AAP 10-Q Second Quarter
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form 10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the quarterly period ended July 15, 2006
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the transition period from ________ to ________.
Commission
file number 001-16797
ADVANCE
AUTO PARTS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
54-2049910
(I.R.S.
Employer
Identification No.)
|
5673
Airport Road, Roanoke, Virginia 24012
(Address
of Principal Executive Offices)
(Zip
Code)
(540)
362-4911
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last
report).
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
x
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large
accelerated filer x
Accelerated filer p
Non-accelerated filer p
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
p
No
x
As
of
August 21,
2006,
the registrant had outstanding 105,115,773
shares
of Common Stock, par value $0.0001 per share (the only class of common stock
of
the registrant outstanding).
PART
I. FINANCIAL INFORMATION
ITEM
1. |
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
|
Condensed
Consolidated Balance Sheets
July
15, 2006 and December 31, 2005
(in
thousands, except per share data)
(unaudited)
|
|
July
15,
|
|
December
31,
|
|
Assets
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
13,128
|
|
$
|
40,783
|
|
Receivables,
net
|
|
|
87,414
|
|
|
94,689
|
|
Inventories,
net
|
|
|
1,433,126
|
|
|
1,367,099
|
|
Other
current assets
|
|
|
41,088
|
|
|
45,369
|
|
Total
current assets
|
|
|
1,574,756
|
|
|
1,547,940
|
|
Property
and equipment, net of accumulated depreciation of
|
|
|
|
|
|
|
|
$626,106
and $564,558
|
|
|
954,620
|
|
|
898,851
|
|
Assets
held for sale
|
|
|
4,099
|
|
|
8,198
|
|
Goodwill
|
|
|
67,208
|
|
|
67,094
|
|
Other
assets, net
|
|
|
22,037
|
|
|
20,066
|
|
|
|
$
|
2,622,720
|
|
$
|
2,542,149
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Bank
overdrafts
|
|
$
|
38,297
|
|
$
|
50,170
|
|
Current
portion of long-term debt
|
|
|
37,767
|
|
|
32,760
|
|
Financed
vendor accounts payable
|
|
|
128,511
|
|
|
119,351
|
|
Accounts
payable
|
|
|
688,727
|
|
|
629,248
|
|
Accrued
expenses
|
|
|
291,278
|
|
|
265,437
|
|
Other
current liabilities
|
|
|
44,628
|
|
|
44,498
|
|
Total
current liabilities
|
|
|
1,229,208
|
|
|
1,141,464
|
|
Long-term
debt
|
|
|
392,651
|
|
|
406,040
|
|
Other
long-term liabilities
|
|
|
67,765
|
|
|
74,874
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Preferred
stock, nonvoting, $0.0001 par value,
|
|
|
|
|
|
|
|
10,000
shares authorized; no shares issued or outstanding
|
|
|
-
|
|
|
-
|
|
Common
stock, voting, $0.0001 par value, 200,000
|
|
|
|
|
|
|
|
shares
authorized; 108,125 shares issued and 105,005 outstanding
|
|
|
|
|
|
|
|
in
2006 and 109,637 issued and 108,198 outstanding in 2005
|
|
|
11
|
|
|
11
|
|
Additional
paid-in capital
|
|
|
509,693
|
|
|
564,965
|
|
Treasury
stock, at cost, 3,120 and 1,439 shares
|
|
|
(113,162
|
)
|
|
(55,668
|
)
|
Accumulated
other comprehensive income
|
|
|
5,003
|
|
|
3,090
|
|
Retained
earnings
|
|
|
531,551
|
|
|
407,373
|
|
Total
stockholders' equity
|
|
|
933,096
|
|
|
919,771
|
|
|
|
$
|
2,622,720
|
|
$
|
2,542,149
|
|
|
|
|
|
|
|
|
|
The
accompanying notes to the condensed consolidated financial statements
are
an
integral part of these statements.
Condensed
Consolidated Statements of
Operations
For
the Twelve and Twenty-Eight Week Periods
Ended
July
15, 2006 and July 16, 2005
(in
thousands, except per share data)
(unaudited)
|
|
Twelve
Week Periods Ended
|
|
Twenty-Eight
Week Periods Ended
|
|
|
|
July
15,
|
|
July
16,
|
|
July
15,
|
|
July
16,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,107,857
|
|
$
|
1,023,146
|
|
$
|
2,500,867
|
|
$
|
2,281,510
|
|
Cost
of sales, including
purchasing and warehousing costs
|
|
|
580,498
|
|
|
541,096
|
|
|
1,308,340
|
|
|
1,198,529
|
|
Gross
profit
|
|
|
527,359
|
|
|
482,050
|
|
|
1,192,527
|
|
|
1,082,981
|
|
Selling,
general and administrative expenses
|
|
|
416,913
|
|
|
369,530
|
|
|
955,783
|
|
|
850,247
|
|
Operating
income
|
|
|
110,446
|
|
|
112,520
|
|
|
236,744
|
|
|
232,734
|
|
Other,
net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(8,752
|
)
|
|
(7,575
|
)
|
|
(18,915
|
)
|
|
(16,486
|
)
|
Other
(expense) income, net
|
|
|
(21
|
)
|
|
1,045
|
|
|
599
|
|
|
1,365
|
|
Total
other, net
|
|
|
(8,773
|
)
|
|
(6,530
|
)
|
|
(18,316
|
)
|
|
(15,121
|
)
|
Income
before provision for income taxes
|
|
|
101,673
|
|
|
105,990
|
|
|
218,428
|
|
|
217,613
|
|
Provision
for income taxes
|
|
|
38,737
|
|
|
40,061
|
|
|
81,411
|
|
|
83,037
|
|
Net
income
|
|
$
|
62,936
|
|
$
|
65,929
|
|
$
|
137,017
|
|
$
|
134,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.60
|
|
$
|
0.61
|
|
$
|
1.28
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
0.59
|
|
$
|
0.60
|
|
$
|
1.27
|
|
$
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
105,650
|
|
|
108,777
|
|
|
106,923
|
|
|
107,910
|
|
Dilutive
effect of stock options
|
|
|
1,143
|
|
|
1,571
|
|
|
1,277
|
|
|
1,757
|
|
Average
common shares outstanding - assuming dilution
|
|
|
106,793
|
|
|
110,348
|
|
|
108,200
|
|
|
109,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes to the condensed consolidated financial statements
are
an
integral part of these statements.
Condensed
Consolidated Statements of Cash
Flows
For
the Twenty-Eight Week Periods Ended
July
15, 2006 and July 16, 2005
(in
thousands)
(unaudited)
|
|
Twenty-Eight
Week Periods Ended
|
|
|
|
July
15,
|
|
July
16,
|
|
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
137,017
|
|
$
|
134,576
|
|
Adjustments
to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
70,860
|
|
|
62,476
|
|
Amortization
of deferred debt issuance costs
|
|
|
338
|
|
|
337
|
|
Share-based
compensation
|
|
|
9,892
|
|
|
237
|
|
Loss
on disposal of property and equipment, net
|
|
|
453
|
|
|
713
|
|
Benefit
for deferred income taxes
|
|
|
(7,425
|
)
|
|
(6,297
|
)
|
Excess
tax benefit from share-based compensation
|
|
|
(3,427
|
)
|
|
-
|
|
Tax
benefit related to exercise of stock options
|
|
|
-
|
|
|
27,998
|
|
Net
decrease (increase) in:
|
|
|
|
|
|
|
|
Receivables,
net
|
|
|
7,395
|
|
|
7,589
|
|
Inventories,
net
|
|
|
(66,027
|
)
|
|
(125,882
|
)
|
Other
assets
|
|
|
5,391
|
|
|
(13,241
|
)
|
Net
increase (decrease) in:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
59,479
|
|
|
55,738
|
|
Accrued
expenses
|
|
|
44,339
|
|
|
42,370
|
|
Other
liabilities
|
|
|
(861
|
)
|
|
2,740
|
|
Net
cash provided by operating activities
|
|
|
257,424
|
|
|
189,354
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(132,015
|
)
|
|
(119,777
|
)
|
Business
acquisitions, net of cash acquired
|
|
|
(12,500
|
)
|
|
-
|
|
Proceeds
from sales of property and equipment
|
|
|
6,788
|
|
|
2,874
|
|
Net
cash used in investing activities
|
|
|
(137,727
|
)
|
|
(116,903
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
(Decrease)
increase in bank overdrafts
|
|
|
(11,873
|
)
|
|
5,377
|
|
Increase
in financed vendor accounts payable
|
|
|
9,160
|
|
|
63,929
|
|
Dividends
paid
|
|
|
(12,839
|
)
|
|
-
|
|
Payments
on note payable
|
|
|
(32
|
)
|
|
-
|
|
Borrowings
under credit facilities
|
|
|
8,000
|
|
|
1,500
|
|
Payments
on credit facilities
|
|
|
(16,350
|
)
|
|
(17,350
|
)
|
Proceeds
from the issuance of common stock, primarily exercise
|
|
|
|
|
|
|
|
of
stock options
|
|
|
10,586
|
|
|
28,435
|
|
Excess
tax benefit from share-based compensation
|
|
|
3,427
|
|
|
-
|
|
Repurchase
of common stock
|
|
|
(137,560
|
)
|
|
(42,978
|
)
|
Increase
in borrowings secured by trade receivables
|
|
|
129
|
|
|
8,203
|
|
Net
cash (used in) provided by financing activities
|
|
|
(147,352
|
)
|
|
47,116
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(27,655
|
)
|
|
119,567
|
|
Cash
and cash equivalents,
beginning of period
|
|
|
40,783
|
|
|
56,321
|
|
Cash
and cash equivalents,
end of period
|
|
$
|
13,128
|
|
$
|
175,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
14,245
|
|
$
|
12,103
|
|
Income
tax payments, net
|
|
|
54,134
|
|
|
52,582
|
|
Non-cash
transactions:
|
|
|
|
|
|
|
|
Accrued
purchases of property and equipment
|
|
|
37,423
|
|
|
23,770
|
|
Retirement
of common stock
|
|
|
79,177
|
|
|
-
|
|
Unrealized
gain (loss) on hedge arrangements
|
|
|
1,913
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
The
accompanying notes to the condensed consolidated financial statements
are
an
integral part of these statements.
Notes
to the Condensed Consolidated Financial
Statements
For
the Twelve and Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in
thousands, except per share data)
(unaudited)
1. |
Basis
of Presentation:
|
The
accompanying condensed consolidated financial statements include the accounts
of
Advance Auto Parts, Inc. and its wholly owned subsidiaries, or the Company.
All
significant intercompany balances and transactions have been eliminated
in
consolidation.
The
condensed consolidated balance sheets as of July 15, 2006 and December
31, 2005,
the condensed consolidated statements of operations for the twelve and
twenty-eight week periods ended July 15, 2006 and July 16, 2005, and the
condensed consolidated statements of cash flows for the twenty-eight week
periods ended July 15, 2006 and July 16, 2005, have been prepared by the
Company. In the opinion of management, all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the
financial
position of the Company, the results of its operations and cash flows have
been
made.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in
the
United States of America have been condensed or omitted. These financial
statements should be read in conjunction with the financial statements
and notes
thereto included in the Company’s consolidated financial statements for the
fiscal year ended December 31, 2005.
