FORWARD-LOOKING
STATEMENTS
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. Forward-looking statements are usually identified by the
use of words such as "anticipate," "believe," "could," "estimate," "expect,"
"forecast," "intend," "likely," "may," "plan," "position,"
"possible," "potential," "probable," "project," "projection,"
"should," "strategy," "will," or similar expressions. We intend
for any forward-looking statements to be covered by, and we claim the protection
under, the safe harbor provisions for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995.
These
forward-looking statements are based upon assessments and assumptions of
management in light of historical results and trends, current conditions and
potential future developments that often involve judgment, estimates,
assumptions and projections. Forward-looking statements reflect current views
about our plans, strategies and prospects, which are based on information
currently available.
Although
we believe that our plans, intentions and expectations as reflected in or
suggested by any forward-looking statements are reasonable, we do not guarantee
or give assurance that such plans, intentions or expectations will be
achieved. Actual results may differ materially from our anticipated
results described or implied in our forward-looking statements, and may be due
to a variety of factors. Our business could also be affected by additional
factors that are presently unknown to us or that we currently believe to be
immaterial to our business.
Listed
below and discussed elsewhere in this report are some important risks,
uncertainties and contingencies which could cause our actual results,
performance or achievements to be materially different from any forward-looking
statements made or implied in this report. These include, but are not limited
to, the following:
|
a
decrease in demand for our products;
|
●
|
deterioration
in general economic conditions, including unemployment, inflation,
consumer debt levels, energy costs and unavailability of credit leading to
reduced consumer spending on discretionary
items;
|
●
|
our
ability to develop and implement business strategies and achieve desired
goals;
|
●
|
our
ability to expand our business, including locating available and suitable
real estate for new store locations and the integration of any acquired
businesses;
|
●
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competitive
pricing and other competitive
pressures;
|
●
|
our
overall credit rating, which impacts our debt interest rate and our
ability to borrow additional funds to finance our
operations;
|
●
|
deteriorating
and uncertain credit markets could negatively impact our merchandise
vendors, as well as our ability to secure additional capital at favorable
(or at least feasible) terms in the future;
|
●
|
our
relationships with our vendors;
|
●
|
our
ability to attract and retain qualified team
members;
|
●
|
the
occurrence of natural disasters and/or extended periods of unfavorable
weather;
|
●
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our
ability to obtain affordable insurance against the financial impacts of
natural disasters and other losses;
|
●
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high
fuel costs, which impacts our cost to operate and the consumer’s ability
to shop in our stores;
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●
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regulatory
and legal risks, such as environmental or OSHA risks, including being
named as a defendant in administrative investigations or litigation, and
the incurrence of legal fees and costs, the payment of fines or the
payment of sums to settle litigation cases or administrative
investigations or proceedings;
|
●
|
adherence
to the restrictions and covenants imposed under our revolving and term
loan facilities;
|
●
|
|
●
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other
statements that are not of historical fact made throughout this report,
including the sections entitled “Business,” "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Risk
Factors."
|
We assume
no obligations 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, or SEC, and you
should not place undue reliance on those statements.
Unless
the context otherwise requires, “Advance,” “we,” “us,” “our,” and similar terms
refer to Advance Auto Parts, Inc., its predecessor, its subsidiaries and their
respective operations. Our fiscal year consists of 52 or 53 weeks
ending on the Saturday closest to December 31st of each year. Fiscal 2008
included 53 weeks of operations. All other fiscal years presented include 52
weeks of operations.
Overview
We
operate primarily within the United States automotive aftermarket industry,
which includes replacement parts (excluding tires), accessories, maintenance
items, batteries and automotive chemicals for cars and light trucks (pickup
trucks, vans, minivans and sport utility vehicles). We currently are the second
largest specialty retailer of automotive parts, accessories and maintenance
items to "do-it-yourself," or DIY, and "do-it-for-me," or Commercial, customers
in the United States, based on store count and sales.
We were
founded in 1929 as Advance Stores Company, Incorporated and operated as a
retailer of general merchandise until the 1980s. During the 1980s, we sharpened
our focus to target sales of automotive parts and accessories to DIY customers.
From the 1980s to the present, we have grown significantly as a result
of comparable store sales growth, new store openings and strategic
acquisitions. Since 1996, we have aggressively expanded our sales to Commercial
customers through our commercial delivery program. Our parent company, Advance
Auto Parts, Inc., was incorporated in 2001 in conjunction with the acquisition
of Discount Auto Parts, Inc., or Discount. In 2005, we acquired Autopart
International, Inc., or AI.
Our
Internet address is www.AdvanceAutoParts.com.
We make available free of charge through our Internet website our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to the Securities
Exchange Act of 1934 as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC. The SEC maintains a website
that contains reports, proxy statements and other information regarding issuers
that file electronically with the SEC. These materials may be obtained
electronically by accessing the SEC's website at www.sec.gov.
Operating
Segments
We
operate in two reportable segments: Advance Auto Parts, or AAP, and AI. The AAP
segment is comprised of our store operations within the United States, Puerto
Rico and the Virgin Islands which operate under the trade names “Advance Auto
Parts,” “Advance Discount Auto Parts” and “Western Auto.” The AI segment
consists solely of the operations of Autopart International, Inc., which
operates as an independent, wholly-owned subsidiary and primarily serves the
Commercial market.
Financial
information on our segments is included in Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations, of this Annual Report
on Form 10-K. In addition, selected financial data for our segments is
available in Note 18, Segment and Related Information, of the Notes to
Consolidated Financial Statements, included in Item 15. Exhibits, Financial Statement Schedules, of this Annual
Report on Form 10-K.
AAP
Segment
At
January 3, 2009, our 2008 fiscal year-end, we operated 3,243 AAP stores within
the United States, Puerto Rico and the Virgin Islands. 3,215 stores were located
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 a broad selection
of brand name and proprietary automotive replacement parts, accessories and
maintenance items for domestic and imported cars and light trucks. In addition,
we operated 28 stores under the “Western Auto” and “Advance Auto Parts” trade
names, located outside the United States, or Offshore.
AAP
Stores
Store
Overview. Our stores generally are located in
freestanding buildings in areas with high vehicle traffic counts, good
visibility and easy access to major roadways. We believe that our stores exhibit
a customer-friendly format with the majority of our stores featuring an updated
exterior and interior, bright lighting, and a well-designed and easily navigated
floor plan. The average size of our stores is 7,400 square feet with the size of
our typical new stores approximating 6,000 to 7,000 square feet. Our stores
generally are open from 7:30 a.m. to 9:00 p.m. six days a week and 9:00 a.m. to
9:00 p.m. on Sundays and most holidays to meet the needs of our DIY and
Commercial customers. We offer extended hours in a limited number of our stores,
including 24 hours per day in certain stores.
Our
stores carry a standard product offering of approximately 16,000 stock
keeping units, or SKUs. Certain stores carry slightly more SKUs within
centralized market locations where there is demand for a more customized
assortment of merchandise. Additionally, some of our stores carry an additional
customized assortment of 10,000 SKUs for same-day or next-day delivery to other
select stores within the respective service area. The standard SKU offering
within each of our stores is replenished from one of our eight distribution
centers once per week on average.
We also
utilize a network of Parts Delivered Quickly, or PDQ®,
facilities and one Master PDQ® facility
to ensure our stores have the right product at the right time for our customers’
needs. Our PDQ® and
Master PDQ® network
of facilities provide our customers with an additional assortment of
approximately 64,000 less common SKUs on a same-day or overnight basis. Lastly,
our customers have access to over 280,000 SKUs by ordering directly from one of
our vendors for delivery to a particular store or other destination as chosen by
the customer.
Store
team members utilize our proprietary point-of-sale, or POS, system, including a
fully integrated electronic parts catalog to identify and suggest the
appropriate quality and price options for the SKUs we carry, as well as the
related products, tools or additional information that is required by our
customers to complete their automotive repair projects properly and
safely. We strive to be the leader in the automotive aftermarket
industry in serving our customers by providing quality products at the right
price and backed by a solid warranty and outstanding customer service. We offer
many of the products in our stores at a good, better or best recommendation
differentiated by price and quality.
The
products offered in our stores include the following:
Filters
|
Alternators
|
Transmissions
|
Windshield
Wipers
|
Radiators
|
Batteries
|
Clutches
|
Windshield
Washer Fluid
|
Brake
Pads
|
Shock
Absorbers
|
Electronic
Ignition Components
|
Floor
Mats
|
Belts
and Hoses
|
Struts
|
Engines
|
Steering
Wheel Covers
|
Radiator
Hoses
|
Suspension
Parts
|
Oil
and Transmission Fluid
|
Lighting
|
Starters
|
Spark
Plugs
|
Antifreeze
|
Wash
and Waxes
|
We also provide a variety of services
free of charge to our customers including:
Battery
installation |
“How-To” Project
Brochures |
Electrical system
testing |
Wiper
installation |
“How-To” Video
Clinics |
Oil and battery
recycling |
Our
retail stores are 100% company operated and are divided into three geographic
areas. Each geographic area is managed by a senior vice president, who is
supported by seven regional vice presidents. District managers report to the
regional vice presidents and have direct responsibility for store operations in
a specific district, which typically consists on average of 14 stores. Depending
on store size and sales volume, each store is staffed by 8 to 16 team members
under the leadership of a general manager. We offer training to our employees,
who we refer to as Team Members. Team Member training includes formal classroom
workshops, online seminars and certification by the National Institute
for Automotive Service Excellence, or ASE, which is broadly recognized for
training certification in the automotive industry. We also continue to increase
the number of bilingual team members in our stores to better serve an
increasingly diverse customer base.
Commercial
Sales. Our commercial sales consist of sales to both our
walk-in and delivery Commercial customers, which represented approximately 27%
of our AAP sales in fiscal 2008. Since 1996, we have aggressively expanded our
sales to Commercial customers through our Commercial delivery program. For
delivered sales, we utilize our Commercial delivery fleet to deliver product
from our store locations to our Commercial customers’ place of business,
including independent garages, service stations and auto dealers. Our stores are
supported by a Commercial sales team who are dedicated to the development of our
Commercial customers, which include national and regional
accounts.
Under
our Commercial Acceleration strategy, we are focused on increasing our
Commercial sales at a faster pace in light of the favorable market dynamics. The
Commercial team is led by a senior vice president who is building a sales force
whose sole focus is on the Commercial customer. Initiatives include the addition
of key product brands in our stores that are well recognized by our Commercial
customers, as well as increasing the parts knowledge of our store Team Members.
