.

 

Section 9.3 currently reads as follows:

 

9.3.  Removal.  The entire Board of Directors or any individual director may be removed from office only for cause and by the affirmative vote of the holders of at least two-thirds (2/3) of the outstanding shares of Voting Stock (as defined in Article Six), excluding from the number of shares deemed to be outstanding at the time of such vote and from such vote on the removal action, all outstanding shares of Voting Stock held by a Related Person (as defined in Article Six) on the record date for the meeting at which such action is submitted to the shareholders for their approval.

 

If the proposal is approved, Section 9.3 would read as follows:

 

9.3.  Removal.  The entire Board of Directors or any individual director may be removed from office only for cause and by the affirmative vote of the holders of a majority of the outstanding shares of Voting Stock (as defined in Article Six); provided, however, that if there is a Related Person (as defined in Article Six) on the record date for the meeting at which such action is submitted to the shareholders for their approval, such majority vote must include the affirmative vote of a majority of the outstanding shares of Voting Stock held by shareholders other than such Related Person.

 

Section 9.6 currently reads as follows:

 

9.6  Amendment or Repeal.  Notwithstanding any other provisions of these Restated Articles of Incorporation or the Bylaws of the Corporation or any provision of any law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series or Voting Stock required by law, these Restated Articles of Incorporation or any Preferred Stock Designation, the provisions set forth in this Article Nine may not be repealed or amended in any respect unless such action is approved by the affirmative vote of the holders of not less than two-thirds (2/3) of the outstanding shares of the Voting Stock of the Corporation, excluding shares held by a Related Person on the record date for the meeting at which such action is submitted to the shareholders for their consideration.

 

If the proposal is approved, Section 9.6 would read as follows:

 

9.6  Amendment or Repeal.  Notwithstanding any other provisions of these Restated Articles of Incorporation or the Bylaws of the Corporation or any provision of any law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series or Voting Stock required by law, these Restated Articles of Incorporation or any Preferred Stock Designation, the provisions set forth in this Article Nine may not be repealed or amended in any respect unless such action is approved by the affirmative vote of the holders of a majority of the outstanding shares of the Voting Stock of the Corporation; provided, however, that if there is a Related Person on the record date for the meeting at which such action is submitted to the shareholders for their consideration, such majority vote must include the affirmative vote of a majority of the Voting Stock held by shareholders other than such Related Person.

 

If this proposal is approved, it will be effective upon the filing of the Amended and Restated Articles of Incorporation with the Secretary of State of the State of Georgia promptly after the Annual Meeting.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE AMENDMENT OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION TO ELIMINATE THE SHAREHOLDER SUPERMAJORITY VOTE PROVISIONS. ALL VALID PROXIES RECEIVED WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.

 

Independent Directors

 

The Company’s Common Stock is listed on the New York Stock Exchange. The NYSE requires that a majority of the directors be “independent directors,” as defined in the NYSE corporate governance standards. Generally, a director does not qualify as an independent director if the director (or in some cases, members of the director’s immediate family) has, or in the past three years has had, certain material relationships or affiliations with the Company, its external or internal auditors, or other companies that do business with the Company. The Board has affirmatively determined that nine of the Company’s thirteen current directors have no other direct or indirect relationships with the Company and therefore are independent directors on the basis of the NYSE corporate governance standards and an analysis of all facts specific to each director. The independent directors are Mary B. Bullock, Richard W. Courts, II, George C. “Jack” Guynn, John D. Johns, Michael M. E. Johns, M.D., J. Hicks Lanier, Wendy B. Needham, Gary W. Rollins and Lawrence G. Steiner.

 

Corporate Governance Guidelines

 

The Board of Directors has adopted Corporate Governance Guidelines that give effect to the NYSE’s requirements related to corporate governance and various other corporate governance matters. On November 20, 2006, the Board of Directors amended the Company’s Corporate Governance Guidelines to include stock ownership provisions for non-employee directors and certain key executive officers and to require that directors tender an offer of resignation as a director in the event of a change of employment. The Company’s Corporate Governance Guidelines, as well as the charters of the Compensation, Nominating and Governance Committee and the Audit Committee, are available on the Company’s website at www.genpt.com and are available in print by contacting the Corporate Secretary by mail at Genuine Parts Company, 2999 Circle 75 Parkway, Atlanta, Georgia, or by telephone at (770) 953-1700.