The
results of operations for the interim periods are not necessarily indicative
of
the operating results to be expected for the full fiscal year.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Vendor
Incentives
The
Company receives incentives in the form of reductions to amounts owed and/or
payments from vendors related to cooperative advertising allowances, volume
rebates and other promotional considerations. The Company accounts for
vendor
incentives in accordance with Emerging Issues Task Force, or EITF, No.
02-16,
“Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor.” Many of the incentives are under long-term agreements
(terms in excess of one year), while others are negotiated on an annual
basis.
Certain vendors require the Company to use cooperative advertising allowances
exclusively for advertising. The Company defines these allowances as restricted
cooperative advertising allowances and recognizes them as a reduction to
selling, general and administrative expenses as incremental advertising
expenditures are incurred. The remaining cooperative advertising allowances
not
restricted by the Company’s vendors and volume rebates are earned based on
inventory purchases and recorded as a reduction to inventory and recognized
through cost of sales as the inventory is sold.
The
Company recognizes other promotional incentives earned under long-term
agreements as a reduction to cost of sales. These incentives are recognized
based on the cumulative net purchases as a percentage of total estimated
net
purchases over the life of the agreement. The Company's margins could be
impacted positively or negatively if actual purchases or results from any
one
year differ from its estimates; however, the impact over the life of the
agreement would be the same. Short-term incentives (terms less than one
year)
are recognized as a reduction to cost of sales over the course of the annual
agreements.
Advance
Auto Parts, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial
Statements
For
the Twelve and Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in
thousands, except per share data)
(unaudited)
Amounts
received or receivable from vendors that are not yet earned are reflected
as
deferred revenue in the accompanying condensed consolidated balance sheets.
Management's estimate of the portion of deferred revenue that will be realized
within one year of the balance sheet date has been included in other current
liabilities in the accompanying condensed consolidated balance sheets.
Earned
amounts that are receivable from vendors are included in receivables, net
on the
accompanying condensed consolidated balance sheets, except for that portion
expected to be received after one year, which is included in other assets,
net
on the accompanying condensed consolidated balance sheets.
Preopening
Expenses
Preopening
expenses, which consist primarily of payroll and occupancy costs, are expensed
as incurred.
Sales
Returns and Allowances
The
Company’s accounting policy for sales returns and allowances consists of
establishing reserves for anticipated returns at the time of sale. The
Company
anticipates returns based on current sales levels and the Company’s historical
return experience on a specific product basis.
Warranty
Costs
The
Company's vendors are primarily responsible for warranty claims. Warranty
costs
relating to merchandise (primarily batteries) and services sold under warranty,
which are not covered by vendors' warranties, are estimated based on the
Company's historical experience and are recorded in the period the product
is
sold. The Company has applied the disclosure requirements of Financial
Accounting Standards Board, or FASB, Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including the Indirect
Guarantees of Indebtedness of Others" as they relate to warranties. The
following table presents changes in the Company’s defective and warranty
reserves.
|
|
|
July
15,
|
|
December
31,
|
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
(28
weeks ended)
|
|
(52
weeks ended)
|
|
|
|
Defective
and warranty reserve, beginning
|
|
|
|
|
|
|
|
of
period
|
|
$
|
11,352
|
|
$
|
10,960
|
|
|
|
Reserves
established
|
|
|
7,920
|
|
|
14,268
|
|
|
|
Reserves
utilized
|
|
|
(7,584
|
)
|
|
(13,876
|
)
|
|
|
Defective
and warranty reserve, end of
|
|
|
|
|
|
|
|
|
|
period
|
|
$
|
11,688
|
|
$
|
11,352
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share of Common Stock
Basic
earnings per share of common stock has been computed based on the
weighted-average number of common shares outstanding, less stock held in
treasury, during the period. Diluted earnings per share of common stock
reflects
the increase in the weighted-average number of shares of common stock
outstanding assuming the exercise of outstanding stock options, calculated
on
the treasury stock method, and all currently outstanding deferred stock
units.
Advance
Auto Parts, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial
Statements
For
the Twelve and Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in
thousands, except per share data)
(unaudited)
Stock
Split
On
August
10, 2005, the Company’s Board of Directors declared a three-for-two stock split
of the Company’s common stock, effected as a 50% stock dividend. The dividend
was distributed on September 23, 2005 to holders of record as of September
9,
2005 and the Company’s stock began trading on a post-split basis on September
26, 2005. All share and per share amounts in the accompanying condensed
consolidated financial statements have been adjusted to reflect the effect
of
the stock split.
Share-Based
Payments
The
Company has share-based compensation plans as allowed under its long-term
incentive plan, or LTIP, which includes fixed stock options and deferred
stock units, or DSUs. The
stock
options authorized to be granted are non-qualified stock options and terminate
on the seventh anniversary of the grant date. Additionally, the stock options
vest over a three-year period in equal installments beginning on the first
anniversary of the grant date and contain no post-vesting restrictions
other
than normal black-out periods prescribed by the Company’s corporate governance
policies. The Company grants DSUs annually to its Board of Directors as
provided
for in the Advance Auto Parts, Inc. Deferred Stock Unit Plan for Non-Employee
Directors and Selected Executives, or the DSU Plan. Each DSU is equivalent
to
one share of common stock of the Company. The DSUs are immediately vested
upon
issuance but are held on behalf of the director until he or she ceases
to be a
director. The DSUs are then distributed to the director following his or
her
last date of service. Additionally, the DSU Plan provides for the deferral
of
compensation as earned in the form of an annual retainer for board members
and
wages for certain highly compensated employees of the Company. These deferred
stock units are payable to the participants at a future date or over a
specified
time period as elected by the participants in accordance with the DSU
Plan.
In
addition, the Company offers an employee stock purchase plan, or ESPP.
Through
2005 all eligible employees, or team members, could elect to have a portion
of
compensation paid in the form of Company stock in lieu of cash calculated
at 85%
of fair market value at the beginning or end of the quarterly purchase
period
whichever was lower. Effective January 1, 2006, the ESPP was amended such
that
eligible team members may purchase common stock at 95% of fair market value
at
the date of purchase.
Prior
to
January 1, 2006, the Company accounted for its share-based compensation
plans as
prescribed by Accounting Principles Board, or APB, Opinion No. 25, “Accounting
for Stock Issued to Employees,” or APB No. 25. The Company recorded no
compensation cost in its statement of operations prior to fiscal 2006 for
its
fixed stock option grants as the exercise price equaled the fair market
value of
the underlying stock on the grant date. In addition, the Company did not
recognize compensation expense for its employee stock purchase plan since
it
qualified as a non-compensatory plan under Section 423 of the Internal
Revenue
Code of 1986, as amended. The Company did recognize an insignificant amount
of
share-based compensation expense related to the grant of deferred stock
units to
its Board of Directors under its DSU Plan.
On
January 1, 2006, the Company adopted the provisions of SFAS
No.
123
(revised 2004), "Share-Based Payment," or SFAS No. 123R. SFAS No. 123R
replaces
SFAS No. 123 and supersedes APB Opinion No. 25 and subsequently issued
stock
option related guidance. The Company elected to use the modified-prospective
method of implementation. Under this transition method, share-based compensation
expense for the twelve and twenty-eight weeks ended July 15, 2006 included
compensation expense for all share-based awards granted subsequent to January
1,
2006 based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123R, and compensation expense for all share-based
awards
granted prior to but unvested as of January 1, 2006 based on the grant-date
fair
value estimated in accordance with original provisions of SFAS No. 123.
The
Company uses the Black-Scholes option-pricing model to value all options
and the
straight-line method
Advance
Auto Parts, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial
Statements
For
the Twelve and Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in
thousands, except per share data)
(unaudited)
to
amortize this fair value as compensation cost over the requisite service
period.
Total share-based compensation expense included in selling, general and
administrative expenses in the accompanying condensed consolidated statement
of
operations for the twelve and twenty-eight weeks ended July 15, 2006 was
$4,847
and $9,892, respectively. The related income tax benefit was $1,847 and
$3,690,
respectively. The Company recognized
$237 of share-based compensation expense in accordance with APB No.
25 for the twelve and twenty-eight weeks ended July 16, 2005. In accordance
with
the modified-prospective transition method of SFAS No. 123R, the Company
has not
restated prior periods.
As
a
result of adopting SFAS No. 123R on January 1, 2006, the Company’s earnings
before income tax expense and net earnings for the twelve weeks ended July
15,
2006, were $4,562 and $2,824 lower, respectively, than if the Company had
continued to account for share-based compensation under APB No. 25. The
Company’s earnings before income tax expense and net earnings for the
twenty-eight weeks ended July 15, 2006, were $9,607 and $6,024 lower,
respectively, than if the Company had continued to account for share-based
compensation under APB No. 25. The related impact in 2006 to basic and
diluted
earnings per share is $0.03 and $0.06 for the twelve and twenty-eight weeks
ended July 15, 2006, respectively.
Prior
to
the adoption of SFAS No.123R, the Company reported all income tax benefits
resulting from the exercise of stock options as operating cash inflows
in its
consolidated statements of cash flow. In accordance with SFAS No.123R,
the
Company revised its statement of cash flows presentation to include the
excess
tax benefits from the exercise of stock options as financing cash inflows
rather
than operating cash inflows. Accordingly, for the twenty-eight weeks ended
July 15, 2006, the Company reported $3,427 of excess tax benefits as a
financing cash inflow.
The
following table reflects the impact on net income and earnings per share
as if
the Company had applied the fair value based method of recognizing share-based
compensation costs as prescribed by SFAS No. 123 for the twelve and twenty-eight
weeks ended July 16, 2005.
|
|
|
Twelve
Weeks
Ended July 16, 2005
|
|
Twenty-Eight
Weeks Ended July 16, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
income, as reported
|
|
$
|
65,929
|
|
$
|
134,576
|
|
|
|
Add:
Total stock-based employee compensation
|
|
|
|
|
|
|
|
|
|
expense
included in reported net income, net
|
|
|
|
|
|
|
|
|
|
of
related tax effects
|
|
|
147
|
|
|
147
|
|
|
|
Deduct:
Total stock-based employee compensation
|
|
|
|
|
|
|
|
|
|
expense
determined under fair value based method
|
|
|
|
|
|
|
|
|
|
for
all awards, net of related tax effects
|
|
|
(2,342
|
)
|
|
(4,695
|
)
|
|
|
Pro
forma net income
|
|
$
|
63,734
|
|
$
|
130,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic,
as reported
|
|
$
|
0.61
|
|
$
|
1.25
|
|
|
|
Basic,
pro forma
|
|
$
|
0.59
|
|
$
|
1.20
|
|
|
|
Diluted,
as reported
|
|
$
|
0.60
|
|
$
|
1.23
|
|
|
|
Diluted,
pro forma
|
|
$
|
0.58
|
|
$
|
1.19
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance
Auto Parts, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial
Statements
For
the Twelve and Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in
thousands, except per share data)
(unaudited)
The
following table summarizes the fixed stock option transactions for the
twenty-eight weeks ended July 15, 2006:
|
|
|
Number
of
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
(in years)
|
|
Aggregate
Intrinsic
Value
|
|
|
|
Fixed
Price Options
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
6,192
|
|
$
|
24.46
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,116
|
|
|
40.38
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(437
|
)
|
|
20.29
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(248
|
)
|
|
32.74
|
|
|
|
|
|
|
|
|
|
Outstanding
at July 15, 2006
|
|
|
7,623
|
|
$
|
28.85
|
|
|
4.98
|
|
$
|
34,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at July 15, 2006
|
|
|
3,518
|
|
$
|
20.61
|
|
|
3.86
|
|
$
|
32,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
aggregate intrinsic value in the preceding table is based on the Company’s
closing stock price of $29.04 as of the last trading day of the period
ended
July 15, 2006. The aggregate intrinsic value of options (the amount by
which the
market price of the stock on the date of exercise exceeded the exercise
price of
the option) exercised during the twenty-eight weeks ended July 15, 2006
and July
16, 2005 was $8,981 and $71,045, respectively. As of July 15, 2006, there
was
$35,463 of unrecognized compensation expense related to non-vested fixed
stock
options that is expected to be recognized over a weighted average period
of 2.1
years. Shares
authorized for grant under the LTIP are 8,620 at July 15,
2006.