We believe these initiatives will enable us to gain more Commercial customers as
well as increase our sales from existing customers who will use us as their
“first call” supplier. At January 3, 2009, we had 2,755 AAP stores, or 85% of
total AAP stores, with Commercial delivery programs, which was up slightly from
83% at December 29, 2007.
Store
Development. Our store development
program has historically focused on adding new stores within existing markets,
remodeling or relocating existing stores and entering new markets. The addition
of new stores, along with strategic acquisitions, has played a significant role
in our growth and success. We believe the opening of new stores, and their
strategic location in relation to our DIY and Commercial customers, will
continue to play a significant role in our future growth and
success. Additionally, we will continue to monitor existing stores
based on cash flow, market importance and occupancy cost rates.
Our 3,243 AAP stores
were located in the following states and territories at January 3,
2009:
|
|
Number
of
|
|
|
|
Number
of
|
|
|
|
Number
of
|
Location
|
|
Stores
|
|
Location
|
|
Stores
|
|
Location
|
|
Stores
|
|
|
|
|
|
|
|
|
|
|
|
Alabama
|
|
119
|
|
Maryland
|
|
72
|
|
Oklahoma
|
|
32
|
Arkansas
|
|
35
|
|
Massachusetts
|
|
54
|
|
Pennsylvania
|
|
158
|
Colorado
|
|
41
|
|
Michigan
|
|
91
|
|
Puerto
Rico
|
|
27
|
Connecticut
|
|
36
|
|
Minnesota
|
|
16
|
|
Rhode
Island
|
|
8
|
Delaware
|
|
7
|
|
Mississippi
|
|
58
|
|
South
Carolina
|
|
125
|
Florida
|
|
457
|
|
Missouri
|
|
41
|
|
South
Dakota
|
|
7
|
Georgia
|
|
229
|
|
Nebraska
|
|
20
|
|
Tennessee
|
|
142
|
Illinois
|
|
83
|
|
New
Hampshire
|
|
11
|
|
Texas
|
|
177
|
Iowa
|
|
26
|
|
New
Mexico
|
|
1
|
|
Vermont
|
|
7
|
Indiana
|
|
97
|
|
New
Jersey
|
|
50
|
|
Virgin
Islands
|
|
1
|
Kansas
|
|
24
|
|
New
York
|
|
120
|
|
Virginia
|
|
167
|
Kentucky
|
|
91
|
|
North
Carolina
|
|
234
|
|
West
Virginia
|
|
66
|
Louisiana
|
|
61
|
|
North
Dakota
|
|
4
|
|
Wisconsin
|
|
47
|
Maine
|
|
12
|
|
Ohio
|
|
186
|
|
Wyoming
|
|
3
|
The
following table sets forth information concerning increases in the total number
of our AAP stores during the past five years:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Beginning
Stores
|
|
|
3,153 |
|
|
|
2,995 |
|
|
|
2,810 |
|
|
|
2,652 |
|
|
|
2,539 |
|
New
Stores
(1)
|
|
|
109 |
|
|
|
175 |
|
|
|
190 |
|
|
|
169 |
|
|
|
125 |
|
Stores
Closed
|
|
|
(19 |
) |
|
|
(17 |
) |
|
|
(5 |
) |
|
|
(11 |
) |
|
|
(12 |
) |
Ending
Stores (2)
|
|
|
3,243 |
|
|
|
3,153 |
|
|
|
2,995 |
|
|
|
2,810 |
|
|
|
2,652 |
|
(1)
|
Does
not include stores that opened as relocations of previously existing
stores within the same general market area or substantial renovations of
stores.
|
(2)
|
Includes
2 and 7 stores not operating at December 30, 2006 and December 31, 2005,
respectively, primarily due to hurricane
damage.
|
Store Technology.
Our
store-based information systems, which are designed to improve the efficiency of
our operations and enhance customer service, are comprised of a proprietary POS
system and electronic parts catalog, or EPC, system. Information
maintained by our POS system is used to formulate pricing, marketing and
merchandising strategies and to replenish inventory accurately and rapidly. Our
POS system is fully integrated with our EPC system and enables our store Team
Members to assist our customers in their parts selection and ordering based on
year, make, model and engine type of their vehicles. Our centrally-based EPC
data management system enables us to reduce the time needed to (i) exchange data
with our vendors and (ii) catalog and deliver updated, accurate parts
information.
Our EPC
system also contains enhanced search engines and user-friendly navigation tools
that enhance our Team Members’ ability to look up any needed parts as well as
additional products the customer needs to complete their automotive repair
project. If a hard-to-find part or accessory is not available at one of our
stores, the EPC system can determine whether the part is carried and in-stock
through our PDQÒ
system. Available parts and accessories are then ordered electronically from
another store, PDQÒ
or Master PDQÒ
with immediate confirmation of price, availability and estimated delivery
time.
We also
support our store operations with additional proprietary systems. Our
store-level inventory management system provides real-time inventory tracking at
the store level. With the store-level system, store Team Members can check the
quantity of on-hand inventory for any SKU, adjust stock levels for select items
for store specific events, automatically process returns and defective
merchandise, designate SKUs for cycle counts and track merchandise transfers.
Our stores use radio frequency hand-held devices to help ensure the accuracy of
our inventory. Our standard operating procedure, or SOP, system is a web-based,
electronic data management system that provides our Team Members with instant
and quick access to any of our standard operating procedures through a
comprehensive on-line search function. Additionally, we utilize a
labor scheduling system known as management planning and training, or MPT. All
of these systems are tightly integrated and provide real-time,
comprehensive information to store personnel, resulting in improved customer
service levels, Team Member productivity and in-stock availability.
Store
Support Center
Merchandising.
Purchasing
for virtually all of the merchandise for our stores is handled by our
merchandise teams located in our store support center in Roanoke, Virginia and
in our regional office in Minneapolis, Minnesota. In fiscal
2008, we purchased merchandise from over 400 vendors, with no single vendor
accounting for more than 9% of purchases. Our purchasing strategy involves
negotiating agreements with certain vendors to purchase merchandise over a
specified period of time along with other terms, including pricing, payment
terms and volume.
Our
merchandising team is skilled in sourcing high quality products globally and
maintaining consistent inventory levels. The merchandising team has developed
strong vendor relationships in the industry and, in a collaborative effort with
our vendor partners, utilizes a category management process. We believe this
process, which develops a customer-focused business plan for each merchandise
category, has been highly effective and is critical to improving comparable
store sales, gross margin and inventory turns.
Our
merchandising strategy is to carry a broad selection of high quality brand name
automotive parts and accessories such as Bosch®,
Castrol®,
Sylvania®,
Prestone®,
Monroe®,
Wagner®,
Purolator®,
Dayco®, Trico® and
Federal-Mogul Moog®, or
Moog®, which
generates DIY customer traffic and also appeals to Commercial customers. In
addition to these branded products, we stock a wide selection of high quality
proprietary products that appeal to value conscious customers. These lines of
merchandise include everything from chemical and wash-and-wax products to tools,
batteries, parts and interior automotive accessories under various private label
names.
Supply
Chain. Our
supply chain consists of centralized inventory management and transportation
functions which support a logistics network of distribution centers, PDQ®
warehouses and stores. Our inventory management team utilizes a replenishment
system to monitor the distribution center, PDQ®
warehouse and store inventory levels and orders additional product when
appropriate while streamlining handling costs. Our replenishment system utilizes
the most up-to-date information from our POS system as well as inventory
movement forecasting based upon sales history, sales trends by SKU, seasonality
and demographic shifts in demand. Our replenishment system combines these
factors with service level goals, vendor lead times and cost of inventory
assumptions to determine the timing and size of purchase orders. A significant
portion of our purchase orders are sent via electronic data interchange, with
the remainder being sent by computer generated e-mail or facsimile.
Our
transportation team utilizes a transportation management system to efficiently
manage incoming shipments to our distribution centers and stores. Benefits from
this system include (i) reduced vendor to distribution center freight costs,
(ii) visibility of purchase orders and shipments for the entire supply chain,
(iii) a reduction in distribution center inventory, or safety stock, due to
consistent transit times, (iv) decreased third party freight and billing service
costs, (v) decreased distribution center to store freight costs and (vi) higher
store in-stock position. We recently announced our plan to outsource our private
fleet operations to two reputable dedicated carriers. We believe outsourcing our
private fleet operations will allow us to focus resources on achieving our key
strategies, improve our ability to manage transportation as we continue to grow
and reduce costs.
We
currently operate eight distribution centers. All of these distribution centers
are equipped with our distribution center management system, or DCMS. Our DCMS
provides real-time inventory tracking through the processes of receiving,
picking, shipping and replenishing inventory at our distribution centers. The
DCMS, integrated with technologically advanced material handling equipment,
significantly reduces warehouse and distribution costs, while improving
efficiency. This equipment includes carousels, “pick-to light” systems, radio
frequency technology, voice technology and automated sorting systems. Through
the continued implementation of our supply chain initiatives we expect to
further increase the efficient utilization of our distribution capacity. We
believe our current capacity will allow us to support in excess of 3,400 AAP
stores. We plan to open a new distribution center in Indiana in
2010.
We
currently offer approximately 60,000 SKUs to support all of our retail stores
via our 15 stand-alone PDQ®
warehouses and/or our eight distribution centers (all of which stock PDQ® items).
Stores have system visibility to inventory in their respective PDQÒ
warehouses and distribution centers and can place orders to these facilities, or
as an alternative, through an online ordering system to virtually any of the
other facilities. Ordered parts are delivered to substantially all
stores on a same day or next day basis through our dedicated PDQ® trucking
fleet and third party carriers. Store inventories are replenished from our eight
distribution centers. In addition, we operate a Master PDQ®
warehouse that stocks approximately 26,000 incremental SKUs of harder-to-find
automotive parts and accessories and utilizes our existing PDQ®
distribution infrastructure and/or third party arrangements to provide next day
service to substantially all of our stores.
Marketing &
Advertising. We have an extensive
marketing and advertising program designed to communicate our ability to meet
consumers’ needs through our merchandise offerings, parts assortment and
availability, competitive prices, free services and commitment to customer
service. Our marketing and advertising program is focused on establishing
Advance Auto Parts as the primary resource for a customer's automotive needs. We
reinforce our brand image through a mix of media that includes television,
radio, promotional signage, outdoor media, print and our Internet
site.