 

Non-Management Director Meetings and Presiding Independent Director

 

Pursuant to the Company’s Corporate Governance Guidelines, the Company’s non-management directors meet separately from the other directors in regularly scheduled executive sessions at least annually and at such other times as may be scheduled by the Chairman of the Board or by the presiding independent director or as may be requested by any non-management director.

 

The independent directors serving on the Company’s Board of Directors have appointed J. Hicks Lanier to serve as the Board’s presiding independent director. During 2006, the independent directors held four meetings without management. Mr. Lanier presided over all of these meetings. Interested parties who wish to communicate with the presiding independent director or the non-management directors as a group should follow the procedures found under “Corporate Governance — Shareholder Communications.”

 

Director Nominating Process

 

Shareholders may recommend a director nominee by writing to the Corporate Secretary specifying the nominee’s name and the other required information set forth in the Company’s Corporate Governance Guidelines, which are available on the Company’s website at www.genpt.com. All recommendations should include the written consent of the nominee to be nominated for election to the Company’s Board of Directors. To be considered, recommendations must be received by the Company at least 120 calendar days prior to the date of the Company’s proxy statement for the prior year’s Annual Meeting of Shareholders and include all required information to be considered. In the case of the 2008 Annual Meeting of Shareholders, this deadline is November 3, 2007. All recommendations will be brought to the attention of the Compensation, Nominating and Governance Committee.

 

The Compensation, Nominating and Governance Committee annually reviews the appropriate experience, skills and characteristics required of Board members in the context of the current membership of the Board. This assessment includes among other relevant factors, in the context of the perceived needs of the Board at that time, issues of experience, reputation, judgment, diversity and skills.

 

The Company’s Board of Directors has established the following process for the identification and selection of candidates for director. The Compensation, Nominating and Governance Committee, in consultation with the Chairman of the Board, shall periodically examine the composition of the Board and determine whether the Board would better serve its purposes with the addition of one or more directors. If the Compensation, Nominating and Governance Committee determines that adding a new director is advisable, the Committee shall initiate the search, working with other directors, management and, if it deems appropriate or necessary, a search firm retained to assist in the search. The Compensation, Nominating and Governance Committee will consider all appropriate candidates proposed by management, directors and shareholders. Information regarding potential candidates shall be presented to the Compensation, Nominating and Governance Committee, and the Committee shall evaluate the candidates based on the needs of the Board at that time and issues of experience, reputation, judgment, diversity and skills, as set forth in the Company’s Corporate Governance Guidelines. Potential candidates will be evaluated according to the same criteria, regardless of whether the candidate was recommended by shareholders, the Compensation, Nominating and Governance Committee, another director, Company management, a search firm or another third party. The Compensation, Nominating and Governance Committee shall submit any recommended candidate(s) to the full Board of Directors for approval and recommendation to the shareholders.

 

Shareholder Communications

 

The Company’s Corporate Governance Guidelines provide for a process by which shareholders may communicate with the Board, a Board committee, the presiding independent director, the non-management directors as a group, or individual directors. Shareholders who wish to communicate with the Board, a Board committee or any such other individual director or directors may do so by sending written communications addressed to the Board of Directors, a Board committee or such individual director or directors, c/o Corporate Secretary, Genuine Parts Company, 2999 Circle 75 Parkway, Atlanta, Georgia 30339. This information is also contained on the Company’s website at www.genpt.com. All communications will be compiled by the Secretary of the Company and forwarded to the members of the Board to whom the communication is directed or, if the communication is not directed to any particular member(s) of the Board, the communication shall be forwarded to all members of the Board of Directors.

 

Annual Performance Evaluations

 

The Company’s Corporate Governance Guidelines provide that the Board of Directors shall conduct an annual evaluation to determine, among other matters, whether the Board and the Committees are functioning effectively. The Audit Committee and the Compensation, Nominating and Governance Committee are also required to each conduct an annual self-evaluation. The Compensation, Nominating and Governance Committee is responsible for overseeing this self-evaluation process. The Board, Audit Committee and Compensation, Nominating and Governance Committee each conducted an annual self-evaluation process during 2006.