The
weighted average fair value of stock options granted during the twenty-eight
weeks ended July 15, 2006 and July 16, 2005 was $10.68 and $10.54 per share,
respectively. The fair value of each stock option was estimated on the
date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:
|
|
July
15,
|
|
July
16,
|
|
Black-Scholes
Option Valuation Assumptions (1)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Risk-free
interest rate (2)
|
|
|
4.6%
|
|
|
3.7%
|
|
Expected
dividend yield
|
|
|
0.6%
|
|
|
-
|
|
Expected
stock price volatility (3)
|
|
|
28%
|
|
|
33%
|
|
Expected
life of stock options (in months) (4)
|
|
|
44
|
|
|
48
|
|
(1) |
Forfeitures
are based on historical experience.
|
(2) |
The
risk-free interest rate is based on a U.S. Treasury constant
maturity
interest rate whose term is consistent with the expected life
of the
Company’s stock options.
|
(3) |
Expected
volatility is based on the historical volatility of the Company’s common
stock for the period consistent with the life of the Company’s stock
options.
|
Advance
Auto Parts, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial
Statements
For
the Twelve and Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in
thousands, except per share data)
(unaudited)
(4) |
The
expected life of the Company’s stock options represents the estimated
period of time until exercise and is based on historical
experience of
such awards.
|
The
Company issues new shares of common stock upon exercise of stock options.
Hedge
Activities
The
Company has entered into interest rate swap agreements to limit its cash
flow
risk on its variable rate debt. In March 2005, the Company entered into
three
interest rate swap agreements on an aggregate of $175,000 of debt under
its
senior credit facility. The detail for the individual swaps is as
follows:
·
|
The
first swap fixed the Company’s LIBOR rate at 4.153% on $50,000 of debt for
a term of 48 months, expiring in March
2009.
|
·
|
The
second swap fixed the Company’s LIBOR rate at 4.255% on $75,000 of debt
for a term of 60 months, expiring in February
2010.
|
·
|
Effective
March 2006, the third swap fixed the Company’s LIBOR rate at 4.6125% on
$50,000 of debt for a term of 54 months, expiring in September
2010.
|
In
accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” the fair value of these hedges is recorded as an asset or liability
in the accompanying condensed consolidated balance sheets at July 15, 2006
and
December 31, 2005, respectively. The Company uses the “matched terms” accounting
method as provided by Derivative Implementation Group Issue No. G9, “Assuming No
Ineffectiveness When Critical Terms of the Hedging Instrument and the Hedge
Transaction Match in a Cash Flow Hedge” for the interest rate swaps.
Accordingly, the Company has matched the critical terms of each hedge instrument
to the hedged debt. Therefore, the Company has recorded all adjustments
to the
fair value of the hedge instruments in accumulated other comprehensive
income
through the maturity date of the applicable hedge arrangement. The fair
value at
July 15, 2006 was an unrecognized gain of $5,003, net of the related tax
impact,
on the swaps. Any amounts received or paid under these hedges will be recorded
in the statement of operations as earned or incurred. Comprehensive income
for
the twelve and twenty-eight weeks ended July 15, 2006 and July 16, 2005
is as
follows:
|
|
|
Twelve
Weeks Ended
|
|
Twenty-Eight
Weeks Ended
|
|
|
|
|
|
July
15,
|
|
July
16,
|
|
July
15,
|
|
July
16,
|
|
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
62,936
|
|
$
|
65,929
|
|
$
|
137,017
|
|
$
|
134,576
|
|
|
|
Unrealized
gain (loss) on hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
arrangements,
net of tax
|
|
|
473
|
|
|
196
|
|
|
1,913
|
|
|
(166
|
)
|
|
|
Comprehensive
income
|
|
$
|
63,409
|
|
$
|
66,125
|
|
$
|
138,930
|
|
$
|
134,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based
on
the estimated current and future fair values of the hedge arrangements
at July
15, 2006, the Company estimates amounts currently included in accumulated
other
comprehensive income that will be reclassified to earnings in the next
12 months
will consist of a gain of $1,784 associated with the interest rate
swaps.
Financed
Vendor Accounts Payable
The
Company has a short-term financing program with a bank for certain merchandise
purchases. The substance of the program is for the Company to borrow money
from
the bank to finance its purchases from vendors.
Advance
Auto Parts, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial
Statements
For
the Twelve and Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in
thousands, except per share data)
(unaudited)
The
Company records any discount given by the vendor to the value of its inventory
and accretes this discount to the resulting short-term payable to the bank
through interest expense over the extended term. At July 15, 2006 and December
31, 2005, $128,511 and $119,351, respectively, was payable to the bank
by the
Company under this program and is included in the accompanying condensed
consolidated balance sheets as Financed Vendor Accounts Payable.
Recent
Accounting Pronouncements
In
July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes,” or FIN 48. FIN 48 clarifies the accounting and reporting
for income taxes recognized in accordance with SFAS No. 109, “Accounting for
Income Taxes.” The interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition, measurement,
presentation and disclosure of uncertain tax positions taken or expected
to be
taken in income tax returns. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The Company is
currently evaluating the impact of FIN 48.
In
March
2006,
the FASB’s Emerging Issues Task Force released Issue 06-3, “How Sales Taxes
Collected From Customers and Remitted to Governmental Authorities Should
Be
Presented in the Income Statement,” or EITF
06-3. A
consensus was reached that entities may adopt
a
policy of presenting sales taxes in the income statement on either a gross
or
net basis. If taxes are significant, an entity should disclose its policy
of
presenting taxes and the amount of taxes if reflected on a gross basis
in the
income statement. EITF 06-3 is effective for periods beginning after December
15, 2006. The Company presents sales net of sales taxes in its consolidated
statement of operations and does not anticipate changing its policy as
a result
of EITF 06-3.
In
March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets - an amendment of FASB Statement No. 140.” SFAS No. 156 amends SFAS
No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” with respect to the accounting for separately
recognized servicing assets and servicing liabilities. SFAS No. 156 is
effective
for fiscal years beginning after September 15, 2006. The Company does not
expect the adoption of SFAS No. 156 to have a material impact on its financial
condition, results of operations or cash flows.
In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements No. 133 and 140.” SFAS
No. 155 simplifies accounting for certain hybrid instruments currently
governed
by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,”
or SFAS No. 133, by allowing fair value remeasurement of hybrid instruments
that
contain an embedded derivative that otherwise would require bifurcation.
SFAS
No. 155 also eliminates the guidance in SFAS No. 133 Implementation Issue
No.
D1, “Application of Statement 133 to Beneficial Interests in Securitized
Financial Assets,” which provides such beneficial interests are not subject to
SFAS No. 133. This statement amends SFAS No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - a Replacement of FASB Statement No. 125,”
by
eliminating the restriction on passive derivative instruments that a qualifying
special-purpose entity may hold. SFAS No. 155 is effective for financial
instruments acquired or issued after the beginning of the Company’s fiscal year
2007. The Company does not expect the adoption of SFAS No. 155 to have
a
material impact on its financial condition, results of operations or cash
flows.
On
September 14, 2005, the Company completed its acquisition of Autopart
International, Inc., or AI. The acquisition, which included 61 stores
throughout
New England and New York, a distribution center and AI’s wholesale distribution
business, complements the Company’s growing presence in the Northeast. AI serves
the growing commercial market in addition to warehouse distributors and
jobbers.
Advance
Auto Parts, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial
Statements
For
the Twelve and Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in
thousands, except per share data)
(unaudited)
The
acquisition has been accounted for under the provisions of SFAS No. 141,
“Business Combinations,” or SFAS No. 141. The total purchase price of AI
consisted of $87,440, of which $74,940 was paid upon closing with an additional
$12,500 of contingent consideration paid in March 2006 based upon AI satisfying
certain earnings before interest, taxes, depreciation and amortization
targets
through December 31, 2005. Furthermore, an additional $12,500 is payable
upon
the achievement of certain synergies, as defined in the Purchase Agreement,
through fiscal 2008. In accordance with SFAS No. 141, this additional payment
does not represent contingent consideration and will be reflected in the
statement of operations when earned. Due to the timing of this acquisition,
the
purchase price has preliminarily been allocated to the assets acquired
and the
liabilities assumed based upon estimates of fair values at the date of
acquisition. This preliminary allocation resulted in the recognition of
$50,546
in goodwill, all of which is deductible for tax purposes, and is subject
to the
finalization of the valuation of certain identifiable intangibles.
The
following unaudited proforma information presents the results of operations
of
the Company as if the acquisition had taken place at the beginning of the
applicable period:
|
|
Twelve
Weeks
Ended
July
16, 2005
|
|
Twenty-Eight
Weeks
Ended
July
16, 2005
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,048,543
|
|
$
|
2,335,570
|
|
|
Net
income
|
|
|
67,051
|
|
|
137,160
|
|
|
Earnings
per diluted share
|
|
$
|
0.61
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
consist of the following:
|
|
|
July
15,
|
|
December
31,
|
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
12,900
|
|
$
|
13,733
|
|
|
|
Vendor
|
|
|
62,504
|
|
|
63,161
|
|
|
|
Installment
|
|
|
4,416
|
|
|
5,622
|
|
|
|
Insurance
recovery
|
|
|
9,217
|
|
|
13,629
|
|
|
|
Other
|
|
|
3,090
|
|
|
3,230
|
|
|
|
Total
receivables
|
|
|
92,127
|
|
|
99,375
|
|
|
|
Less:
Allowance for doubtful accounts
|
|
|
(4,713
|
)
|
|
(4,686
|
)
|
|
|
Receivables,
net
|
|
$
|
87,414
|
|
$
|
94,689
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
are stated at the lower of cost or market, cost being determined using
the
last-in, first-out ("LIFO") method for approximately 92% and 93% of inventories
at July 15, 2006 and December 31, 2005,
Advance
Auto Parts, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial
Statements
For
the Twelve and Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in
thousands, except per share data)
(unaudited)
respectively.