Our
marketing and advertising plan is a brand-building program primarily built
around television and radio advertising. The plan is supported by in-store
signage, online advertising and print. Our television advertising is a
combination of national and regional media in both sports and entertainment
programming. Radio advertising generally airs during peak drive times. We use
Spanish-language radio and television advertising to market to our Hispanic
customers. Our advertising program is also supported through sponsorships of
sporting events, racing teams and other grass-root level events intended to
positively impact individual communities, including Hispanic and other
ethnic communities, to create awareness and drive traffic for our stores. Since
2004, we have used an integrated consumer education program to build our image
as not only the best source for parts, but also the best resource for vehicle
information. Our goal with our consumer education initiative is to continue our
long-term brand building success, increase customer loyalty and expand our
customer base.
In
February 2008, we launched a new branding campaign, “Keep the wheels turning.”
This campaign was developed based on a strategic review of our business as well
as extensive research conducted with our customers and Team Members. We believe
this campaign, which targets core DIY and Commercial customers, is
differentiating Advance Auto Parts in our industry by positioning us as (i) the
brand that best understands customers’ needs, (ii) the source for brand name
parts and products and (iii) the resource for expert advice and knowledge to
help customers keep their vehicles running. The campaign includes creative and
compelling television and radio commercials designed to drive sales and build an
enduring, positive image of Advance Auto Parts with our targeted
customers.
AI
Segment
We
acquired AI in September 2005. The acquisition included 61 stores throughout New
England and New York, a distribution center and AI’s wholesale distribution
business. AI complements our growing presence in the Commercial market in the
Northeast.
AI’s
business primarily serves the Commercial market, with an emphasis on import
parts, from its store locations. In addition, its North American Sales Division
serves warehouse distributors and jobbers throughout North America. We believe
AI provides a high level of service to its Commercial customers by providing
quality parts, unsurpassed customer service and efficient parts delivery. As a
result of its extensive sourcing network, AI is able to serve its customers in
search of replacement parts for both domestic and imported cars and light trucks
with a greater focus on imported parts. The vast majority of AI’s product is
sold under its own proprietary brand. The AI stores offer approximately 11,000
SKUs with access to an additional 17,000 unique SKUs through its logistics
network.
At
January 3, 2009, we operated 125 stores under the “Autopart International” trade
name in the following states throughout the Northeast:
|
|
Number
of
|
|
|
|
Number
of
|
|
|
|
Number
of
|
Location
|
|
Stores
|
|
Location
|
|
Stores
|
|
Location
|
|
Stores
|
|
|
|
|
|
|
|
|
|
|
|
Connecticut
|
|
17
|
|
New
Hampshire
|
|
8
|
|
Pennsylvania
|
|
20
|
Delaware
|
|
1
|
|
New
Jersey
|
|
14
|
|
Rhode
Island
|
|
4
|
Maine
|
|
4
|
|
New
York
|
|
23
|
|
Vermont
|
|
1
|
Massachusetts
|
|
33
|
|
|
|
|
|
|
|
|
The
following table sets forth information concerning increases in the total number
of our AI stores:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Beginning
Stores
|
|
|
108 |
|
|
|
87 |
|
|
|
62 |
|
|
|
- |
|
|
|
New
Stores
|
|
|
18 |
|
|
|
21 |
|
|
|
25 |
|
|
|
62 |
(1) |
|
|
Stores
Closed
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
Ending
Stores
|
|
|
125 |
|
|
|
108 |
|
|
|
87 |
|
|
|
62 |
|
|
|
(1) |
Of
the 62 new stores in 2005, 61 stores were acquired in September 2005 as a
result of our AI acquisition.
|
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.
Team
Members
At March
2, 2009, we employed 27,396 full-time Team Members and 20,186 part-time Team
Members. Our
workforce consisted of 89%
of our Team Members employed in store-level operations, 8% employed in
distribution and 3% employed in our corporate offices. We have never experienced
any labor disruption and are not party to any collective bargaining agreements.
We believe that our Team Member relations are good.
Intellectual
Property
We own a
number of trade names and own and have federally registered several service
marks and trademarks, including “Advance Auto Parts,” “Western Auto,” “Parts
America,” “Autopart International” and “PDQ” for use in connection with the
automotive parts retailing business. In addition, we own and have registered a
number of trademarks for our proprietary products. We believe that these trade
names, service marks and trademarks are important to our merchandising strategy.
We do not know of any infringing uses that would materially affect the use of
these trade names and marks, and we actively defend and enforce
them.
Competition
We
operate in both the DIY and Commercial markets of the automotive aftermarket
industry. Our primary competitors are (i) both national and regional retail
chains of automotive parts stores, including AutoZone, Inc., O'Reilly
Automotive, Inc. and The Pep Boys–Manny, Moe & Jack, (ii) discount stores
and mass merchandisers that carry automotive products, (iii) wholesalers or
jobber stores, including those associated with national parts distributors or
associations, such as NAPA and Carquest, (iv) independent operators and (v)
automobile dealers that supply parts. We believe that chains of automotive parts
stores that, like us, have multiple locations in one or more markets, have
competitive advantages in customer service, marketing, inventory selection,
purchasing and distribution as compared to independent retailers and jobbers
that are not part of a chain or associated with other retailers or jobbers. The
principal methods of competition in our business include store location, product
offerings, availability, quality, price and customer service.
Environmental
Matters
We are
subject to various federal, state and local laws and governmental regulations
relating to the operation of our business, including those governing recycling
of automotive lead-acid batteries and used automotive oil, and ownership and
operation of real property. We sell consumer products containing hazardous
materials as part of our business. In addition, our customers may bring
automotive lead-acid batteries or used automotive oil onto our properties. We
currently provide collection and recycling programs for used lead-acid batteries
and used oil at all of our stores as a service to our customers. Pursuant to
agreements with third party vendors, lead-acid batteries and used oil are
collected by our Team Members, deposited onto pallets or into vendor supplied
containers and stored by us until collected by the third party vendors for
recycling or proper disposal. The terms of our contracts with third party
vendors provide that they are in compliance with all applicable laws and
regulations. Persons who arrange for the removal, disposal, treatment or other
handling of hazardous or toxic substances may be liable for the costs of removal
or remediation at any affected disposal, treatment or other site affected by
such substances. Based on our experience, we do not believe that there are any
material environmental costs associated with the current business practice of
accepting lead-acid batteries and used oil as these costs are borne by the
respective third parties.
We own
and lease real property. Under various environmental laws and regulations, a
current or previous owner or operator of real property may be liable for the
cost of removal or remediation of hazardous or toxic substances on, under or in
such property. These laws often impose joint and several liability and may be
imposed without regard to whether the owner or operator knew of, or was
responsible for, the release of such hazardous or toxic substances. Other
environmental laws and common law principles also could be used to impose
liability for releases of hazardous materials into the environment or work
place, and third parties may seek recovery from owners or operators of real
properties for personal injury or property damage associated with exposure to
released hazardous substances. From time to time, we receive notices from the
Environmental Protection Agency and state environmental authorities indicating
that there may be contamination on properties we own, lease or operate or may
have owned, leased or operated in the past or on adjacent properties for which
we may be responsible. Compliance with these laws and regulations has
not had a material impact on our operations to date.
Risks
Relating to Our Business
If
overall demand for products sold by our stores slows or declines, our business,
financial condition, results of operations and cash flows will
suffer. Decreased demand could also negatively impact our stock
price.
Overall
demand for products sold by our stores depends on many factors and may slow or
decrease due to any number of reasons, including:
|
the economy, because
during periods of declining economic conditions (including higher
unemployment, lower wages, higher credit costs or unavailability of
credit, and higher fuel or energy prices), both DIY and Commercial
customers may defer vehicle maintenance or repair; conversely, during
periods of favorable economic conditions, more of our DIY customers may
pay others to repair and maintain their cars or they may purchase new
cars;
|
●
|
the weather, as vehicle
maintenance may be deferred during periods of unfavorable
weather;
|
●
|
the average duration of
manufacturer warranties and the decrease in the number of annual miles
driven, because newer cars typically require fewer repairs and will
be repaired by the manufacturer’s dealer network using dealer parts; and
lower vehicle mileage decreases the need for maintenance and repair (while
higher miles driven increases the
need);
|
●
|
the quality of vehicles
manufactured, because vehicles that have high part failure rates
will require more frequent repairs using aftermarket parts;
and
|
●
|
the refusal of vehicle
manufacturers to make available diagnostic, repair and maintenance
information to the automotive aftermarket industry that our DIY and
Commercial customers require to diagnose, repair and maintain their
vehicles may force consumers to have all diagnostic work, repairs and
maintenance performed by the vehicle manufacturers’ dealer
network.
|
If any of
these factors cause overall demand for the products we sell to decline, our
business, financial condition, results of operations and cash flows will
suffer.
Deterioration
in general economic conditions, including unemployment, inflation or deflation,
consumer debt levels or unavailability of credit and high energy costs will
likely have a negative impact on our customers’ ability to purchase our products
and our business, financial condition, results of operations and cash flows will
suffer.
The deterioration in general
macro-economic conditions that occurred during the fourth quarter of 2008 led
many U.S. companies to announce plant closings and employee layoffs, which
resulted in higher unemployment that may continue for a prolonged period of
time. Unemployment of our customers or any decrease in the market
value of their homes would have a negative impact on our customers’ net worth
and financial resources, and could reduce their willingness or ability to pay
for accessories, maintenance or repair of their vehicles. Although
the price of gasoline decreased substantially in November and December of 2008,
the price of fuel or other energy resources may increase substantially in the
future. Higher fuel and energy costs may reduce the amount of
customers’ disposable income available to purchase our products, as well as
reduce the number of miles driven. Rising energy prices may impact demand for
the products we sell, overall transaction count and our
profitability. In addition, higher energy prices impact our
merchandise distribution, commercial delivery, utility and product costs, and
inflation or deflation could also result in a potentially material negative
impact on our business, financial condition, profitability and cash
flows.
If
we are unable to compete successfully against other companies in the automotive
aftermarket industry we may lose customers, our revenues may decline, and we may
be less profitable or potentially unprofitable.