 

Code of Conduct and Ethics

 

The Board of Directors has adopted a Code of Conduct and Ethics and a Code of Conduct and Ethics for Senior Financial Officers, both of which are available on the Company’s website at www.genpt.com. These Codes of Conduct and Ethics comply with NYSE and Securities and Exchange Commission (the “SEC”) requirements, including procedures for the confidential, anonymous submission by employees or others of any complaints or concerns about the Company or its accounting, internal accounting controls or auditing matters. The Company will also mail these materials to any shareholder who requests a copy. Requests may be made by contacting the Corporate Secretary as described above under “Corporate Governance Guidelines.”

 

Board Attendance

 

The Company’s Corporate Governance Guidelines provide that all directors are expected to attend all meetings of the Board and committees on which they serve and are also expected to attend the Annual Meeting of Shareholders. During 2006, the Board of Directors held four meetings. All of the directors attended at least 75% of the aggregate number of meetings of the Board of Directors and meetings of committees of the Board on which they served. All of the Company’s directors were in attendance at the Company’s 2006 Annual Meeting.

 

Board Committees

 

The Board presently has three standing committees. Information regarding the functions of the Board’s committees, their present membership and the number of meetings held by each committee during 2006 is set forth below:

 

Executive Committee.  The Executive Committee is authorized, to the extent permitted by law, to act on behalf of the Board of Directors on all matters that may arise between regular meetings of the Board upon which the Board of Directors would be authorized to act. The current members of the Executive Committee are Larry L. Prince (Chairman), Richard W. Courts, II, Thomas C. Gallagher and J. Hicks Lanier. During 2006, this committee held five meetings.

 

Audit Committee.  The Audit Committee’s main role is to assist the Board of Directors with oversight of (1) the integrity of the Company’s financial statements, (2) the Company’s compliance with legal and regulatory requirements, (3) the independent auditor’s qualifications and independence and (4) the performance of the Company’s internal audit function and independent auditors. As part of its duties, the Audit Committee assists in the oversight of (a) management’s assessment of, and reporting on, the effectiveness of internal control over financial reporting, (b) the independent auditor’s integrated audit, which includes expressing an opinion on the conformity of the Company’s audited financial statements with United States generally accepted accounting principles and (c) the independent auditor’s audit of the Company’s internal control over financial reporting, which includes expressing an opinion on management’s assessment of the effectiveness of the internal control over financial reporting and on the effectiveness of the Company’s internal control over financial reporting. The Audit Committee oversees the Company’s accounting and financial reporting process and has the authority and responsibility for the appointment, retention and oversight of the Company’s independent auditors, including pre-approval of all audit and non-audit services to be performed by the independent auditors. The Audit Committee annually reviews and approves the firm to be engaged as independent auditors for the Company for the next fiscal year, reviews with the independent auditors the plan and results of the audit engagement, reviews the scope and results of the Company’s procedures for internal auditing and monitors the design and maintenance of the Company’s internal accounting controls. The Audit Committee Report appears on page    of this proxy statement. A current copy of the written charter of the Audit Committee is available on the Company’s website at www.genpt.com.

 

The current members of the Audit Committee are Lawrence G. Steiner (Chairman), Michael M.E. Johns, M.D., Wendy B. Needham, and Mary B. Bullock. All members of the Audit Committee are independent of the Company and management, as defined in Sections 303A.02 and 303A.06 of the New York Stock Exchange listing standards and SEC Rule 10A-3. The Board has determined that all members of the Audit Committee meet the financial literacy requirements of the NYSE corporate governance listing standards. During 2006, the Audit Committee held five meetings.

 

The Board of Directors has determined that Ms. Needham and Mr. Steiner meet the requirements adopted by the SEC for qualification as an “audit committee financial expert.” Ms. Needham was formerly Managing Director, Global Automotive Research for Credit Suisse First Boston from August 2000 to June 2003. Prior to that, Ms. Needham was a Principal, Automotive Research for Donaldson, Lufkin & Jenrette for six years. In both of these positions, Ms. Needham actively reviewed financial statements and prepared various financial analyses and evaluations of such financial statements and related business operations. Mr. Steiner retired in 2003 as Chairman and Chief Executive Officer of Ameripride Services Inc., having served as CEO since 2001 and Chairman since 1992. In such capacity, Mr. Steiner has experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions and other relevant experience.