Under the LIFO method, the Company’s cost of sales reflects the costs of the
most currently purchased inventories while the inventory carrying balance
represents the costs relating to prices paid in prior years. The Company’s costs
to acquire inventory have been generally decreasing in recent years as
a result
of its significant growth. Accordingly, the cost to replace inventory is
less
than the LIFO balances carried for similar product. As a result of the
LIFO
method and the ability to obtain lower product costs, the Company recorded
reductions to cost of sales of $8,528 and $4,237 for the twenty-eight weeks
ended July 15, 2006 and July 16, 2005, respectively.
An
actual
valuation of inventory under the LIFO method can be made only at the end
of each
fiscal year based on the inventory levels and costs at that time. Accordingly,
interim LIFO calculations must be based on management’s estimates of expected
fiscal year-end inventory levels and costs.
The
remaining inventories are comprised of product cores, which consist of
the
non-consumable portion of certain parts and batteries and are valued under
the
first-in, first-out ("FIFO") method. Core values are included as part of
the
Company’s merchandise costs and are either passed on to the customer or returned
to the vendor. Additionally, these products are not subject to the frequent
cost
changes like the Company’s other merchandise inventory, thus there is no
material difference from applying either the LIFO or FIFO valuation methods.
The
Company capitalizes certain purchasing and warehousing costs into inventory.
Purchasing and warehousing costs included in inventory, at FIFO, at July
15,
2006 and December 31, 2005, were $89,307 and $92,833, respectively. Inventories
consist of the following:
|
|
|
July
15,
|
|
December
31,
|
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
at FIFO
|
|
$
|
1,351,809
|
|
$
|
1,294,310
|
|
|
|
Adjustments
to state inventories at LIFO
|
|
|
81,317
|
|
|
72,789
|
|
|
|
Inventories
at LIFO
|
|
$
|
1,433,126
|
|
$
|
1,367,099
|
|
|
|
|
|
|
|
|
|
|
|
|
Replacement
cost approximated FIFO cost at July 15, 2006, and December 31,
2005.
Inventory
quantities are tracked through a perpetual inventory system. The Company
uses a
cycle counting program in all distribution centers; Parts Delivered Quickly
warehouses, or PDQs; Local Area Warehouses, or LAWs, and retail stores
to ensure
the accuracy of the perpetual inventory quantities of both merchandise
and core
inventory. The Company establishes reserves for estimated shrink based
on
historical accuracy and effectiveness of the cycle counting program. The
Company
also establishes reserves for potentially excess and obsolete inventories
based
on current inventory levels of discontinued product and the historical
analysis
of the liquidation of discontinued inventory below cost. The nature of
the
Company’s inventory is such that the risk of obsolescence is minimal and excess
inventory has historically been returned to the Company’s vendors for credit.
The Company provides reserves when less than full credit is expected from
a
vendor or when liquidating product will result in retail prices below recorded
costs. The Company’s reserves against inventory for these matters were $29,715
and $22,825 at July 15, 2006 and December 31, 2005, respectively.
Advance
Auto Parts, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial
Statements
For
the Twelve and Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in
thousands, except per share data)
(unaudited)
Long-term
debt consists of the following:
|
|
|
|
July
15,
|
|
December
31,
|
|
|
|
|
|
|
2006
|
|
2005
|
|
|
|
Senior
Debt:
|
|
|
|
|
|
|
|
|
Tranche
A, Senior Secured Term Loan at variable
interest |
|
|
|
|
|
|
|
|
rates
(6.54% and 5.66% at July 15, 2006 and December 31,
2005,
|
|
|
|
|
|
|
|
|
respectively),
due September 2009
|
|
$
|
155,000
|
|
$
|
170,000
|
|
|
|
|
Tranche
B, Senior Secured Term Loan at variable interest
|
|
|
|
|
|
|
|
|
|
|
rates
(6.83% and 5.89% at July 15, 2006 and December 31, 2005,
|
|
|
|
|
|
|
|
|
|
|
respectively),
due September 2010
|
|
|
167,450
|
|
|
168,300
|
|
|
|
|
Delayed
Draw, Senior Secured Term Loan at variable interest
|
|
|
|
|
|
|
|
|
|
|
rates
(6.72% and 5.91% at July 15, 2006 and December 31, 2005,
|
|
|
|
|
|
|
|
|
|
|
respectively),
due September 2010
|
|
|
99,500
|
|
|
100,000
|
|
|
|
|
Revolving
facility at variable interest rates
|
|
|
|
|
|
|
|
|
|
|
(8.50%
and 5.66% at July 15, 2006 and December 31, 2005,
|
|
|
|
|
|
|
|
|
|
|
respectively)
due September 2009
|
|
|
8,000
|
|
|
-
|
|
|
|
|
Other
|
|
|
468
|
|
|
500
|
|
|
|
|
|
|
|
430,418
|
|
|
438,800
|
|
|
|
|
Less:
Current portion of long-term debt
|
|
|
(37,767
|
)
|
|
(32,760
|
)
|
|
|
|
Long-term
debt, excluding current portion
|
|
$
|
392,651
|
|
$
|
406,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
July
15, 2006, the Company’s senior credit facility provided for $429,950 in term
loans (as detailed above) and $200,000 under a revolving credit facility
(which
provides for the issuance of letters of credit with a sub limit of $70,000).
As
of July 15,
2006,
the Company had borrowed $8,000 under the revolver and had $54,564 in letters
of
credit outstanding, which reduced availability under the revolver to $137,436.
The
tranche A term loan currently requires scheduled repayments of $7,500 on
September 30, 2006 and December 31, 2006, $10,000 on March 31, 2007 and
quarterly thereafter through December 31, 2007, $12,500 on March 31, 2008
and
quarterly thereafter through June 30, 2009 and $25,000 due at maturity
on
September 30, 2009. The tranche B term loan currently requires scheduled
repayments of $425 on September 30, 2006 and quarterly thereafter, with
a final
payment of $160,650 due at maturity on September 30, 2010. The delayed
draw term
loan currently requires scheduled repayments of 0.25% of the aggregate
principal
amount outstanding on June 30, 2006 and quarterly thereafter, with a final
payment due at maturity on September 30, 2010. The revolver expires on
September
30, 2009. In addition, the Pennsylvania Department of Community and Economic
Development machinery and equipment loan fund, or MELF, loan currently
requires
nominal monthly principal repayments ranging from $5 to $7 until maturity
on
January 1, 2010.
The
interest rates on the tranche A and B term loans, the delayed term loan
and the
revolver are based, at the Company’s option, on an adjusted LIBOR rate, plus a
margin, or an alternate base rate, plus a margin. The current margin for
the
tranche A term loan and revolver is 1.25% and 0.25% per annum for the adjusted
LIBOR and alternate base rate borrowings, respectively. The current margin
for
the tranche B loan and the delayed draw term loan is 1.50% and 0.50% per
annum
for the adjusted LIBOR and alternative base rate borrowings, respectively.
Additionally, a commitment fee of 0.25% per annum will be charged on the
unused
portion of the revolver, payable in arrears. The effective interest rate
on the
MELF loan is 2.75%.
Advance
Auto Parts, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial
Statements
For
the Twelve and Twenty-Eight Week Periods Ended
July 15, 2006 and July 16, 2005
(in
thousands, except per share data)
(unaudited)
Under
the
senior credit facility, the Company is required to comply with financial
covenants with respect to limits on annual capital expenditures, a maximum
leverage ratio, a minimum interest coverage ratio, a minimum current assets
to
funded senior debt ratio and a maximum senior leverage ratio. The Company
was in
compliance with the above covenants under the senior credit facility at
July 15,
2006.
6. |
Stock
Repurchase
Program:
|
During
the third quarter of fiscal 2005, the Company's Board of Directors authorized
a
stock repurchase program of up to $300,000 of the Company's common stock
plus
related expenses. The program allows the Company to repurchase its common
stock
on the open market or in privately negotiated transactions from time to
time in
accordance with the requirements of the Securities and Exchange Commission.
Under this program, the Company repurchased 2,064 shares of common stock
at an
aggregate cost of $71,018, or an average price of $34.42 per share, excluding
related expenses during the twelve weeks ended July 15, 2006. During the
twenty-eight weeks ended July 15, 2006, the Company repurchased 3,679 shares
of
common stock at an aggregate cost of $136,561, or an average price of $37.12
per
share, excluding related expenses. At July 15, 2006, the Company has repurchased
a total of 5,209 shares of common stock under this program at an aggregate
cost
of $196,013, or an average price of $37.63 per share, excluding related
expenses.
During
the first quarter of fiscal 2006, the Company also retired 1,997 shares
of
common stock, all of which was repurchased under the $300,000 stock repurchase
program. Subsequent to July 15, 2006, the Company retired an additional
3,120
shares of common stock.
The
Company provides certain health and life insurance benefits for eligible
retired
team members through a postretirement plan, or the Plan. These benefits
are
subject to deductibles, co-payment provisions and other limitations.
The
Plan
has no assets and is funded on a cash basis as benefits are paid. The
discount rate that the Company utilizes for determining its postretirement
benefit obligation is actuarially determined. The discount rate utilized
at
December 31, 2005 was 5.5%, and remained unchanged through the twenty-eight
weeks ended July 15, 2006. The
Company expects fiscal 2006 plan contributions to completely offset benefits
paid, consistent with fiscal 2005.
The
components of net periodic postretirement benefit cost for the twelve and
twenty-eight weeks ended July 15, 2006, and July 16, 2005 respectively,
are as
follows:
|
|
|
Twelve
Weeks Ended
|
|
Twenty-Eight
Weeks Ended
|
|
|
|
|
|
July
15,
|
|
July
16,
|
|
July
15,
|
|
July
16,
|
|
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
cost
|
|
$
|
168
|
|
$
|
185
|
|
$
|
391
|
|
$
|
432
|
|
|
|
Amortization
of prior service cost
|
|
|
(135
|
)
|
|
(134
|
)
|
|
(313
|
)
|
|
(312
|
)
|
|
|
Amortization
of unrecognized net losses
|
|
|
49
|
|
|
55
|
|
|
113
|
|
|
128
|
|
|
|
|
|
$
|
82
|
|
$
|
106
|
|
$
|
191
|
|
$
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following discussion of our consolidated historical results of operations
and
financial condition should be read in conjunction with our unaudited condensed
consolidated financial statements and the notes thereto included elsewhere
in
this report. Our first quarter consists of 16 weeks and our other three
quarters
consist of 12 weeks each.
Certain
statements in this report are "forward-looking statements" within the meaning
of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are usually identified by the use
of
words such as "will," "anticipates," "believes," "estimates," "expects,"
"projects," "forecasts," "plans," "intends," "should" or similar expressions.
We
intend those forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 and are included in this statement for purposes
of
complying with these safe harbor provisions.
These
forward-looking statements reflect current views about our plans, strategies
and
prospects, which are based on the information currently available and on
current
assumptions.
Although
we believe that our plans, intentions and expectations as reflected in
or
suggested by those forward-looking statements are reasonable, we can give
no
assurance that the plans, intentions or expectations will be achieved.
Listed
below and discussed in our annual report on Form 10-K for the year ended
December 31, 2005 are some important risks, uncertainties and contingencies
which could cause our actual results, performances or achievements to be
materially different from the forward-looking statements made in this report.