The sale
of automotive parts, accessories and maintenance items is highly competitive in
many ways, including name recognition, location, price, quality, product
availability and customer service. We compete in both the DIY and
Commercial categories of the automotive aftermarket industry, primarily with:
(i) national and regional retail
automotive
parts chains, (ii) discount stores and mass merchandisers that carry automotive
products, (iii) wholesalers or jobber stores, (iv) independent operators and (v)
automobile dealers that supply parts. These competitors and the level of
competition vary by market. Some of our competitors may possess advantages over
us in certain markets we share, including a greater amount of marketing
activities, a larger number of stores, store locations, store layouts, longer
operating histories, greater name recognition, larger and more established
customer bases, lower prices, and better product warranties. Our response to
these competitive disadvantages may require us to reduce our prices below our
normal selling prices or increase our promotional spending, which would lower
revenue and profitability. Competitive disadvantages may also prevent us from
introducing new product lines, require us to discontinue current product
offerings, or change some of our current operating strategies. If we do not have
the resources or expertise, or otherwise fail to develop successful strategies
to address these competitive disadvantages, we may lose customers, our revenues
and profit margins may decline and we may be less profitable or potentially
unprofitable.
Disruptions
in our relationships with vendors, or disruptions in or changes in our vendors'
operations, could increase our cost of goods sold and/or affect the supply of
automotive parts and supplies we sell.
Our
business depends on developing and maintaining close relationships with our
vendors and on our vendors' ability or willingness to sell quality products to
us at favorable prices and terms. Many factors outside of our control may harm
these relationships and the ability or willingness of these vendors to sell us
products on favorable terms. For example, financial or operational difficulties
that some of our vendors may face could increase the cost of the products we
purchase from them or our ability to source product from them. In addition, the
trend towards consolidation among automotive parts suppliers as well as the
off-shoring of manufacturing capacity to foreign countries may disrupt or end
our relationship with some vendors, and could lead to less competition and
result in higher prices. We could also be negatively impacted by
suppliers who might experience work stoppages, labor strikes or other
interruptions to or difficulties in the manufacture or supply of the products we
purchase from them.
Deteriorating
and uncertain credit markets could negatively impact our vendors, as well as our
liquidity and ability to secure additional capital at favorable cost-effective
terms in the future.
Impact
on the Company’s Suppliers
During
the fourth quarter of 2008, the Company, our suppliers (also referred to as
vendors) and our customers were exposed to deteriorating and uncertain credit
markets. The general decline in the economy and economic conditions
could negatively affect our suppliers by making it difficult for them to obtain
the credit lines or loans necessary to finance their operations in the
short-term, or long-term.
Additionally,
if any of the major U. S. automobile manufacturers files a petition in
bankruptcy, or if other factors result in a substantial reduction in the number
of new cars manufactured, or in a company-wide shut-down, it would likely have a
material negative short-term (as well as potentially long-term) impact on the
operations and cash flows of some of our suppliers. Any such negative
impacts to our suppliers will likely result in the loss of certain suppliers
and/or in higher product costs.
Impact
on the Company
Supplier
bankruptcies would likely decrease the production output and supply of domestic
(and possibly foreign) automobile parts and accessories, thereby decreasing the
availability and increasing the cost of our parts and accessories. We
might not be able to pass our increased costs onto our customers. Any increased
per unit costs of our suppliers, would likely result in the Company paying a
higher per unit price for parts and accessories, potentially resulting in higher
cost of goods sold, lower gross profit margins and reduced operating profits if
such increased costs could not be passed onto our customers.
Our
overall credit rating may be negatively impacted by the deteriorating and
uncertain credit markets. (See Item 7., Management’s Discussion and Analysis
of Financial Condition and Results of Operations -- Credit
Ratings.) The interest rates on our credit facilities are linked
directly to our credit ratings. Accordingly, any negative impact on our credit
rating would likely result in higher interest rates and interest expense we pay
on borrowed funds. Additionally, we may be limited in our ability to borrow
additional funds to finance our operations. In light of
the
uncertainty in the credit markets, it is possible that one or more of the banks
that provides us with financing under our credit facilities may fail to honor
the terms of our existing credit facilities or be financially unable to provide
the unused credit. An inability to obtain sufficient financing at cost-effective
rates could have a materially adverse affect on our business, financial
condition, results of operations and cash flows.
We depend on the services of many
qualified Team Members, whom we may not be able to attract and
retain.
Our
success depends to a significant extent on the continued services and experience
of our Team Members. At March 2, 2009, we employed 47,582 Team Members. We may
not be able to retain our current qualified Team Members, or attract and retain
additional qualified Team Members that may be needed in the future. Our ability
to maintain an adequate number of qualified Team Members is highly dependent on
an attractive and competitive compensation and benefits package. If we fail or
are unable to maintain such a package, our customer service and execution levels
could suffer by reason of a declining quality of our workforce, which could
adversely affect our business, financial condition, results of operations and
cash flows.
We
may not be able to successfully implement our business strategy, including
increasing comparable store sales, enhancing our margins and increasing our
return on invested capital, which could adversely affect our business, financial
condition, results of operations and cash flows.
We have
implemented numerous initiatives as part of our business strategy, including
four key turnaround strategies introduced in 2008, to increase comparable store
sales, enhance our margins and increase our return on invested capital in order
to increase our earnings and cash flow. If we are unable to implement these
initiatives efficiently and effectively, or if these initiatives are
unsuccessful, our business, financial condition, results of operations and cash
flows could be adversely affected.
Successful
implementation of our business strategy also depends on factors specific to the
retail automotive parts industry and numerous other factors that may be beyond
our control. Adverse changes in the following factors could undermine our
business strategy and have a material adverse affect on our business, financial
condition, results of operations and cash flow:
|
general
economic conditions, including the current U.S. recession which could
continue into the future, and unfavorable conditions in our local markets,
which could reduce our sales;
|
●
|
the
competitive environment in the automotive aftermarket parts and
accessories retail sector that may force us to reduce prices below our
desired pricing level or increase promotional
spending;
|
●
|
changes
in the automotive aftermarket parts manufacturing industry, such as
manufacturer consolidation or closures, which may disrupt or sever one or
more of our supplier relationships and increase the cost of the parts and
accessories we sell;
|
●
|
our
ability to anticipate changes in consumer preferences and to meet
customers’ needs for automotive products (particularly parts availability)
in a timely manner;
|
●
|
our
ability to stimulate DIY customer traffic as well as grow our Commercial
business; and
|
●
|
our
continued ability to hire and retain qualified personnel, which depends in
part on the types of recruiting, training, compensation and benefit
programs we adopt or
maintain.
|
We
will not be able to expand our business if our growth strategy is not
successful, including the availability of suitable locations for new store
openings or the successful integration of any acquired businesses, which could
adversely affect our business, financial condition, results of operations and
cash flows.
New Store
Openings
We have
increased our store count significantly from 814 stores at the end of fiscal
1997 to 3,368 stores at January 3, 2009. We intend to continue to increase the
number of our stores and expand the markets we serve as part of our growth
strategy, primarily by opening new stores. We may also grow our business through
strategic acquisitions. We do not know whether the implementation of our growth
strategy will be successful. The actual number of new stores to be opened and
their success will depend on a number of factors, including, among other
things:
|
the
availability of potential store
locations;
|
●
|
the
negotiation of acceptable lease or purchase terms for new
locations;
|
●
|
the
availability of financial resources, including access to capital at
cost-effective interest rates;
and
|
●
|
our
ability to manage the expansion and hire, train and retain qualified sales
associates.
|
We are
unsure whether we will be able to open and operate new stores on a timely or
sufficiently profitable basis, or that opening new stores in markets we already
serve will not harm existing store profitability or comparable store sales. The
newly opened and existing stores' profitability will depend on the competition
we face as well as our ability to properly merchandise, market and price the
products desired by customers in these markets.
Acquisitions,
Investments or Strategic Alliances
We may
acquire stores or businesses from, make investments in, or enter into strategic
alliances with companies that have stores or distribution networks in our
current markets or in areas into which we intend to expand our presence. Any
future acquisitions, investments, strategic alliances or related efforts will be
accompanied by risks, including but not limited to:
|
the
difficulty of identifying appropriate strategic partners or acquisition
candidates;
|
●
|
securing
adequate financing on cost-effective terms for acquisition or
post-acquisition
expenditures;
|
●
|
the
potential disruption to our ongoing business and diversion of our
management's attention;
|
●
|
inability
or failure to discover liabilities prior to completion of an acquisition,
including the assumption of legal liabilities;
|
●
|
the
difficulty of assimilating and integrating the operations of the
respective entities to realize anticipated economic, operational or other
favorable benefits;
|
●
|
the
inability to maintain uniform standards, controls, procedures and
policies;
|
●
|
inability
or failure to retain key personnel from the acquired business;
and
|
●
|
the
impairment of relationships with team members and customers as a result of
changes in management.
|
We are
unsure whether we will be successful in overcoming these risks or any other
problems encountered with any acquisitions, investments, strategic alliances or
related efforts. If we fail to successfully open and operate new stores or make
strategic acquisitions or alliances, then our business, financial condition,
results of operations and cash flows may be negatively impacted.
Because
we are involved in litigation from time to time, and are subject to numerous
laws and governmental regulations, we could incur substantial judgments, fines,
legal fees and other costs.
We are
sometimes the subject of complaints or litigation from customers, employees or
other third parties for various actions. From time to time, we are involved in
litigation involving claims related to, among other things, breach of contract,
tortious conduct, employment discrimination, payment of wages, asbestos
exposure, real estate, and product defects. The damages sought against us in
some of these litigation proceedings are substantial. Although we maintain
liability insurance for some litigation claims, if one or more of the claims
were to greatly exceed our insurance coverage limits or if our insurance
policies do not cover a claim, this could have a material adverse affect on our
business, financial condition, results of operations and cash
flows.
Additionally,
we are subject to numerous federal, state and local laws and governmental
regulations relating to environmental protection, product quality standards,
building and zoning requirements, as well as employment law matters. If we fail
to comply with existing or future laws or regulations, we may be subject to
governmental or judicial fines or sanctions, while incurring substantial legal
fees and costs. In addition, our capital expenses could increase due to
remediation measures that may be required if we are found to be noncompliant
with any existing or future laws or regulations.
War
or acts of terrorism, or the threat of either, may negatively impact the
availability and cost of merchandise and our customers and adversely impact our
sales and profitability.
War or
acts of terrorism, or the threat of either, may have a negative impact on our
ability to obtain merchandise available for sale in our stores. Some of our
merchandise is imported from other countries. If imported goods become difficult
or impossible to import into the United States, and if we cannot obtain such
merchandise from other sources at similar costs, our sales and profit margins
may be negatively affected.
In the
event that commercial transportation is curtailed or substantially delayed, our
business may be adversely impacted, as we may have difficulty shipping
merchandise to our distribution centers and stores.