 

Compensation, Nominating and Governance Committee.  The Compensation, Nominating and Governance Committee is responsible for (a) determining and evaluating the compensation of the Chief Executive Officer and other executive officers and key employees and approving and monitoring our executive compensation plans, policies, and programs; (b) identifying and evaluating potential nominees for election to the Board and recommending candidates for consideration by the Board and shareholders; and (c) developing and recommending to the Board a set of Corporate Governance Guidelines, as well as periodically

reevaluating those Corporate Governance Guidelines and overseeing the evaluation of the Board of Directors and management. The Committee has and may exercise the authority of the Board of Directors as specified by the Board and to the extent permitted under the Georgia Business Corporation Code, and the Committee has the authority to delegate its duties and responsibilities to subcommittees as it deems necessary and advisable. A description of the Committee’s policy regarding director candidates nominated by shareholders appears in “Director Nominating Process” above.

 

The Committee independently retains a compensation consultant, Hewitt Associates, to assist the Committee in its deliberations regarding executive compensation. The mandate of the consultant is to serve the Company and work for the Committee in its review of executive compensation practices, including the competitiveness of pay levels, design issues, market trends, and technical considerations. Hewitt Associates has assisted the Committee with the development of competitive market data and a related assessment of the Company’s executive compensation levels, design of long-term incentive grants and reporting of executive compensation under the new proxy disclosure rules. Our Chairman, President and Chief Executive Officer, with input from our Senior Vice President — Human Resources and Hewitt Associates, recommends to the Committee base salary, target bonus levels, actual bonus payouts and long-term incentive grants for our senior executives. The Committee considers, discusses, modifies as appropriate, and takes action on such proposals.

 

The current members of the Compensation, Nominating and Governance Committee are J. Hicks Lanier (Chairman), John D. Johns, Richard W. Courts, II and Gary W. Rollins. All members of the Compensation, Nominating and Governance Committee are independent of the Company and management, as defined in Section 303A.02 of the NYSE listing standards. During 2006, the Compensation, Nominating and Governance Committee held four meetings. A current copy of the written charter of the Compensation, Nominating and Governance Committee is available on the Company’s website at www.genpt.com.

 

The following table sets forth information as of February 16, 2007, as to all persons or groups known to the Company to be beneficial owners of more than five percent of the outstanding Common Stock of the Company.

 

 

 

 

Based on information provided to the Company, set forth in the table below is information regarding the beneficial ownership of Common Stock of the Company held by the Company’s directors, the named executive officers (as defined in “Executive Compensation” below) and all directors, nominees for director and executive officers of the Company as a group as of February 16, 2007:

 

 

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

In this section, we will give an overview and analysis of our compensation program and policies, the material compensation decisions we have made under those programs and policies, and the material factors that we considered in making those decisions. Later in this proxy statement under the heading “Additional Information Regarding Executive Compensation” you will find a series of tables containing specific information about the compensation earned or paid in 2006 to the following individuals, whom we refer to as our named executive officers:

 

 

The discussion below is intended to help you understand the detailed information provided in those tables and put that information into context within our overall compensation program.

 

Compensation Philosophy and Objectives

 

Our overall goal in compensating executive officers is to attract, retain and motivate key executives of superior ability who are critical to our future success. We believe that both short-term and long-term incentive compensation paid to executive officers should be directly aligned with our performance, and that compensation should be structured to ensure that a significant portion of executives’ compensation opportunities is directly related to achievement of financial and operational goals and other factors that impact shareholder value.

 

Our compensation decisions with respect to executive officer salaries, annual incentives, and long-term incentive compensation opportunities are influenced by (a) the executive’s level of responsibility and function within the Company, (b) the overall performance and profitability of the Company, and (c) our assessment of the competitive marketplace, including other peer companies. Our philosophy is to focus on total direct compensation opportunities through a mix of base salary, annual cash bonus, and long-term incentives, including stock-based awards.

 

We also believe that the best way to directly align the interests of our executives with the interests of our shareholders is to make sure that our executives acquire and retain a significant level of stock ownership throughout their tenure with us. Our compensation program pursues this objective in two ways: through our equity-based long-term incentive awards and our stock ownership guidelines for our senior executives, as described in more detail below.