These risks, uncertainties and contingencies include, but are not limited
to,
the following:
· the
implementation of our business strategies and goals;
· our
ability to expand our business;
· competitive
pricing and other competitive pressures;
· a
decrease in demand for our products;
· the
occurrence of natural disasters and/or extended periods of inclement
weather;
· our
ability to obtain affordable insurance against the financial impacts of
natural
disasters;
· the
availability of suitable real estate locations;
· deterioration
in general economic conditions;
· our
ability to attract and retain qualified team members;
· integration
of acquisitions;
· our
relationship with our vendors;
· our
involvement as a defendant in litigation or incurrence of judgments, fines
or
legal costs;
· adherence
to the restrictions and covenants imposed under our senior credit facility;
and
· acts
of
terrorism.
We
assume
no obligation to update publicly any forward-looking statements, whether
as a
result of new information, future events or otherwise. In evaluating
forward-looking statements, you should consider these risks and uncertainties,
together with the other risks described from time to time in our other
reports
and documents filed with the Securities and Exchange Commission, and you
should
not place undue reliance on those statements.
Management
Overview
During
the second quarter of fiscal 2006, we recorded earnings per diluted share
of
$0.59 compared to $0.60 for the same quarter of fiscal 2005. These results
were
primarily driven by increased sales and higher gross margins offset by
the loss
of leverage on certain fixed operating expenses as a result of our lower
than
expected sales increase. Additionally, our operating results for the second
quarter include the recognition of $.03 of share-based compensation expense
per
diluted share required by the adoption of SFAS No. 123R on January 1, 2006.
We
believe the macroeconomic environment negatively impacted our business
and
resulted in weakening trends from the first and second quarter results
compared
to the same periods of last year. We believe our customers have been adversely
impacted by rising energy prices, higher interest rates, and larger required
minimum payments on their credit card balances, which limit their current
ability to spend.
We
have
established a high priority of examining our operating expenses, including
both
corporate and store-level, in light of our current sales trends. We believe
we
can continue to be more efficient in our corporate-level expenses by optimizing
a number of job functions, being more selective in areas such as meetings
and
travel and re-evaluating all third party service providers. Second, we
continue
to examine our non-sales activities in our stores and the impact of those
activities on our operating expenses. In addition to rolling out
energy-management systems to a significant number of our stores, we are
evaluating a number of administrative procedures performed by our store
team
members in an effort to better optimize their time.
While
we
expect the economic environment to remain challenging, we believe the factors
that favorably impact our industry continue to remain strong. Customers
can only
defer maintenance on their automobiles so long. We believe the combination
of
these favorable industry dynamics along with the execution of our business
initiatives discussed in previous filings and our more recent effort to
examine operating expenses will continue to drive our earnings growth into
the
foreseeable future.
The
following table highlights certain operating results and key metrics for the
twelve and twenty-eight weeks ended July 15, 2006, and July 16, 2005.
|
|
|
Twelve
Weeks Ended
|
|
Twenty-Eight
Weeks Ended
|
|
|
|
|
|
July
15, 2006
|
|
July
16, 2005
|
|
July
15, 2006
|
|
July
16, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales (in
thousands)
|
|
$
|
1,107,857
|
|
$
|
1,023,146
|
|
$
|
2,500,867
|
|
$
|
2,281,510
|
|
|
|
Total
commercial net sales (in
thousands)
|
|
$
|
273,739
|
|
$
|
213,999
|
|
$
|
622,589
|
|
$
|
473,709
|
|
|
|
Comparable
store net sales growth
|
|
|
1.2%
|
|
|
9.0%
|
|
|
2.7%
|
|
|
9.1%
|
|
|
|
DIY
comparable store net sales growth
|
|
|
(1.0%)
|
|
|
4.9%
|
|
|
(0.1%)
|
|
|
5.0%
|
|
|
|
DIFM
comparable store net sales growth
|
|
|
9.1%
|
|
|
27.1%
|
|
|
13.1%
|
|
|
27.2%
|
|
|
|
Average
net sales per store (in
thousands)
|
|
$
|
1,568
|
|
$
|
1,520
|
|
$
|
1,568
|
|
$
|
1,520
|
|
|
|
Inventory
per store (in
thousands)
|
|
$
|
482
|
|
$
|
490
|
|
$
|
482
|
|
$
|
490
|
|
|
|
Selling,
general and administrative expenses per store (in
thousands)
|
|
$
|
140
|
|
$
|
136
|
|
$
|
322
|
|
$
|
314
|
|
|
|
Inventory
turnover
|
|
|
1.71
|
|
|
1.69
|
|
|
1.71
|
|
|
1.69
|
|
|
|
Gross
margin
|
|
|
47.6%
|
|
|
47.1%
|
|
|
47.7%
|
|
|
47.5%
|
|
|
|
Operating
margin
|
|
|
10.0%
|
|
|
11.0%
|
|
|
9.5%
|
|
|
10.2%
|
|
|
|
Note:
|
These
metrics should be read along with the footnotes to the table setting
forth
our selected store data in Item 6. "Selected Financial Data" in our
annual
report on Form 10-K for the fiscal year ended December 31, 2005,
which was
filed with the SEC on March 16, 2006. The footnotes describe the
calculation of the metrics. Average net sales per store and inventory
turnover for the interim periods presented above were calculated
using
results of operations from the last 13 accounting
periods.
|
Store
Count
At
July
15, 2006, we operated 2,971 stores within the United States, Puerto Rico and
the
Virgin Islands. We operated 2,862 stores throughout 40 states in the
Northeastern, Southeastern and Midwestern regions of the United States. These
stores operated under the “Advance Auto Parts” trade name except for certain
stores in the state of Florida, which operated under the “Advance Discount Auto
Parts” trade name. These stores offer automotive replacement parts, accessories
and maintenance items, with no significant concentration in any specific product
area. In addition, we operated 37 stores under the “Western Auto” and “Advance
Auto Parts” trade names, located primarily in Puerto Rico and the Virgin
Islands. The Western Auto stores offer automotive tires and service in addition
to automotive parts, accessories and maintenance items. At July 15, 2006, we
also operated 72 stores under the “Autopart International” trade name throughout
the Northeastern region of the United States.
The
following table sets forth information about our stores, including the number
of
new, closed and relocated stores, during the twelve and twenty-eight weeks
ended
July 15, 2006. We lease approximately 81% of our stores.
|
|
Twelve
Weeks
Ended
July
15, 2006
|
|
Twenty-Eight
Weeks Ended
July
16, 2005
|
|
|
Number
of stores at beginning of period
|
|
|
2,927
|
|
|
2,872
|
|
|
New
stores
|
|
|
44
|
|
|
102
|
|
|
Closed
stores
|
|
|
-
|
|
|
(3
|
)
|
|
Number
of stores, end of period
|
|
|
2,971
|
|
|
2,971
|
|
|
Relocated
stores
|
|
|
10
|
|
|
21
|
|
|
Stores
with commercial programs (a)
|
|
|
2,425
|
|
|
2,425
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
As
of July 15, 2006, these commercial programs include the 72 AI stores.
|
We
anticipate that we will add a total of approximately 205 to 215 new stores
during 2006 primarily through new store openings, excluding any
acquisitions.
Commercial
Program
Our
commercial program produced strong results during the twelve and twenty-eight
weeks ended July 15, 2006. We attribute this performance to the execution of
our
commercial plan, which consists of:
·
|
Targeting
commercial customers with a hard parts focus;
|
·
|
Targeting
commercial customers who need access to a wide selection of
inventory;
|
·
|
Targeting
customers within a tight delivery radius of our
stores;
|
·
|
Moving
inventory closer to our commercial customers to ensure quicker deliveries;
|
·
|
Growing
our market share of the commercial market through internal growth
and
selected acquisitions;
|
·
|
Providing
trained parts experts to assist commercial customers’ merchandise
selections; and
|
·
|
Providing
credit solutions to our commercial customers through our commercial
credit
program.
|
Commercial
sales represented approximately 25% of our total sales for both the twelve
and
twenty-eight weeks ended July 15, 2006 compared to almost 21% for both the
twelve and twenty-eight weeks ended July 16, 2005. As of July 15, 2006, we
operated commercial programs in 81% of our total stores, excluding the 72 AI
stores, an increase from approximately 77% at the end of the prior year quarter.
We anticipate growing our number of commercial programs to approximately 85%
of
our Advance Auto Parts store base over time. We believe we have the potential
to
grow profitably our share of the commercial business in each of our markets.
We
believe the continued execution of our commercial plan and growth in our
commercial programs will allow us the opportunity to achieve double-digit
comparable store sales growth in our commercial business for the foreseeable
future. We believe the acquisition of AI supplements our commercial growth
due
to AI’s established delivery programs and knowledge of the commercial industry,
particularly for foreign makes and models of vehicles.
Share-Based
Payments
On
January 1, 2006, we adopted the provisions of Statement
of Financial Accounting Standard, or SFAS, No.
123
(revised 2004), "Share-Based Payment," or SFAS No. 123R. SFAS No. 123R replaces
SFAS No. 123 and supersedes APB Opinion No. 25 and subsequently issued stock
option related guidance. We elected to use the modified-prospective method
of
implementation. Under this transition method, share-based compensation expense
for the twelve and twenty-eight weeks ended July 15, 2006 included compensation
expense for all share-based awards granted subsequent to January 1, 2006 based
on the grant-date fair value estimated in accordance with the provisions of
SFAS
No. 123R, and compensation expense for all share-based awards granted prior
to
but unvested as
of
January 1, 2006 based on the grant-date fair value estimated in accordance
with
original provisions of SFAS No. 123.
We
use
the Black-Scholes option-pricing model to value all options and straight-line
method to amortize this fair value as compensation cost over the requisite
service period. Total share-based compensation expense included in selling,
general and administrative expenses in our statement of operations for the
twelve and twenty-eight weeks ended July 15, 2006 was $4.8 million and $9.9
million, respectively. The related income tax benefit was $1.8 million and
$3.7
million, respectively. We did not have any share-based compensation expense
in
accordance with APB No. 25 for the twelve and twenty-eight weeks ended July
16,
2005. On a pro forma basis, share-based compensation was $.02 and $.04 per
diluted share for the twelve and twenty-eight weeks ended July 16, 2005,
respectively. In accordance with the modified-prospective transition method
of
SFAS No. 123R, we have not restated prior periods.
As
a
result of adopting SFAS No. 123R on January 1, 2006, our earnings before income
tax expense and net earnings for the twelve weeks ended July 15, 2006, were
$4.6
million and $2.8 million lower, respectively, than if we had continued to
account for share-based compensation under APB No. 25. Our earnings before
income tax expense and net earnings for the twenty-eight weeks ended July 15,
2006, were $9.6 million and $6.0 million lower, respectively, than if we had
continued to account for share-based compensation under APB No. 25. The related
impact in 2006 to basic and diluted earnings per share is $0.03 and $0.06 for
the twelve and twenty-eight weeks ended July 15, 2006,
respectively.
As
of
July 15, 2006, we have $35.5 million of unrecognized compensation expense
related to non-vested fixed stock options we expect to recognize over a weighted
average period of 2.1 years.