Furthermore,
terrorist attacks, war in the Middle East, or war within or between any oil
producing country would likely result in an abrupt increase in the price of
crude oil, gasoline, diesel fuel and energy costs. Such price increases would
increase the cost of doing business for us and our suppliers, and also would
negatively impact our customers' disposable income and have an adverse impact on
our business, sales, profit margins and results of operations.
Risks
Relating to Our Financial Condition
The
covenants governing our revolving and term loan facilities impose restrictions
on us.
The terms
of our revolving and term loan facilities include covenants that impose
operating and financial restrictions on us and our subsidiaries and require us
to meet certain financial ratios and conditions. These restrictions may also
have a negative impact on our business, financial condition, results of
operations and cash flows by significantly limiting or prohibiting us from
engaging in certain transactions, including:
|
incurring
or guaranteeing additional
indebtedness;
|
●
|
making
capital expenditures and other
investments;
|
●
|
incurring
liens on our assets and engaging in sale-leaseback
transactions;
|
●
|
issuing
or selling capital stock of our subsidiaries;
|
●
|
transferring
or selling assets currently held by us; and
|
●
|
engaging
in mergers or acquisitions.
|
The
failure to comply with any of these covenants would cause a default under our
credit facilities. Furthermore, our credit facilities contain certain financial
covenants, including a maximum leverage ratio and a minimum coverage ratio,
which, if not maintained by us, will cause us to be in default under our credit
facilities. Any of these defaults, if not waived, could result in the
acceleration of all of our debt, in which case the debt would become immediately
due and payable. If this occurs, we may not be able to repay our debt or borrow
sufficient funds to refinance it. Even if new financing were available, it may
be on terms that are less favorable or otherwise not acceptable to
us.
|
|
Unresolved
Staff Comments.
|
None.
The
following table sets forth certain information relating to our distribution and
other principal facilities:
|
|
|
Opening
|
|
|
|
Size
|
|
Nature
of
|
Facility
|
|
Date
|
|
Area
Served
|
|
(Sq.
ft.)(1)
|
|
Occupancy
|
|
|
|
|
|
|
|
|
|
|
Main
Distribution Centers:
|
|
|
|
|
|
|
|
|
|
Roanoke,
Virginia
|
|
1988
|
|
Mid-Atlantic
|
|
433,681
|
|
Leased
|
|
Lehigh,
Pennsylvania
|
|
2004
|
|
Northeast
|
|
635,487
|
|
Owned
|
|
Lakeland,
Florida
|
|
1982
|
|
Florida
|
|
552,796
|
|
Owned
|
|
Gastonia,
North Carolina
|
|
1969
|
|
South,
Offshore
|
|
634,472
|
|
Owned
|
|
Gallman,
Mississippi
|
|
2001
|
|
South
|
|
388,168
|
|
Owned
|
|
Salina,
Kansas
|
|
1971
|
|
West,
Midwest
|
|
413,500
|
|
Owned
|
|
Delaware,
Ohio
|
|
1972
|
|
Northeast
|
|
480,100
|
|
Owned
|
|
Thomson,
Georgia
|
|
1999
|
|
Southeast
|
|
374,400
|
|
Owned
|
|
|
|
|
|
|
|
|
|
|
Master
PDQ® Warehouse:
|
|
|
|
|
|
|
|
|
|
Andersonville,
Tennessee
|
|
1998
|
|
All
|
|
115,019
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
PDQ®
Warehouses:
|
|
|
|
|
|
|
|
|
|
Youngwood,
Pennsylvania
|
|
1999
|
|
East
|
|
39,878
|
|
Leased
|
|
Riverside,
Missouri
|
|
1999
|
|
West
|
|
43,912
|
|
Leased
|
|
Guilderland
Center, New York
|
|
1999
|
|
Northeast
|
|
40,950
|
|
Leased
|
|
Temple,
Texas
|
|
1999
|
|
Southwest
|
|
61,343
|
|
Leased
|
|
Altamonte
Springs, Florida
|
|
1996
|
|
Central
Florida
|
|
10,000
|
|
Owned
|
|
Jacksonville,
Florida
|
|
1997
|
|
Northern
Florida and Southern
|
|
12,712
|
|
Owned
|
|
|
|
|
|
Georgia
|
|
|
|
|
|
Tampa,
Florida
|
|
1997
|
|
West
Central Florida
|
|
10,000
|
|
Owned
|
|
Hialeah,
Florida
|
|
1997
|
|
South
Florida
|
|
12,500
|
|
Owned
|
|
West
Palm Beach, Florida
|
|
1998
|
|
Southeast
Florida
|
|
13,300
|
|
Leased
|
|
Mobile,
Alabama
|
|
1998
|
|
Alabama
and Mississippi
|
|
10,000
|
|
Owned
|
|
Atlanta,
Georgia
|
|
1999
|
|
Georgia
and South Carolina
|
|
16,786
|
|
Leased
|
|
Tallahassee,
Florida
|
|
1999
|
|
South
Georgia and Northwest
|
|
10,000
|
|
Owned
|
|
|
|
|
|
Florida
|
|
|
|
|
|
Fort
Myers, Florida
|
|
1999
|
|
Southwest
Florida
|
|
14,330
|
|
Owned
|
|
Cleveland,
Ohio
|
|
2008
|
|
Northeast
Ohio
|
|
22,000
|
|
Leased
|
|
Chicago,
Illinois(2)
|
|
2009
|
|
Northern
Illinois, Wisconsin
|
|
45,485
|
|
Leased
|
|
|
|
|
|
and
Northern Indiana
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate/Administrative
Offices:
|
|
|
|
|
|
|
|
|
|
Roanoke,
Virginia
|
|
1995
|
|
All
|
|
49,000
|
|
Leased
|
|
Roanoke,
Virginia
|
|
2002
|
|
All
|
|
144,000
|
|
Leased
|
|
Minneapolis,
Minnesota
|
|
2008
|
|
All
|
|
51,674
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
AI
Properties:
|
|
|
|
|
|
|
|
|
|
Norton,
Massachusetts
|
|
2006
|
|
AI
corporate office
|
|
30,000
|
|
Leased
|
|
Norton,
Massachusetts
|
|
2006
|
|
New
England, New York - AI
|
|
317,500
|
|
Leased
|
(1)
|
Square
footage amounts exclude adjacent office
space.
|
(2)
|
This
facility opened in January 2009.
|
At
January 3, 2009, we owned 633 of our stores and leased 2,735 stores. The
expiration dates, including the exercise of renewal options, of the store leases
are summarized as follows:
Years
|
|
AAP
Stores
|
|
AI
Stores
|
|
Total
|
2008-2009
|
|
24
|
|
1
|
|
25
|
2010-2014
|
|
235
|
|
62
|
|
297
|
2015-2019
|
|
616
|
|
32
|
|
648
|
2020-2029
|
|
815
|
|
30
|
|
845
|
2030-2039
|
|
790
|
|
-
|
|
790
|
2040-2056
|
|
130
|
|
-
|
|
130
|
|
|
2,610
|
|
125
|
|
2,735
|
We
currently and from time to time are involved in litigation incidental to the
conduct of our business, including litigation arising from claims of employment
discrimination or other types of employment matters as a result of claims by
current and former employees. Although we diligently defend against these
claims, we may enter into discussions regarding settlement of these and other
lawsuits, and may enter into settlement agreements, if we believe settlement is
in the best interests of our shareholders. The damages claimed against us in
some of these proceedings are substantial. Although the amount of liability that
may result from these matters cannot be ascertained, we do not currently believe
that, in the aggregate, they will result in liabilities material to our
consolidated financial condition, future results of operations or cash
flow.
Our
Western Auto subsidiary, together with other defendants including automobile
manufacturers, automotive parts manufacturers and other retailers, has been
named as a defendant in lawsuits alleging injury as a result of exposure to
asbestos-containing products. We and some of our other subsidiaries also have
been named as defendants in many of these lawsuits. The plaintiffs have alleged
that these products were manufactured, distributed and/or sold by the various
defendants. To date, these products have included brake and clutch parts and
roofing materials. Many of the cases pending against us or our subsidiaries are
in the early stages of litigation. The damages claimed against the defendants in
some of these proceedings are substantial. Additionally, some of the automotive
parts manufacturers named as defendants in these lawsuits have declared
bankruptcy, which will limit plaintiffs’ ability to recover monetary damages
from those defendants. Although we diligently defend against these claims, we
may enter into discussions regarding settlement of these and other lawsuits, and
may enter into settlement agreements, if we believe settlement is in the best
interests of our shareholders. We also believe that most of these claims are at
least partially covered by insurance. Based on discovery to date, we do not
believe the cases currently pending will have a material adverse effect on us.
However, if we were to incur an adverse verdict in one or more of these claims
and were ordered to pay damages that were not covered by insurance, these claims
could have a material adverse effect on our operating results, financial
position and liquidity. If the number of claims filed against us or any of our
subsidiaries alleging injury as a result of exposure to asbestos-containing
products increases substantially, the costs associated with concluding these
claims, including damages resulting from any adverse verdicts, could have a
material adverse effect on our operating results, financial position and
liquidity in future periods.
|
|
Submission
of Matters to a Vote of Security
Holders.
|
None.
|
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities.
|
Our
common stock is listed on the New York Stock Exchange, or NYSE, under the symbol
"AAP." The table below sets forth, for the fiscal periods indicated, the high
and low sale prices per share for our common stock, as reported by the
NYSE.
|
|
High
|
|
|
Low
|
|
Fiscal
Year Ended January 3, 2009
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$ |
37.37 |
|
|
$ |
24.17 |
|
Third
Quarter
|
|
$ |
44.61 |
|
|
$ |
36.75 |
|
Second
Quarter
|
|
$ |
41.74 |
|
|
$ |
33.57 |
|
First
Quarter
|
|
$ |
37.99 |
|
|
$ |
31.20 |
|
Fiscal
Year Ended December 29, 2007
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$ |
40.73 |
|
|
$ |
31.53 |
|
Third
Quarter
|
|
$ |
40.15 |
|
|
$ |
29.51 |
|
Second
Quarter
|
|
$ |
43.62 |
|
|
$ |
39.22 |
|
First
Quarter
|
|
$ |
40.80 |
|
|
$ |
34.90 |
|
The
closing price of our common stock on March 2, 2009 was $36.31. At March 2, 2009,
there were 384 holders of record of our common stock (which does not include the
number of individual beneficial owners whose shares were held on their behalf by
brokerage firms in street name).