Overview of Executive Compensation Components

 

The Company’s executive compensation program consists of several compensation elements, as illustrated in the table below.

 

 

The use of these programs enables us to reinforce our pay for performance philosophy, as well as strengthen our ability to attract and retain highly qualified executives. We believe that this combination of programs provides an appropriate mix of fixed and variable pay, balances short-term operational performance with long-term shareholder value, and encourages executive recruitment and retention.

 

Determination of Appropriate Pay Levels

 

Pay Philosophy and Competitive Standing

 

In general, we seek to provide competitive pay by targeting the 50th percentile relative to a peer group for total direct compensation opportunities, including salary, target annual bonus, and long-term incentives. To achieve the 50th percentile positioning for the annual cash compensation component, we provide somewhat conservative base salaries and higher-than-average target bonus opportunities, to focus less on fixed pay and more on performance-based opportunities. Targeted annual cash bonus opportunities are based on our budgeted annual pre-tax profit goals, and may fluctuate from year-to-year.

 

With the assistance of an independent compensation consultant, Hewitt Associates, we collect and analyze competitive market data every year. Data sources include public company proxy statements, published compensation surveys, and a private total compensation database maintained by Hewitt Associates. We compare compensation paid to our named executive officers with compensation paid to executive officers in comparable positions at similar companies (our “Comparison Group”). The Comparison Group includes companies from three industry segments in which we compete: automotive parts, industrial parts and office products. The study group includes companies that make up the Dow Jones Auto Parts and Equipment Index (with respect to the automotive parts segment), Applied Industrial Technologies, Inc. and Kaman Corporation (with respect to the industrial parts segment), and United Stationers Inc. (with respect to the office products segment). Competitive data is adjusted using regression analysis to account for our specific revenue scope to allow for more accurate comparisons to be made. In addition, Hewitt also provides us with competitive pay information for a separate reference group of companies consisting of both local and industry competitors (either at the corporate or subsidiary level). This information is used to determine our competitive position among similar companies in the marketplace, and to assist us in setting our targeted pay at the desired range relative to our peers.

2006 Base Salary

 

Our base salary levels reflect a combination of factors, including competitive pay levels relative to peer groups discussed above, the executive’s experience and tenure, our overall annual budget for both merit increases and pre-tax profit, the executive’s individual performance, and changes in responsibility. We review salary levels annually to recognize these factors. We do not target base salary at any particular percent of total compensation.

 

As noted above, our compensation philosophy targets base salaries that are somewhat below market for comparable positions. The base salaries of our named executive officers compared to competitive benchmarking reflect our conservative philosophy. Base salary increases are consistent with marketplace data and practice, and consistent with pay increase budgets provided to our subsidiaries for 2006. Base pay increases granted to Messrs. Samuelson, Susor and Clayton for 2006 ranged from 4.0 to 5.1 percent and were established after considering job performance, internal pay alignment and equity, and marketplace competitiveness. Mr. Gallagher’s base pay for 2006 was increased by 6.7% after taking into account the above factors plus the fact that his base salary in 2005 was considerably below base salaries paid to peers at similar size companies. Mr. Nix’s base pay for 2006 was increased 22.7% after taking into account the above factors and to recognize his election to the Board and being named Vice Chairman.

 

2006 Annual Incentive Plan

 

Our Annual Incentive Plan (the “Annual Incentive Plan”) provides our executive officers with an opportunity to earn annual cash bonuses based on our achievement of certain pre-established performance goals. As in setting base salaries, we consider a combination of factors in establishing the annual target bonus opportunities for our named executive officers. Budgeted pre-tax profit is a primary factor, as target bonus opportunities are adjusted annually when we set our pre-tax profit goals for the year. We do not target annual bonus opportunities at any particular percentage of total compensation.

 

As mentioned above, we set higher than average target bonus opportunities so that, when combined with conservative salary levels, the targeted annual cash compensation of our executive officers is near the 50th percentile relative to our peer group based on competitive benchmarking by Hewitt Associates. Actual cash compensation levels may exceed the 50th percentile to the extent actual performance exceeds our annual performance goals.