Critical
Accounting Policies
Our
financial statements have been prepared in accordance with accounting policies
generally accepted in the United States of America. Our discussion and analysis
of the financial condition and results of operations are based on these
financial statements. The preparation of these financial statements requires
the
application of accounting policies in addition to certain estimates and
judgments by our management. Our estimates and judgments are based on currently
available information, historical results and other assumptions we believe
are
reasonable. Actual results could differ from these estimates. During the first
and second quarters of fiscal 2006, we consistently applied the critical
accounting policies discussed in our annual report on Form 10-K for the year
ended December 31, 2005. For a complete discussion regarding these critical
accounting policies, refer to this annual report on Form 10-K. In
addition to these critical accounting policies, we have added “Share-Based
Payments” as a critical accounting policy upon the adoption of SFAS No. 123R as
of January 1, 2006.
Share-Based
Payments
We
account for our share-based compensation plans as prescribed by the fair value
provisions of SFAS No. 123R. We use the Black-Scholes option-pricing model
to
determine the fair value of our stock options. This model requires the input
of
certain assumptions, including the expected life of stock options, expected
stock price volatility and the estimate of stock option forfeitures.
If
actual
results are different from these assumptions, the share-based compensation
expense reported in our financial statements may not be representative of the
actual economic cost of the share-based compensation. In addition, significant
changes in these assumptions could materially impact our share-based
compensation expense on future awards.
Components
of Statement of Operations
Net
Sales
Net
sales
consist primarily of comparable store sales and new store net sales. We
calculate comparable store sales based on the change in net sales starting
once
a store has been open for 13 complete accounting periods. We include relocations
in comparable store sales from the original date of opening. We exclude net
sales from the 37 Western Auto retail stores and 72 AI stores from our
comparable store sales as a result of their unique product offerings.
Cost
of Sales
Our
cost
of sales consists of merchandise costs, net of incentives under vendor programs,
inventory shrinkage and warehouse and distribution expenses. Gross profit as
a
percentage of net sales may be affected by variations in our product mix, price
changes in response to competitive factors and fluctuations in merchandise
costs
and vendor programs. We seek to avoid fluctuation in merchandise costs and
instability of supply by entering into long-term purchase agreements with
vendors when we believe it is advantageous.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses consist of store payroll, store occupancy
(including rent), advertising expenses, other store expenses and general and
administrative expenses, including salaries and related benefits of store
support center team members, share-based compensation, store support center
administrative expenses, data processing, professional expenses and other
related expenses.
Results
of Operations
The
following table sets forth certain of our operating data expressed as a
percentage of net sales for the periods indicated.
|
|
Twelve
Week Periods Ended
|
|
Twenty-Eight
Week Periods Ended
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
July
15,
|
|
July
16,
|
|
July
15,
|
|
July
16,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
sales
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Cost
of sales, including purchasing and warehousing costs
|
|
|
52.4
|
|
|
52.9
|
|
|
52.3
|
|
|
52.5
|
|
Gross
profit
|
|
|
47.6
|
|
|
47.1
|
|
|
47.7
|
|
|
47.5
|
|
Selling,
general and administrative expenses
|
|
|
37.6
|
|
|
36.1
|
|
|
38.2
|
|
|
37.3
|
|
Operating
income
|
|
|
10.0
|
|
|
11.0
|
|
|
9.5
|
|
|
10.2
|
|
Interest
expense
|
|
|
(0.8
|
)
|
|
(0.7
|
)
|
|
(0.8
|
)
|
|
(0.7
|
)
|
Other
income, net
|
|
|
(0.0
|
)
|
|
0.0
|
|
|
0.0
|
|
|
(0.0
|
)
|
Provision
for income taxes
|
|
|
3.5
|
|
|
3.9
|
|
|
3.2
|
|
|
3.6
|
|
Net
income
|
|
|
5.7
|
%
|
|
6.4
|
%
|
|
5.5
|
%
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
Weeks Ended July 15, 2006 Compared to Twelve Weeks Ended July 16,
2005
Net
sales
for the twelve weeks ended July 15, 2006 were $1,107.9 million, an increase
of $84.7 million, or 8.3%, as compared to net sales for the twelve weeks
ended July 16, 2005. The net sales increase was due to an increase in comparable
store sales of 1.2%, contributions from new stores opened within the last year
and sales from operations acquired mid-year fiscal 2005. The comparable store
sales increase resulted from an increase in average ticket sales and customer
traffic in our DIFM business and an increase in average ticket sales by our
DIY
customers offset by a decrease in DIY customer count.
Gross
profit for the twelve weeks ended July 15, 2006 was $527.4 million, or 47.6%
of
net sales, as compared to $482.1 million, or 47.1% of net sales, for the twelve
weeks ended July 16, 2005. Gross profit increased as a percentage of net sales
for the quarter due to the impact of category management, including a positive
shift in sales mix, and lower logistics expense.
Selling,
general and administrative expenses increased to $416.9 million, or 37.6% of
net
sales, for the twelve weeks ended July 15, 2006, from $369.5 million, or 36.1%
of net sales, for the twelve weeks ended July 16, 2005. Selling, general and
administrative expenses increased as a percentage of sales as a result
of:
· |
recording
share-based compensation expense of approximately 0.4% of net sales
upon
the implementation of SFAS 123R on January 1,
2006;
|
· |
a
0.6% increase in certain fixed costs as a percentage of sales during
the
quarter, including rent and depreciation, as a result of lower than
anticipated sales growth; and
|
· |
a
0.5% increase in expenses associated with our fuel and insurance
programs.
|
Interest
expense for the twelve weeks ended July 15, 2006 was $8.8 million, or 0.8%
of
net sales, as compared to $7.6 million, or 0.7% of net sales, for the twelve
weeks ended July 16, 2005. The increase in interest expense as a percentage
of
sales reflects overall higher interest rates, as compared to the twelve weeks
ended July 16, 2005. In addition, interest income for the twelve weeks ended
July 15, 2006 decreased as a result of overall lower cash balances during the
period.
Income
tax expense for the twelve weeks ended July 15, 2006 was $38.7 million, as
compared to $40.1 million for the twelve weeks ended July 16, 2005. Our
effective income tax rate was 38.1% for the twelve weeks ended July 15, 2006
compared to 37.8% for the same period ended July 16, 2005.
We
produced net income of $62.9 million, or $0.59 per diluted share, for the twelve
weeks ended July 15, 2006, as compared to $65.9 million, or $0.60 per diluted
share, for the twelve weeks ended July 16, 2005. As a percentage of net sales,
net income for the twelve weeks ended July 15, 2006 was 5.7%, as compared to
6.4% for the twelve weeks ended July 16, 2005. Our
earnings
per diluted share results reflect the impact on both earnings and the diluted
share count of implementing FAS 123R as further explained in this management’s
discussion and analysis and in the notes to our financial statements contained
elsewhere in this Form 10-Q. Our earnings per diluted share also reflect the
three-for-two stock split of our common stock effective September 23,
2005.
Twenty-Eight
Weeks Ended July 15, 2006 Compared to Twenty-Eight Weeks Ended July 16,
2005
Net
sales
for the twenty-eight weeks ended July 15, 2006 were $2,500.9 million, an
increase of $219.4 million, or 9.6%, as compared to net sales for the
twenty-eight weeks ended July 16, 2005. The net sales increase was due to an
increase in comparable store sales of 2.7%, contributions from new stores opened
within the last year and sales from operations acquired mid-year fiscal 2005.
The comparable store sales increase resulted from an increase in average ticket
sales and customer traffic in our DIFM business and an increase in average
ticket sales by our DIY customers offset by a decrease in DIY customer
count.
Gross
profit for the twenty-eight
weeks
ended July 15, 2006 was $1,192.5 million, or 47.7% of net sales, as compared
to
$1,083.0 million, or 47.5% of net sales, for the twenty-eight
weeks
ended July 16, 2005. Gross profit increased as a percentage of net sales for
the
twenty-eight weeks ended July 15, 2006 quarter due to the positive impact of
category management.
Selling,
general and administrative expenses increased to $955.8 million, or 38.2% of
net
sales, for the twenty-eight
weeks
ended July 15, 2006, from $850.2 million, or 37.3% of net sales, for the
twenty-eight
weeks
ended July 16, 2005. Selling, general and administrative expenses increased
as a
percentage of sales as a result of:
· |
recording
share-based compensation expense of approximately 0.4% of net sales
upon
the implementation of SFAS 123R on January 1,
2006;
|
· |
a
0.3% increase in certain fixed costs as a percentage of sales during
the
twenty-eight weeks ended July 15, 2006, including rent and depreciation,
as a result of lower than anticipated sales
growth.
|
Interest
expense for the twenty-eight
weeks
ended July 15, 2006 was $18.9 million, or 0.8% of net sales, as compared to
$16.5 million, or 0.7% of net sales, for the twenty-eight
weeks
ended July 16, 2005. The increase in interest expense as a percentage of sales
reflects overall higher interest rates, as compared to the twenty-eight
weeks
ended July 16, 2005. In addition, interest income for the twenty-eight weeks
ended July 15, 2006 decreased as a result of overall lower cash balances during
the period.
Income
tax expense for the twenty-eight
weeks
ended July 15, 2006 was $81.4 million, as compared to $83.0 million for the
twenty-eight
weeks
ended July 16, 2005. Our effective income tax rate was 37.3% for the
twenty-eight
weeks
ended July 15, 2006 compared to 38.2% for the same period ended July 16,
2005.
The decrease in our effective rate was driven by the favorable resolution
of
certain tax contingencies.
We
produced net income of $137.0 million, or $1.27 per
diluted share, for the twenty-eight
weeks
ended
July
15,
2006, as compared to $134.6 million, or $1.23 per diluted share, for the
twenty-eight
weeks
ended July 16, 2005. As a percentage of net sales, net income for the
twenty-eight
weeks
ended July 15, 2006 was 5.5%, as compared to 5.9% for the twenty-eight
weeks
ended July 16, 2005. Our
earnings
per diluted share results reflect the impact on both earnings and the diluted
share count of implementing SFAS 123R as further explained in this management’s
discussion and analysis and in the notes to our financial statements contained
elsewhere in this Form 10-Q. Our earnings per diluted share also reflect the
three-for-two stock split of our common stock effective September 23,
2005.
Liquidity
and Capital Resources
Overview
of Liquidity
Our
primary cash requirements include the purchase of inventory, capital
expenditures, payment of cash dividends and contractual obligations. In
addition, we have used available funds to repurchase shares of common stock
under our stock repurchase program. We have funded these requirements primarily
through cash generated from operations supplemented by borrowings under our
senior credit facility as needed.
At
July
15, 2006, our cash balance was $13.1 million, a decrease of $27.7 million
compared to December 31, 2005. Our cash balance decreased primarily due to
the
repurchase of common stock and dividends paid to our shareholders partially
offset by an overall net decrease in working capital during the twenty-eight
weeks ended July 15, 2006. At
July
15, 2006, we had outstanding indebtedness consisting of borrowings of $430.0
million under our senior credit facility, of which $8.0
million was outstanding on our revolving credit facility. In addition, we had
$54.6
million in letters of credit outstanding, which reduced our total availability
under the revolving credit facility to $137.4 million.
On
May
17, 2006, our Board of Directors declared a quarterly dividend of $0.06 per
share to all common stockholders of record as of June 23, 2006. The dividend
was
paid on July 7, 2006. Subsequent to July 15, 2006, our Board of Directors
declared a quarterly dividend of $0.06 per share to be paid on October 6, 2006
to all common stockholders of record as of September 22, 2006.