On
February 15, 2006, our Board of Directors declared a quarterly cash dividend,
the first in our history. The $0.06 per share quarterly cash dividend has been
declared in each quarter since its inception in fiscal 2006. Any payments of
dividends in the future will be at the discretion of our Board of Directors and
will depend upon our results of operations, earnings, capital requirements and
other factors deemed relevant by our Board of Directors.
Stock
Price Performance
The
following graph shows a comparison of our cumulative total return on our common
stock, the Standard & Poor’s 500 Index and the Standard & Poor’s 500
Specialty Retail Index. The graph assumes that the value of an investment in our
common stock and in each such index was $100 on January 3, 2004, and that any
dividends have been reinvested. The comparison in the graph below is based
solely on historical data and is not intended to forecast the possible future
performance of our common stock.
COMPARISON
OF CUMULATIVE TOTAL RETURN AMONG
ADVANCE
AUTO PARTS, INC., S&P 500 INDEX
AND
S&P 500 SPECIALTY RETAIL INDEX
Company
/ Index
|
Jan
3, 2004
|
Jan
1, 2005
|
Dec
31, 2005
|
Dec
30, 2006
|
Dec
29, 2007
|
Jan
3, 2009
|
Advance
Auto Parts
|
100
|
107.30
|
160.13
|
131.88
|
142.46
|
128.29
|
S&P
500 Index
|
100
|
111.23
|
116.69
|
135.12
|
143.53
|
92.64
|
S&P
500 Specialty Retail Index
|
100
|
114.63
|
117.91
|
125.73
|
99.82
|
79.42
|
|
|
Selected
Consolidated Financial Data.
|
The
following table sets forth our selected historical consolidated statement of
operations, balance sheet and other operating data. Included in this table are
key metrics and operating results used to measure our financial progress. The
selected historical consolidated financial and other data at January 3, 2009 and
December 29, 2007 and for the three years ended January 3, 2009 have been
derived from our audited consolidated financial statements and the related notes
included elsewhere in this report. The historical consolidated financial and
other data at December 30, 2006, December 31, 2005 and January 1, 2005 and for
the years ended December 31, 2005 and January 1, 2005 have been derived from our
audited consolidated financial statements and the related notes that have not
been included in this report. You should read this data along with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
our consolidated financial statements and the related notes included elsewhere
in this report.
|
|
Fiscal
Year (1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
5,142,255 |
|
|
$ |
4,844,404 |
|
|
$ |
4,616,503 |
|
|
$ |
4,264,971 |
|
|
$ |
3,770,297 |
|
Cost
of sales
(3)
|
|
|
2,679,191 |
|
|
|
2,523,435 |
|
|
|
2,415,339 |
|
|
|
2,250,493 |
|
|
|
2,016,926 |
|
Gross
profit
|
|
|
2,463,064 |
|
|
|
2,320,969 |
|
|
|
2,201,164 |
|
|
|
2,014,478 |
|
|
|
1,753,371 |
|
Selling,
general and administrative expenses
|
|
|
2,048,137 |
|
|
|
1,904,540 |
|
|
|
1,797,814 |
|
|
|
1,605,986 |
|
|
|
1,424,613 |
|
Operating
income
|
|
|
414,927 |
|
|
|
416,429 |
|
|
|
403,350 |
|
|
|
408,492 |
|
|
|
328,758 |
|
Interest
expense
|
|
|
(33,729 |
) |
|
|
(34,809 |
) |
|
|
(35,992 |
) |
|
|
(32,384 |
) |
|
|
(20,069 |
) |
Gain
(loss) on extinguishment of debt
|
|
|
- |
|
|
|
- |
|
|
|
986 |
|
|
|
- |
|
|
|
(3,230 |
) |
Other
income, net
|
|
|
(506 |
) |
|
|
1,014 |
|
|
|
1,571 |
|
|
|
2,815 |
|
|
|
289 |
|
Income
from continuing operations before income taxes and loss on
discontinued operations
|
|
|
380,692 |
|
|
|
382,634 |
|
|
|
369,915 |
|
|
|
378,923 |
|
|
|
305,748 |
|
Income
tax expense
|
|
|
142,654 |
|
|
|
144,317 |
|
|
|
138,597 |
|
|
|
144,198 |
|
|
|
117,721 |
|
Income
from continuing operations before loss on discontinued
operations
|
|
|
238,038 |
|
|
|
238,317 |
|
|
|
231,318 |
|
|
|
234,725 |
|
|
|
188,027 |
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations of discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
Distribution Network
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(63 |
) |
Benefit
for income taxes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(24 |
) |
Loss
on discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(39 |
) |
Net
income
|
|
$ |
238,038 |
|
|
$ |
238,317 |
|
|
$ |
231,318 |
|
|
$ |
234,725 |
|
|
$ |
187,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before loss on discontinued
operations per basic share
|
|
$ |
2.51 |
|
|
$ |
2.30 |
|
|
$ |
2.18 |
|
|
$ |
2.17 |
|
|
$ |
1.70 |
|
Income
from continuing operations before loss on discontinued
operations per diluted share
|
|
$ |
2.50 |
|
|
$ |
2.28 |
|
|
$ |
2.16 |
|
|
$ |
2.13 |
|
|
$ |
1.66 |
|
Net
income per basic share
|
|
$ |
2.51 |
|
|
$ |
2.30 |
|
|
$ |
2.18 |
|
|
$ |
2.17 |
|
|
$ |
1.70 |
|
Net
income per diluted share
|
|
$ |
2.50 |
|
|
$ |
2.28 |
|
|
$ |
2.16 |
|
|
$ |
2.13 |
|
|
$ |
1.66 |
|
Cash
dividends declared per basic share
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
- |
|
|
$ |
- |
|
Weighted
average basic shares outstanding
|
|
|
94,655 |
|
|
|
103,826 |
|
|
|
106,129 |
|
|
|
108,318 |
|
|
|
110,846 |
|
Weighted
average diluted shares outstanding
|
|
|
95,305 |
|
|
|
104,654 |
|
|
|
107,124 |
|
|
|
109,987 |
|
|
|
113,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
478,739 |
|
|
$ |
410,542 |
|
|
$ |
333,604 |
|
|
$ |
321,632 |
|
|
$ |
260,397 |
|
Investing
activities
|
|
|
(181,609 |
) |
|
|
(202,143 |
) |
|
|
(258,642 |
) |
|
|
(302,780 |
) |
|
|
(166,822 |
) |
Financing
activities
|
|
|
(274,426 |
) |
|
|
(204,873 |
) |
|
|
(104,617 |
) |
|
|
(34,390 |
) |
|
|
(48,741 |
) |
|
|
Fiscal
Year (1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in
thousands, except per share data and ratios)
|
|
Balance
Sheet and Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
37,358 |
|
|
$ |
14,654 |
|
|
$ |
11,128 |
|
|
$ |
40,783 |
|
|
$ |
56,321 |
|
Inventory
|
|
$ |
1,623,088 |
|
|
$ |
1,529,469 |
|
|
$ |
1,463,340 |
|
|
$ |
1,367,099 |
|
|
$ |
1,201,450 |
|
Inventory
turnover(5)
|
|
|
1.70 |
|
|
|
1.69 |
|
|
|
1.71 |
|
|
|
1.75 |
|
|
|
1.74 |
|
Inventory
per store(6)
|
|
$ |
482 |
|
|
$ |
469 |
|
|
$ |
475 |
|
|
$ |
476 |
|
|
$ |
453 |
|
Accounts
payable to inventory ratio(7)
|
|
|
57.2 |
% |
|
|
55.1 |
% |
|
|
53.2 |
% |
|
|
54.8 |
% |
|
|
53.7 |
% |
Net
working capital(8)
|
|
$ |
442,632 |
|
|
$ |
456,897 |
|
|
$ |
498,553 |
|
|
$ |
406,476 |
|
|
$ |
416,302 |
|
Capital
expenditures
|
|
$ |
184,986 |
|
|
$ |
210,600 |
|
|
$ |
258,586 |
|
|
$ |
216,214 |
|
|
$ |
179,766 |
|
Total
assets
|
|
$ |
2,964,065 |
|
|
$ |
2,805,566 |
|
|
$ |
2,682,681 |
|
|
$ |
2,542,149 |
|
|
$ |
2,201,962 |
|
Total
debt
|
|
$ |
456,164 |
|
|
$ |
505,672 |
|
|
$ |
477,240 |
|
|
$ |
438,800 |
|
|
$ |
470,000 |
|
Total
net debt(9)
|
|
$ |
439,394 |
|
|
$ |
521,018 |
|
|
$ |
500,318 |
|
|
$ |
448,187 |
|
|
$ |
433,863 |
|
Total
stockholders' equity
|
|
$ |
1,075,166 |
|
|
$ |
1,023,795 |
|
|
$ |
1,030,854 |
|
|
$ |
919,771 |
|
|
$ |
722,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Store Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable
store sales growth (10)
|
|
|
1.5 |
% |
|
|
0.7 |
% |
|
|
1.6 |
% |
|
|
8.2 |
% |
|
|
6.0 |
% |
Number
of stores at beginning of year
|
|
|
3,261 |
|
|
|
3,082 |
|
|
|
2,872 |
|
|
|
2,652 |
|
|
|
2,539 |
|
New
stores
|
|
|
127 |
|
|
|
196 |
|
|
|
215 |
|
|
|
231 |
|
|
|
125 |
|
Closed
stores
|
|
|
(20 |
) |
|
|
(17 |
) |
|
|
(5 |
) |
|
|
(11 |
) |
|
|
(12 |
) |
Number
of stores, end of period
|
|
|
3,368 |
|
|
|
3,261 |
|
|
|
3,082 |
|
|
|
2,872 |
|
|
|
2,652 |
|
Relocated
stores
|
|
|
10 |
|
|
|
29 |
|
|
|
47 |
|
|
|
54 |
|
|
|
34 |
|
Stores
with commercial delivery program, end of period
|
|
|
2,880 |
|
|
|
2,712 |
|
|
|
2,526 |
|
|
|
2,254 |
|
|
|
1,945 |
|
Total
commercial sales, as a percentage of total sales
|
|
|
29.5 |
% |
|
|
26.6 |
% |
|
|
25.0 |
% |
|
|
21.8 |
% |
|
|
18.4 |
% |
SG&A
expenses per store (in
000s)(11)(12)
|
|
$ |
618 |
|
|
$ |
601 |
|
|
$ |
604 |
|
|
$ |
586 |
|
|
$ |
549 |
|
Operating
income per team member (in 000s)(13)
|
|
$ |
9.02 |
|
|
$ |
9.40 |
|
|
$ |
9.29 |
|
|
$ |
10.30 |
|
|
$ |
9.01 |
|
Total
store square footage, end of period
|
|
|
24,711 |
|
|
|
23,982 |
|
|
|
22,753 |
|
|
|
21,246 |
|
|
|
19,734 |
|
Average
net sales per store (in
000s)(12)(14)
|
|
$ |
1,551 |
|
|
$ |
1,527 |
|
|
$ |
1,551 |
|
|
$ |
1,555 |
|
|
$ |
1,453 |
|
Average
net sales per square foot(12)(15)
|
|
$ |
211 |
|
|
$ |
207 |
|
|
$ |
210 |
|
|
$ |
209 |
|
|
$ |
195 |
|
Gross
margin return on inventory(16)
|
|
$ |
3.56 |
|
|
$ |
3.39 |
|
|
$ |
3.38 |
|
|
$ |
3.43 |
|
|
$ |
3.18 |
|
(1)
|
Our
fiscal year consists of 52 or 53 weeks ending on the Saturday nearest to
December 31st.