 

For Messrs. Gallagher, Nix, Susor and Clayton, we set annual bonus opportunities for 2006 based on achievement of performance goals relating to pre-tax profits of the Company, which we believe has a strong correlation with shareholder value. The profit goals for the Company are determined by aggregating profit goals for the Company’s subsidiaries, which are each set based upon prior year performance by store, branch, or distribution center; the overall economic outlook of the region served by a particular store, branch, or distribution center; and specific market conditions. We set the profit goals for 2006 bonus opportunities at levels that are intended to reflect improvements in performance over the prior fiscal year and better than average growth within our competitive industry.

 

Mr. Samuelson’s annual bonus opportunity for 2006 was based on profit, sales, and inventory turnover goals relating to our Automotive Parts Group (APG) and UAP Inc. (UAP), weighted 50% for profit, 30% for sales, and 20% for inventory turnover. While our other named executive officers have duties and responsibilities relating to the overall company, Mr. Samuelson’s efforts are more focused as President of APG and Vice Chairman and Chief Executive Officer of UAP, and therefore we believe it is appropriate to base his bonus opportunities on performance goals relating to the results of APG and UAP.

 

Once performance goals have been set and approved, the Compensation, Nominating and Governance Committee then sets a range of bonus opportunities for each named executive officer based on achievement of such goals. Target bonus opportunities for 2006 were set as a percentage of each named executive officer’s base salary, as follows: Mr. Gallagher, XXX%; Mr. Nix, XXX%; Mr. Samuelson, XXX%; Mr. Susor, XXX%; and Mr. Clayton, XXX%.

 

Actual bonus amounts for 2006 were determined based on relative achievement of the performance goals. Messrs. Gallagher, Nix, Susor and Clayton were eligible to earn from 40% of their target bonus amount (if the Company achieved 85% of its pre-tax profits goal) to 150% of their target bonus amount (if the Company achieved

110% of its pre-tax profits goal). No bonus is earned if performance falls below 85% of the pre-tax profit goal. For Mr. Samuelson, the performance range varies based on the performance measure. The performance range for APG and UAP profit vs. quota was 85% to 120%, the range for APG and UAP sales vs. quota was 90% to 105%, and the range for APG and UAP inventory turnover vs. quota was 85% to 115%. The corresponding bonus opportunity as a percentage of target ranged from 15% to 150% for each performance measure, depending on the achievement level. No bonus is earned if performance falls below the minimum requirement for any performance measure.

 

The bonus formulas under the Annual Incentive Plan are applied strictly. The Committee does not exercise discretion with regard to bonus payments for the named executive officers (although it could exercise discretion to reduce the actual bonus amounts).

 

For 2006, the Company’s pre-tax profit was [below][at][above] the target level set for executive officer incentive bonuses, resulting in bonus payments equal to     % of the target bonus opportunity for Messrs. Gallagher, Nix, Susor and Clayton. APG and UAP achieved profit, sales and inventory turnover results [below] [at][above] the target levels set for Mr. Samuelson’s incentive bonus, resulting in a bonus payment equal to     % of Mr. Samuelson’s target bonus opportunity.

 

For additional information about the Annual Incentive Plan, please refer to the “Grants of Plan-Based Awards” table, which shows the threshold, target and maximum bonus amounts payable under the plan for 2006, and the Summary Compensation Table, which shows the actual amount of bonuses paid under the plan to our named executive officers for 2006.

 

2006 Long-Term Incentives

 

During 2006, the Compensation, Nominating and Governance Committee approved long-term equity-based incentive compensation to our executive officers in the form of Stock Appreciation Rights (“SARs”) and Performance Restricted Stock Units (“PRSUs”). We believe these grants are effective for aligning executive performance and achievement with shareholder interests.

 

 

In general, the number of SARs and PRSUs awarded to our named executive officers is determined by targeting a value that is below the median value of long-term incentive compensation provided by our Comparison Group, based on competitive market data provided by Hewitt Associates. Adjustments may be made to reflect job performance and internal pay equity. Determining long-term incentive awards in this manner assists us in achieving our target total compensation objectives and is consistent with our total compensation philosophy.