Capital
Expenditures
Our
primary capital requirements have been the funding of our continued store
expansion program, including new store openings and store acquisitions, store
relocations and remodels, inventory requirements, the construction and upgrading
of distribution centers, the development and implementation of proprietary
information systems and our acquisitions.
Our
capital expenditures were $132.0 million for the twenty-eight weeks ended July
15, 2006. These amounts included costs related to new store openings, the
upgrade of our information systems, remodels and relocations of existing stores.
In addition, we also made a $12.5 million payment related to the acquisition
of
Autopart International. In 2006, we anticipate that our capital expenditures
will be approximately $245.0 million to $255.0 million.
Our
future capital requirements will depend in large part on the number of and
timing for new stores we open or acquire within a given year and the number
of
stores we relocate or remodel. We anticipate adding approximately 205 to
215 new stores during 2006 primarily through new store openings. As of July
15, 2006, 102 new stores had been added.
Vendor
Financing Program
Historically,
we have negotiated extended payment terms from suppliers that help finance
inventory growth, and we believe that we will be able to continue financing
much
of our inventory growth through such extended payment terms. We have a
short-term financing program with a bank for certain merchandise purchases.
The
substance of the program is for us to borrow money from the bank to finance
purchases from our vendors. This program allows us to further reduce our
working
capital invested in current inventory levels and finance future inventory
growth. Our current capacity under this program is $200 million. At July
15,
2006, $128.5 million was
payable
to the bank by us under this program.
Stock
Repurchase Program
During
the third quarter of fiscal 2005, our Board of Directors authorized a stock
repurchase program of up to $300 million of our common stock plus related
expenses. The program allows us to repurchase our common stock on the open
market or in privately negotiated transactions from time to time in accordance
with the requirements of the Securities and Exchange Commission. Under this
program, we repurchased 2.1 million shares of common stock at an aggregate
cost
of $71.0 million, or an average price of $34.42 per share, excluding related
expenses during the twelve weeks ended July 15, 2006. During the twenty-eight
weeks ended July 15, 2006, we repurchased 3.7 million shares of common stock
at
an aggregate cost of $136.6 million, or an average price of $37.12 per share,
excluding related expenses. At July 15, 2006, we had repurchased a total of
5.2
million shares of common stock under this program at an aggregate cost of $196.0
million, or an average price of $37.63 per share, excluding related
expenses.
During
the first quarter of fiscal 2006, we also retired 2.0 million shares of common
stock under the $300 million stock repurchase program. Subsequent to July 15,
2006, we retired an additional 3.1 million shares of common stock.
Deferred
Compensation and Postretirement Plans
We
maintain a non-qualified deferred compensation plan established for certain
of
our key team members. This plan provides for a minimum and maximum deferral
percentage of the team member’s base salary and bonus, as determined by our
Retirement Plan Committee. We fund the plan liability by remitting the team
members’ deferrals to a Rabbi Trust where these deferrals are invested in
certain life insurance contracts. Accordingly, the cash surrender value on
these
contracts is held in the Rabbi Trust to fund the deferred compensation
liability. At July 15, 2006, the liability related to this plan was $3.0
million, all of which is current.
We
provide certain health care and life insurance benefits for eligible retired
team members through our postretirement plan. At July 15, 2006, our accrued
benefit cost related to this plan was $16.1 million. The plan has no assets
and
is funded on a cash basis as benefits are paid. The discount rate that we
utilize for determining our postretirement benefit obligation is actuarially
determined. The discount rate utilized at December 31, 2005 was 5.5%, and
remained unchanged through the twenty-eight weeks ended July 15, 2006. We
reserve the right to change or terminate the benefits or contributions at any
time. We also continue to evaluate ways in which we can better manage these
benefits and control costs. Any changes in the plan or revisions to assumptions
that affect the amount of expected future benefits may have a significant impact
on the amount of the reported obligation and annual expense.
Analysis
of Cash Flows
An
analysis of our cash flows for the twenty-eight week period ended July 15,
2006
as compared to the twenty-eight week period ended July 16, 2005 is included
below.
|
|
|
Twenty-Eight
Week Periods Ended
|
|
|
|
|
|
July
15,
|
|
July
16,
|
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
$
|
257.4
|
|
$
|
189.4
|
|
|
|
Cash
flows from investing activities
|
|
|
(137.7
|
)
|
|
(116.9
|
)
|
|
|
Cash
flows from financing activities
|
|
|
(147.4
|
)
|
|
47.1
|
|
|
|
Net
(decrease) increase in cash and
|
|
|
|
|
|
|
|
|
|
cash
equivalents
|
|
$
|
(27.7
|
)
|
$
|
119.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
For
the
twenty-eight weeks ended July 15, 2006, net cash provided by operating
activities increased $68.0 million to $257.4 million, as compared to the
twenty-eight weeks ended July 16, 2005. Significant components of this increase
consisted of:
·
|
$12.1
million increase in earnings exclusive of $9.7 million of non-cash,
share-based compensation expense compared to the same period in fiscal
2005;
|
·
|
$8.4
million increase in depreciation and
amortization;
|
·
|
$59.9
million reduction in cash outflows as a result of reducing inventory
growth rates in line with our current sales
trend;
|
·
|
$18.6
million increase in cash flows from other assets related to the timing
of
payments for normal operating expenses, primarily our monthly rent;
and
|
·
|
$28.0
million decrease in cash flows from tax benefits related to exercise
of
stock options.
|
Investing
Activities
For
the
twenty-eight weeks ended July 15, 2006, net cash used in investing activities
increased by $20.8 million to $137.7 million, as compared to the twenty-eight
weeks ended July 16, 2005. Significant
components of this increase consisted of:
·
|
increase
in capital expenditures of $12.2 million used primarily to accelerate
our
square footage growth through adding new stores and remodeling existing
stores; and
|
·
|
a
$12.5 million payment related to the acquisition of Autopart
International, which was accrued at December 31, 2005.
|
Financing
Activities
For
the
twenty-eight weeks ended July 15, 2006, net cash used in financing activities
increased by $194.5 million to $147.4 million, as compared to the twenty-eight
weeks ended July 16, 2005. Significant components of this increase consisted
of:
·
|
a
$17.3 million cash outflow resulting from timing of bank
overdrafts;
|
·
|
a
$54.8 million cash outflow associated with inventory purchased under
our
vendor financing program;
|
·
|
a
$12.8 million reduction in cash used to pay
dividends;
|
·
|
a
$7.5 million cash inflow from borrowings on credit facilities;
|
·
|
$17.8
million less cash received from the issuance of common stock, primarily
resulting from the exercise of stock options;
and
|
·
|
a
$94.6 million cash outflow resulting from the repurchase of common
stock.
|
Contractual
Obligations
Our
future contractual obligations related to long-term debt, operating leases
and
other contractual obligations at July 15, 2006 were as follows:
Contractual
Obligations
|
|
Total
|
|
Fiscal
2006
|
|
Fiscal
2007
|
|
Fiscal
2008
|
|
Fiscal
2009
|
|
Fiscal
2010
|
|
Thereafter
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
430,418
|
|
$
|
24,378
|
|
$
|
32,093
|
|
$
|
63,450
|
|
$
|
52,771
|
|
$
|
257,573
|
|
$
|
153
|
|
Interest
payments
|
|
$
|
84,359
|
|
$
|
12,405
|
|
$
|
24,816
|
|
$
|
21,468
|
|
$
|
17,812
|
|
$
|
7,855
|
|
$
|
3
|
|
Letters
of credit
|
|
$
|
54,564
|
|
$
|
3,554
|
|
$
|
46,010
|
|
$
|
5,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Operating
leases
|
|
$
|
1,861,618
|
|
$
|
98,527
|
|
$
|
224,865
|
|
$
|
202,265
|
|
$
|
183,824
|
|
$
|
163,478
|
|
$
|
988,659
|
|
Purchase
obligations (1)
|
|
$
|
856
|
|
$
|
231
|
|
$
|
500
|
|
$
|
125
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Other
long-term liabilities(2)
|
|
$
|
67,765
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For
the purposes of this table, purchase obligations are defined as agreements
that are enforceable and legally binding and that specify all significant
terms, including: fixed or minimum quantities to be purchased; fixed,
minimum or variable price provisions; and the approximate timing
of the
transaction. Our open purchase orders are based on current inventory
or
operational needs and are fulfilled by our vendors within short periods
of
time. We currently do not have minimum purchase commitments under
our
vendor supply agreements nor are our open purchase orders for goods
and
services binding agreements. Accordingly, we have excluded open purchase
orders from this table. The purchase obligation consists of certain
commitments for training and development. This agreement expires
in March
2008.
|
(2)
|
Primarily
includes employee benefit accruals, restructuring and closed store
liabilities and deferred income taxes for which no contractual payment
schedule exists.
|
Long
Term Debt
Senior
Credit Facility.
At July
15, 2006, our senior credit facility consisted of (1) a tranche A term loan
facility with a balance of $155.0 million, a tranche B term loan facility
with a balance of $167.5 million, a delayed draw term loan with a balance of
$99.5 million and (2) a $200.0 million revolving credit facility (including
a
letter of credit sub facility) of which $137.4 million was available as a result
of borrowings on the revolver of $8.0 million and $54.6 million in letters
of
credit outstanding. At July 15, 2006, we have interest rate swaps in place
that
effectively fix our interest rate exposure on approximately 40% of our debt.
These interest rate swaps are further discussed in our market risk
analysis.
The
tranche A term loan currently requires scheduled repayments of $7.5 million
on
September 30, 2006 and December 31, 2006, $10.0 million on March 31, 2007 and
quarterly thereafter through December 31, 2007, $12.5 million on March 31,
2008
and quarterly thereafter through June 30, 2009 and $25.0 million due at maturity
on September 30, 2009. The tranche B term loan currently requires scheduled
repayments of $0.4 million on September 30, 2006 and quarterly thereafter,
with
a final payment of $160.7 million due at maturity on September 30, 2010.
The delayed draw term loan currently requires scheduled repayments of 0.25%
of
the aggregate principal amount outstanding on June 30, 2006 and quarterly
thereafter, with a final payment due at maturity on September 30, 2010. The
revolver expires on September 30, 2009.
The
interest rates on the tranche A and B term loans, the delayed draw term loan
and
the revolver are based, at our option, on an adjusted LIBOR rate, plus a margin,
or an alternate base rate, plus a margin. The current margin for the tranche
A
term loan and revolver is 1.25% and 0.25% per annum for the adjusted LIBOR
and
alternate base rate borrowings, respectively. The current margin for the tranche
B term loan and the delayed draw term loan is 1.50% and 0.50% per annum for
the
adjusted LIBOR and alternate base rate borrowings, respectively. Additionally,
a
commitment fee of 0.25% per annum is charged on the unused portion of the
revolver, payable in arrears.
We
are
required to comply with financial covenants in the senior credit facility with
respect to (a) limits on annual aggregate capital expenditures, (b) a maximum
leverage ratio, (c) a minimum interest coverage ratio, (d) a ratio of current
assets to funded senior debt and (e) a maximum senior leverage ratio. We were
in
compliance with the
above
covenants under the senior credit facility at July 15, 2006. For additional
information regarding our senior credit facility, refer to our annual report
on
Form 10-K for the fiscal year ended December 31, 2005.