All fiscal years presented are 52 weeks, with the exception of fiscal
2008, which consisted of 53
weeks.
|
(2)
|
The
statement of operations data for each of the years presented reflects the
operating results of the wholesale distribution segment as discontinued
operations.
|
(3)
|
Cost
of sales includes a non-cash obsolete inventory write-down of $37.5
million recorded in fiscal 2008 due to a change in our inventory
management approach for slow moving
inventory.
|
(4)
|
Basic
and diluted shares outstanding for each of the years presented gives
effect to a 3-for-2 stock split effectuated by us in the form of a 50%
stock dividend distributed on September 23,
2005.
|
(5)
|
Inventory
turnover is calculated as cost of sales divided by the average of
beginning and ending
inventories.
|
(6)
|
Inventory
per store is calculated as ending inventory divided by ending store
count.
|
(7)
|
Accounts
payable to inventory ratio is calculated as ending accounts payable
divided by ending inventory. Beginning in fiscal 2004, as a result of our
new vendor financing program, we aggregate financed vendor accounts
payable with accounts payable to calculate our accounts payable to
inventory ratio.
|
(8)
|
Net
working capital is calculated by subtracting current liabilities from
current assets.
|
(9)
|
Net
debt includes total debt and bank overdrafts, less cash and cash
equivalents.
|
(10)
|
Comparable
store sales is calculated based on the change in net sales starting once a
store has been open for 13 complete accounting periods (each period
represents four weeks). Relocations are included in comparable store sales
from the original date of opening. Beginning in fiscal 2008, we include in
comparable store sales the net sales from stores operated in Puerto Rico
and the Virgin Islands, or Offshore, and AI stores. The comparable periods
have been adjusted accordingly. Fiscal 2008 comparable store sales exclude
sales from the 53rd
week.
|
(11)
|
Selling,
general and administrative, or SG&A, expense per store is calculated
as total SG&A expenses divided by the average of beginning and ending
store count. Excluding the SG&A impact of the 53rd
week of fiscal 2008 of approximately $28.0 million, SG&A expenses per
store in fiscal 2008 was $609.
|
(12)
|
The
ending store count and/or store square footage used in the calculation of
the 2005 ratios has been weighted
|
|
for
the period of the AI acquisition. |
(13)
|
Operating
income per team member is calculated as operating income divided by an
average of beginning and ending number of team members. Excluding the
operating income impact of the 53rd
week of fiscal 2008 of approximately $16.0 million and a $37.5 million
non-cash obsolete inventory write-down, operating income per team member
in fiscal 2008 was
$9.49.
|
(14)
|
Average
net sales per store is calculated as net sales divided by the average of
the beginning and the ending number of stores for the respective period.
Excluding the net sales impact of the 53rd
week of fiscal 2008 of approximately $89.0 million, average net sales per
store in fiscal 2008 was
$1,524.
|
(15)
|
Average
net sales per square foot is calculated as net sales divided by the
average of the beginning and ending total store square footage for the
respective period. Excluding the net sales impact of the 53rd
week of fiscal 2008 of approximately $89.0 million, average net sales per
square foot in fiscal 2008 was $208.
|
(16)
|
Gross
margin return on inventory is calculated as gross profit divided by an
average of beginning and ending inventory, net of accounts payable and
financed vendor accounts payable. Excluding the gross profit impact of the
53rd
week of fiscal 2008 of approximately $44.0 million and a $37.5 million
non-cash obsolete inventory write-down, gross margin return on inventory
in fiscal 2008 was
$3.46.
|
|
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The
following discussion and analysis of financial condition and results of
operations should be read in conjunction with "Selected Consolidated Financial
Data," our consolidated historical financial statements and the notes to those
statements that appear elsewhere in this report. Our discussion contains
forward-looking statements based upon current expectations that involve risks
and uncertainties, such as our plans, objectives, expectations and intentions.
Actual results and the timing of events could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including those set forth under “Forward-Looking Statements” and "Risk
Factors" elsewhere in this report.
Our
fiscal year ends on the Saturday nearest December 31st of each year, which
results in an extra week every several years (fiscal 2008 contained 53 weeks).
Our first quarter consists of 16 weeks, and the other three quarters consist of
12 weeks, with the exception of the fourth quarter fiscal 2008 which contained
13 weeks due to our 53-week fiscal year in 2008.
Introduction
We
operate primarily within the United States automotive aftermarket industry,
which includes replacement parts (excluding tires), accessories, maintenance
items, batteries and automotive chemicals for cars and light trucks (pickup
trucks, vans, minivans and sport utility vehicles). We currently are the second
largest specialty retailer of automotive parts, accessories and maintenance
items to “do-it-yourself,” or DIY, and "do-it-for-me," or Commercial, customers
in the United States, based on store count and sales. At January 3, 2009, we
operated 3,368 stores throughout 40 states.
We
operate in two reportable segments: Advance Auto Parts, or AAP, and Autopart
International, or AI. The AAP segment is comprised of our store
operations within the United States, Puerto Rico and the Virgin Islands which
operate under the trade names “Advance Auto Parts,” “Advance Discount Auto
Parts” and “Western Auto.” At January 3, 2009, we operated 3,243 stores in the
AAP segment, of which 3,215 stores operated under the trade names “Advance Auto
Parts” and “Advance Discount Auto Parts” throughout 40 states in the
Northeastern, Southeastern and Midwestern regions of the United States. These
stores offer automotive replacement parts, accessories and maintenance
items. In addition, we operated 28 stores under the “Western Auto”
and “Advance Auto Parts” trade names, located in Puerto Rico and the Virgin
Islands, or Offshore.
At
January 3, 2009, we operated 125 stores in the AI segment under the “Autopart
International” trade name. We acquired AI in September 2005. AI operates as
an independent, wholly-owned subsidiary. AI’s business primarily serves the
Commercial market from its store locations. In addition, its North American
Sales Division services warehouse distributors and jobbers throughout North
America.
Management
Overview
During
fiscal 2008, in a challenging year of deteriorating macroeconomic conditions, we
accelerated top-line sales growth by 6.1% and recorded earnings per diluted
share of $2.50 compared to $2.28 in fiscal 2007. Our fiscal 2008
financial results included an extra
week of operations (53rd week)
as well as a non-cash obsolete inventory
write-down of $37.5
million due to a change in inventory management approach for slow moving
inventory. We continued to generate significant operating cash flow that
allowed us to invest in business initiatives and return capital to shareholders
through cash dividends and share repurchases.
Fiscal
2008 was a transitional year for Advance, which included several executive
management changes and the introduction of key strategies and initiatives, as we
embarked on a concentrated effort to drive changes in response to diminished
sales and earnings growth during fiscal 2006 and 2007. In January 2008, Darren
Jackson was appointed to the position of President and Chief Executive Officer.
Mr. Jackson, who had previously served on our Board of Directors, Audit
Committee and Finance Committee, had already been involved with management on
the completion of certain strategic business assessments during fiscal 2007 and
the formulation of key initiatives discussed below. In addition to our CEO,
other new management leaders joined Advance in fiscal 2008 to work with existing
leaders on developing and executing a turnaround plan.
Fiscal
2008 Highlights
Highlights
from our fiscal 2008 include:
Financial
|
We
recorded earnings per diluted share of $2.50 compared to $2.28 for fiscal
2007. These results included approximately $0.10 of
diluted earnings per share from the 53rd
week as well as a reduction in diluted earnings per share of $0.25 from
the non-cash obsolete inventory write-down. In addition to these items,
our increase in earnings per share was driven by increased operating
income, reduced interest expense and a lower outstanding share count as a
result of 6.1 million shares having been repurchased during fiscal
2008.
|
|
|
|
|
Total
sales for fiscal 2008 increased 6.1% over fiscal 2007 to $5.14 billion,
primarily driven by new store growth, the 1.7% impact of the 53rd
week’s sales ($88.8 million) on total sales and a comparable store sales
increase of 1.5%. Our fourth quarter comparable sales increase of 3% was
the highest in 11 quarters.
|
|
|
|
|
We
generated operating cash flow of $478.7 million for the year, an increase
of $68.2 million over the comparable period in fiscal 2007, which was
primarily driven by higher earnings and the impact of the 53rd
week.
|
|
|
|
|
During
fiscal 2008, we repurchased 6.1 million shares of common stock for $216.5
million at an average price of $35.28 per share, of which 4.6 million
shares were repurchased under our previous $500 million stock repurchase
program.
|
Operational
|
Executive
management introduced four key turnaround strategies as the primary
catalyst for our transformation and turnaround. These four strategies
are:
|
|
|
|
|
1. |
Commercial
Acceleration
|
|
|
|
2. |
DIY
Transformation
|
|
|
|
3. |
Availability
Excellence
|
|
|
|
|
4. |
Superior
Experience
|
|
|
|
|
A
majority of the initiatives we began and/or completed during fiscal 2008
are centered around these four strategies, some of which are discussed in
the following section.
|
|
|
|
|
We
retired the 2010 store format and related remodel program. In
early fiscal 2009, we began an assessment of our store occupancy costs and
a potential divestiture of approximately 40 to 55 stores in addition to
our normal annual store closings that are strategically or financially
delivering unacceptable
|
|
results. These stores
were assessed for impairment as of January 3, 2009 and no impairment was
considered necessary at that
time.
|
Update on Turnaround
Strategies
Our
favorable results during fiscal 2008 were in part being driven by progress on
our key turnaround strategies. Each of the four strategies is at a different
stage of implementation.