 

Grants in 2006 to our named executive officers were determined by considering the following factors:

 

 

 

For 2006, the Committee targeted a long-term incentive mix of 60% SAR value and 40% PRSU value. This approach is in line with the market practice of using more than one type of award to provide long-term incentives. The main objectives of the programs are to:

 

 

The number of SARs and PRSUs granted to our named executive officers in 2006 was the same as the number of awards granted in 2005, with the exception of Mr. Nix who received an increased number of awards in recognition of his promotion. The Committee engages Hewitt Associates annually to review competitive long-term incentive grant levels, and we intend to continue to closely monitor our competitive position, program alternatives, and the financial implications to the Company. Please refer to the “Grants of Plan-Based Awards” and “Outstanding Equity Awards at Fiscal Year-End” tables and the related footnotes for additional information about long-term stock awards.

 

Factors Considered in Decisions to Increase or Decrease Compensation Materially

 

Market data, individual performance, retention needs and internal pay equity have been the primary factors considered in decisions to adjust compensation materially. We do not target any particular weight for base salary, annual bonus and long-term incentive as a percent of total direct compensation. We tend to follow market practice in allocating between the various forms of compensation, but with greater emphasis on performance-based incentive bonus opportunities. We use an approximate 60/40 mix with regard to SAR and PRSU grant value, to balance retention and performance.

 

Timing of Compensation

 

Base salary adjustments, annual incentive plan payments, and SAR/PRSU grants were made at the March 27, 2006 meeting of the Compensation, Nominating and Governance Committee. We do not coordinate the timing of equity award grants with the release of material non-public information. The exercise price for SARs is established at the fair market value of the closing price of our stock on the date the Committee approves the grant.

 

Stock Ownership Requirements

 

We have adopted stock ownership guidelines for the named executive officers identified above and for other key executives designated by the Compensation, Nominating and Governance Committee. The ownership guidelines are reviewed at least annually by the Compensation, Nominating and Governance Committee, which also has the authority to evaluate whether exceptions should be made for any executive on whom the guidelines would impose a financial hardship. The current guidelines as determined by the Committee include: (i) CEO — ownership equal to seven times prior year’s salary; and (ii) other covered executives — ownership equal to one to three times prior year’s salary.

 

The covered executives have a period of five years in which to satisfy the guidelines, either from the date of adoption of the policy in November 2006, or the date of appointment to a qualifying position, whichever is later. Shares counted toward this requirement will be based on shares beneficially owned by such executive (as beneficial ownership is defined by the SEC’s rules and regulations) including PRSUs, but excluding unexercised options and measured against the average year-end stock price for the preceding three fiscal years. The guidelines also call for the covered executive to retain 50% of the net shares obtained through the exercise of options or when a restricted

stock award vests for at least six months. The covered executives are encouraged to retain stock ownership per the guidelines for a period of six months following the date of retirement.

 

Impact of Accounting and Tax Treatments of Compensation

 

The accounting and tax treatment of compensation generally has not been a factor in determining the amounts of compensation for our executive officers. However, the Committee and management have considered the accounting and tax impact of various program designs to balance the potential cost to the Company with the benefit/value to the executive.

 

With regard to Code Section 162(m), it is the Committee’s intent to maximize deductibility of executive compensation while retaining some discretion needed to compensate executives in a manner commensurate with performance and the competitive landscape for executive talent. The Annual Incentive Plan has been approved by shareholders and is designed to qualify as “performance-based” to be fully deductible by the Company. The 2006 Long-Term Incentive Plan is approved by shareholders and permits the award of stock options, SARs and other performance-based equity awards that are fully deductible under Code Section 162(m).

 

With the adoption of FAS 123R, we do not expect accounting treatment of differing forms of equity awards to vary significantly and, therefore, accounting treatment is not expected to have a material effect on the selection of forms of equity compensation in the future.

 

Role of Executive Officers in Determining Compensation

 

Our Chairman, President and Chief Executive Officer, with input from our Senior Vice President — Human Resources, recommends to the Committee base salary, target bonus levels, actual bonus payouts and long-term incentive grants for our senior officer group (other than himself). Mr. Gallagher makes these recommendations to the Committee based on data and analysis provided by our independent compensation consultant and qualitative judgments regarding individual performance. Mr. Gallagher is not involved with any aspect of determining his own pay.

 

2006 Summary Compensation Table

 

 

 

 

2006 Grants of Plan-Based Awards

 

 

 

 

2006 Outstanding Equity Awards at Fiscal Year-End

 

 

 

 

 

2006 OPTION EXERCISES AND STOCK VESTED