Credit
Ratings
At
July
15, 2006, we had a credit rating on our senior credit facility from Standard
& Poor’s of BB+ and a credit rating of Ba1 from Moody’s Investor Service.
The current pricing grid used to determine our borrowing rates under our senior
credit facility is based on such credit ratings. If these credit ratings
decline, our interest expense may increase. Conversely, if these credit ratings
improve, our interest expense may decrease.
Seasonality
Our
business is somewhat seasonal in nature, with the highest sales occurring in
the
spring and summer months. In addition, our business can be affected by weather
conditions. While unusually heavy precipitation tends to soften sales as
elective maintenance is deferred during such periods, extremely hot or cold
weather tends to enhance sales by causing automotive parts to fail at an
accelerated rate.
New
Accounting Pronouncements
In
July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes,” or FIN 48. FIN 48 clarifies the accounting and reporting
for income taxes recognized in accordance with SFAS No. 109, “Accounting for
Income Taxes.” The interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition, measurement,
presentation and disclosure of uncertain tax positions taken or expected to
be
taken in income tax returns. FIN 48 is effective
for fiscal years beginning after December 15, 2006. We are currently
evaluating the impact of FIN 48.
In
March
2006,
the
FASB’s Emerging Issues Task Force, or EITF, released Issue 06-3, “How Sales
Taxes Collected From Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement,” or EITF 06-3. A tentative consensus was
reached that entities may adopt a policy of presenting sales taxes in the income
statement on either a gross or net basis. If taxes are significant, an entity
should disclose its policy of presenting taxes and the amount of taxes if
reflected on a gross basis in the income statement. EITF 06-3 is effective
for
periods beginning after December 15, 2006. We present sales net of sales taxes
in our consolidated statement of operations and
do
not anticipate changing our policy as a result of EITF 06-3.
In
March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets - an amendment of FASB Statement No. 140.” SFAS No. 156 amends SFAS
No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” with respect to the accounting for separately
recognized servicing assets and servicing liabilities. SFAS No. 156 is effective
for fiscal years beginning after September 15, 2006. We do not expect the
adoption of SFAS No. 156 to have a material impact on our financial condition,
results of operations or cash flows.
In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements No. 133 and 140.” This
statement simplifies accounting for certain hybrid instruments currently
governed by SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” or SFAS No. 133, by allowing fair value remeasurement of hybrid
instruments that contain an embedded derivative that otherwise would require
bifurcation. SFAS No. 155 also eliminates the guidance in SFAS No. 133
Implementation Issue No. D1, “Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets,” which provides such beneficial
interests are not subject to SFAS No. 133. SFAS No. 155 amends SFAS No. 140,
“Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - a Replacement of FASB Statement No. 125,”
by
eliminating the restriction on passive derivative instruments that a qualifying
special-purpose entity may hold. SFAS No. 155 is effective for financial
instruments acquired or issued after the beginning of our fiscal year 2007.
We
do not expect the adoption of SFAS No. 155 to have a material impact on our
financial condition, results of operations or cash flows.
We
are
exposed to cash flow risk due to changes in interest rates with respect to
our
long-term debt. Our long-term debt currently consists of borrowings under a
senior credit facility and is primarily vulnerable to movements in the LIBOR
rate. While we cannot predict the impact interest rate movements will have
on
our debt, exposure to rate changes is managed through the use of hedging
activities. At July 15, 2006, $175 million of our bank debt was fixed in
accordance with the interest rate swaps described below.
Our
future exposure to interest rate risk is mitigated as a result of entering
into
three new interest rate swap agreements in March 2005 on an aggregate of $175
million of debt under our senior credit facility. The
first
swap fixed our LIBOR rate at 4.153% on $50 million of debt for a term of 48
months, expiring in March 2009. The second swap fixed our LIBOR rate at 4.255%
on $75 million of debt for a term of 60 months, expiring in February 2010.
Effective March 2006, the third swap fixed our LIBOR rate at 4.6125% on $50
million of debt for a term of 54 months, expiring in September
2010.
The
table
below presents principal cash flows and related weighted average interest rates
on our long-term debt outstanding at July 15, 2006, by expected maturity dates.
Additionally, the table includes the notional amounts of our hedged debt and
the
impact of the anticipated average pay and receive rates of our interest rate
swaps through their maturity dates. Expected maturity dates approximate contract
terms. Weighted average variable rates are based on implied forward rates in
the
yield curve at July 15, 2006. Implied forward rates should not be considered
a
predictor of actual future interest rates.
|
|
Fiscal
2006
|
|
Fiscal
2007
|
|
Fiscal
2008
|
|
Fiscal
2009
|
|
Fiscal
2010
|
|
Thereafter
|
|
Total
|
|
Fair
Market
Value
|
|
Long-term
debt:
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
rate
|
|
$
|
24,350
|
|
$
|
32,025
|
|
$
|
63,375
|
|
$
|
52,700
|
|
$
|
257,500
|
|
$
|
-
|
|
$
|
429,950
|
|
$
|
429,950
|
|
Weighted
average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
rate
|
|
|
6.9%
|
|
|
6.9%
|
|
|
6.8%
|
|
|
6.9%
|
|
|
7.0%
|
|
|
-
|
|
|
6.9%
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
to fixed
(1)
|
|
$
|
175,000
|
|
$
|
175,000
|
|
$
|
175,000
|
|
$
|
175,000
|
|
$
|
125,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
5,003
|
|
Weighted
average pay rate
|
|
|
0.0%
|
|
|
0.0%
|
|
|
0.0%
|
|
|
0.0%
|
|
|
0.0%
|
|
|
-
|
|
|
0.0%
|
|
|
-
|
|
Weighted
average receive rate
|
|
|
1.2%
|
|
|
1.1%
|
|
|
1.0%
|
|
|
1.0%
|
|
|
1.0%
|
|
|
-
|
|
|
1.1%
|
|
|
-
|
|
(1)
Amounts
presented may not be outstanding for the entire year.
Our
management evaluated, with the participation of our principal executive officer
and principal financial officer, the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this report. Based on
this
evaluation, our principal executive officer and our principal financial officer
have concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective. Disclosure controls and
procedures mean our controls and other procedures that are designed to ensure
that information required to be disclosed by us in our reports that we file
or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed
by
us in our reports that we file or submit under the Securities Exchange Act
of
1934 is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
Due
to
the timing of the Autopart International acquisition, effective September
2005,
management has excluded the acquired operations from its evaluation of
disclosure controls and procedures for the period covered by this report.
Autopart International’s financial statements reflect total assets and revenues
constituting four and two
percent,
respectively of the Company’s condensed
consolidated financial statements for the twenty-eight weeks ended July 15,
2006.
There
have been no changes in our internal control over financial reporting that
occurred during the quarter ended July 15, 2006 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
The
following table sets forth information with respect to repurchases of our common
stock for the quarter ended July 15, 2006 (amounts in thousands, except per
share amounts):
|
Period
|
|
Total
Number of Shares Purchased
|
|
Average
Price
Paid
per
Share
|
|
Total
Number of Shares Purchased as
Part of Publicly Announcing Plans or Programs (1)
|
|
Maximum
Dollar Value that May Yet Be Purchased Under the Plans or Programs
(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
23, 2006, to May 20, 2006
|
|
|
1,046
|
|
$
|
39.25
|
|
|
1,046
|
|
$
|
133,955
|
|
|
May
21, 2006, to June 17, 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
133,955
|
|
|
June
18, 2006, to July 15, 2006
|
|
|
1,018
|
|
|
29.45
|
|
|
1,018
|
|
|
103,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,064
|
|
$
|
34.42
|
|
|
2,064
|
|
$
|
103,987
|
|
(1) |
All
of the above repurchases were made on the open market at prevailing
market
rates plus related expenses under our stock repurchase program, which
was
authorized by our Board of Directors and publicly announced on August
17,
2005 for a maximum of $300 million in common stock.
|
(2) |
The
maximum dollar value yet to be purchased under our stock repurchase
program excludes related expenses paid on previous purchases or
anticipated expenses on future
purchases.
|
We
held
our annual meeting of stockholders on May 17, 2006. The following matters
were
submitted to the vote of security holders at the annual
meeting:
|
1. |
Election
of nominees to our board of directors. All nominees were elected
as
indicated by the following vote
counts:
|
Nominee
|
|
Votes
For
|
|
Votes
Withheld
|
|
|
|
|
|
|
|
John
C. Brouillard
|
|
|
86,455,740
|
|
|
76,880
|
|
Lawrence
P. Castellani
|
|
|
85,837,782
|
|
|
694,838
|
|
Michael
N. Coppola
|
|
|
86,454,291
|
|
|
78,329
|
|
Darren
R. Jackson
|
|
|
86,456,155
|
|
|
76,466
|
|
Nicholas
J. LaHowchic
|
|
|
86,453,641
|
|
|
78,979
|
|
William
S. Oglesby
|
|
|
86,455,077
|
|
|
77,543
|
|
Gilbert
T. Ray
|
|
|
86,411,709
|
|
|
120,911
|
|
Carlos
A. Saladrigas
|
|
|
86,448,038
|
|
|
84,582
|
|
William
L. Salter
|
|
|
86,451,822
|
|
|
80,798
|
|
Francesca
M. Spinelli
|
|
|
86,448,728
|
|
|
83,892
|
|
|
2. |
The
stockholders voted upon and approved the ratification of Deloitte
&
Touche LLP as our independent registered public accounting firm for
2006.
The vote on the proposal was as
follows:
|
|
For
|
|
Against
|
|
Abstentions
|
|
|
|
|
|
|
|
|
|
86,483,382
|
|
33,349
|
|
15,889
|
|
|
|
|
|
|
|
|
|
3.1(1)
|
|
Restated
Certificate of Incorporation of Advance Auto (as amended on May 19,
2004).
|
|
|
|
|
|
3.2(2)
|
|
Bylaws
of Advance Auto.
|
|
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to
Section
906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
(1) |
Filed on May 20, 2004 as an exhibit
to
Current Report on Form 8-K of Advance Auto. |
|
(2) |
Furnished
on August 31, 2001 as an exhibit to Registration Statement on Form
S-4
(No. 333-68858) of
Advance Auto.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
ADVANCE
AUTO PARTS, INC. |
|
|
|
August
23, 2006 |
By: |
/s/ Michael O. Moore |
|
Michael
O. Moore
Executive
Vice President, Chief Financial
Officer
|
EXHIBIT
INDEX
Exhibit
Number
|
|
Exhibit
Description
|
|
|
|
3.1(1)
|
|
Restated
Certificate of Incorporation of Advance Auto (as amended on May
19,
2004).
|
|
|
|
3.2(2)
|
|
Bylaws
of Advance Auto.
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant
to Section
906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
(1) |
Filed on May 20, 2004 as an exhibit
to
Current Report on Form 8-K of Advance Auto. |
(2) |
Furnished
on August 31, 2001 as an exhibit to Registration Statement on Form
S-4
(No. 333-68858) of
Advance Auto.
|