Ø
|
Commercial
Acceleration
|
The
effectiveness of our Commercial Acceleration strategy is evident as we
experienced double digit comparable sales increases over the last four quarters
in Commercial sales. For fiscal 2008, we experienced a 12.1% Commercial
comparable store sales increase. We continue to gain market share in a business
that is very fragmented and still growing overall. We have added more parts to
our stores with Commercial programs, including key brands which are highly
respected and preferred by our Commercial customers. We are developing a sales
force to drive our Commercial business, another key component of the Commercial
Acceleration strategy. We are increasing the number of Commercial account
managers and equipping them with tools to acquire new customers and increase the
volume of existing customers’ purchases. We are also testing other initiatives
to roll out on a larger scale that meet the needs of our Commercial customers
and drive shareholder value.
The
initial focus of the DIY Transformation strategy is to turnaround our current
DIY sales trends utilizing targeted initiatives. Our DIY comparable store sales
decrease was 2.3% in fiscal 2008 with our fourth quarter improving to a decrease
of 1.1%. During fiscal 2008, we completed a 100-day assessment of our DIY
business where a representative group of management and field team members
worked together and concluded that we must continue to focus on initiatives such
as parts availability, attachment selling, superior customer service, and the
proper scheduling of team members. Additionally, we have identified certain
operating areas where we are experiencing positive DIY sales results which
provide us with an opportunity to utilize those best practices across the entire
DIY business.
Our
ability to achieve successful results in our Commercial Acceleration and DIY
Transformation strategies is dependent on our Availability Excellence and
Superior Experience strategies.
Ø
|
Availability
Excellence
|
The
Availability Excellence strategy represents our commitment to enhance the
breadth and depth of our parts availability in our stores, and the speed of our parts
delivery, to better
serve both our Commercial and DIY customers. This
strategy incorporates our supply chain and logistics network capabilities, space
management and merchandising initiatives. We are making progress on the parts
availability initiative as the merchandising and inventory management teams
partner with the Commercial and DIY teams to accelerate sales growth. As
discussed in Commercial Acceleration, key brands of parts such as Moog®
and Wagner®
were added during fiscal 2008. We began the rollout of a custom mix inventory
process chain-wide. In addition, we reviewed our inventory productivity and
changed our inventory management approach for slow moving inventory. We intend
to increase our inventory productivity by reducing the amount of slow moving
inventory and utilizing vendor return privileges earlier in the life-cycle of
our inventory which will allow us to add faster moving custom mix inventory. We
believe this change in inventory management approach will accelerate sales,
improve margins and increase inventory turnover.
Progress
in other initiatives included the restructuring of our merchandising department
into an integrated operating model, the completion of an initial phase of a new
category management process and the roll-out of a new price optimization tool.
As previously announced, we are also implementing an Oracle merchandising system
over a multi-year period which will serve as a key upgrade to our current
merchandising systems. We recently launched the Company’s global sourcing
capability and private brand strategy. In February 2009, we announced the
outsourcing of our private vehicle fleet, which will allow more scheduling
flexibility and reduce costs to help fund the expansion of our PDQ® network.
We will continue to measure progress in our Availability Excellence strategy,
using productivity metrics such as sales per square foot and gross margin return
on inventory. See Item 6, Selected Consolidated Financial
Data, for a presentation of these and other key metrics.
Superior
Experience is centered around our store operations and providing superior
customer service. We have begun to evaluate our customer service through the
measurement of Team Member engagement and customer satisfaction. We believe we
will gain valuable information from these results which will drive improvement
in our results in future quarters. In the fourth quarter, we tested a
new integrated operating model that demonstrated efficiencies in our Commercial
delivery business and related acceleration in Commercial sales. This new
staffing model will begin a phased-in rollout in the first quarter of 2009. The
leaders of Superior Experience will be re-engineering the store experience and
store operations as well as gaining a better understanding of what the customer
ultimately wants.
Industry
The steep
decline in consumer confidence, rapidly rising unemployment, the credit crisis
and the single largest decline in annual miles driven presented challenges to
retailers throughout fiscal 2008. More recently, retail industry comparable
store sales represented the worst retail environment in 40 years. However, the
automotive aftermarket industry will likely have an opportunity to benefit from
the economic downturn because consumers are keeping their vehicles longer which
increases the average age of vehicles and the need to repair and complete
routine maintenance on those vehicles.
Although
our fiscal 2008 results were positive, our outlook is cautious for fiscal 2009
given the current economic environment. We are still in the early stages of
implementing our four key turnaround strategies. We are committed to making the
necessary investments to help ensure our long-term success.
Store
Development by Segment
The
following table sets forth the total number of new, closed and relocated stores
and stores with Commercial delivery programs during fiscal 2008, 2007 and 2006.
We lease approximately 81% of our stores.
AAP
|
|
|
|
Fiscal
Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Number
of stores at beginning of year
|
|
|
3,153 |
|
|
|
2,995 |
|
|
|
2,810 |
|
New
stores
|
|
|
109 |
|
|
|
175 |
|
|
|
190 |
|
Closed
stores
|
|
|
(19 |
) |
|
|
(17 |
) |
|
|
(5 |
) |
Number
of stores, end of period(a)
|
|
|
3,243 |
|
|
|
3,153 |
|
|
|
2,995 |
|
Relocated
stores
|
|
|
10 |
|
|
|
29 |
|
|
|
47 |
|
Stores
with commercial delivery programs
|
|
|
2,755 |
|
|
|
2,604 |
|
|
|
2,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AI
|
|
|
|
|
Fiscal
Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Number
of stores at beginning of year
|
|
|
108 |
|
|
|
87 |
|
|
|
62 |
|
New
stores
|
|
|
18 |
|
|
|
21 |
|
|
|
25 |
|
Closed
stores
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
Number
of stores, end of period
|
|
|
125 |
|
|
|
108 |
|
|
|
87 |
|
Stores
with commercial delivery programs
|
|
|
125 |
|
|
|
108 |
|
|
|
87 |
|
(a)
|
Includes
2 stores not operating at December 30, 2006, primarily due to
hurricane damage.
|
During
fiscal 2009, we anticipate adding approximately 75 AAP and 30 AI stores and
closing 10 to 15 stores, excluding the stores that may be closed in connection
with our
store divestiture plan.
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 materially from these
estimates.
The
preparation of our financial statements included the following significant
estimates and exercise of judgment.
Vendor
Incentives
We
receive incentives from vendors as a result of purchasing and promoting their
products through a variety of programs, including cooperative advertising
allowances, volume rebates and other promotional incentives. We
account 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. Cooperative advertising allowances and
volume rebates are earned based on inventory purchases and are initially
recorded as a reduction to inventory. The deferred amounts are
included as a reduction to cost of sales as the inventory is sold.
We
recognize 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. Our margins could be impacted positively or
negatively if actual purchases or results from any one year differ from our
estimates; however, the impact over the life of the agreement would be the
same. Short-term incentives (terms less than one year) are generally
recognized as a reduction to cost of sales over the course of the
agreements.
Amounts
received or receivable from vendors that are not yet earned are reflected as
deferred revenue. Management's estimate of the portion of deferred revenue that
will be realized within one year of the balance sheet date is included in
Other current liabilities. Earned amounts that are receivable from vendors are
included in receivables except for that portion expected to be received
after one year, which is included in Other assets, net.
Inventory
Reserves
We
establish reserves for inventory shrink for our distribution centers based on
historical results from our cycle counting program and actual results from our
most recent cycle counts. For our store locations, we establish reserves for
estimated shrink based on historical results from our cycle counting program and
results of physical inventories, as adjusted for current economic conditions if
necessary. Beginning in the third quarter of fiscal 2008, we began transitioning
to a physical inventory process and had completed physical inventories in
approximately one-third of our retail stores as of January 3, 2009.
An
increase (or decrease) to our inventory reserves is recorded as an increase (or
decrease) to our cost of sales. Our estimates of these shrink reserves depend on
the results of the independent physical inventory counts and the accuracy of the
cycle count program, which is dependent on compliance rates of our facilities
and the execution of the required procedures. We evaluate the accuracy of our
cycle program on an ongoing basis and believe it provides reasonable assurance
for the established inventory shrink reserves. If estimates of our
shrink reserves are inaccurate based on the inventory counts, we may be exposed
to losses or gains that could be material.
We also
have recorded reserves for potentially excess and obsolete inventories based on
(i) current inventory levels, (ii) historical analysis of product sales and
(iii) current market conditions. We provide reserves where less than full credit
is expected from a vendor or where we anticipate that items will be sold at
retail prices that are less than recorded cost. We have historically developed
these estimates based on the determination of return privileges with vendors,
the level of credit provided by the vendor and management’s estimate of the
discounts to be recorded,
if any,
required by market conditions. At the end of fiscal 2008,
we reviewed our inventory productivity and changed our inventory management
approach for slow moving inventory. As a result, we increased our reserve for
excess and obsolete inventories by $34.1 million, excluding a LIFO and
warehousing cost impact of $3.4 million.
Our total
inventory reserves increased by $27.3 million in fiscal 2008 compared to fiscal
2007 primarily as a result of the increase to our excess and obsolete inventory
reserve. Future changes by vendors in their policies or willingness to accept
returns of excess inventory or changes in our inventory management approach for
excess and obsolete inventory could require us to revise our estimates of
required reserves and result in a negative impact on our consolidated statement
of operations. A 10% difference in actual inventory reserves at January 3, 2009
would have affected net income by approximately $3.9 million for the fiscal year
ended January 3, 2009.
Warranty
Reserves
We offer
limited warranties on certain products that range from 30 days to lifetime
warranties; the warranty obligation on the majority of merchandise sold by us
with a manufacturer’s warranty is borne by our vendors. However, we have
an obligation to provide customers free replacement of merchandise or
merchandise at a prorated cost if under a warranty and not covered by the
manufacturer. Merchandise sold with warranty coverage by us primarily
includes batteries but may also include other parts such as brakes and
shocks. We estimate and record a reserve for future warranty
claims based on the historical return experience of the products sold and
record any change as income or expense in the period the product is sold. If
claims experience differs from historical levels, revisions in our estimates may
be required, which could have an impact on our consolidated statement of
operations.
Our
warranty reserves increased by $10.9 million in fiscal 2008 compared to fiscal
2007. A portion of this obligation is funded by incentives from our vendors. The
overall increase in our warranty reserves was primarily attributable to an
increase in the quantity and cost of batteries sold during fiscal 2008 as well
as an increase in related warranty claims. Effective December 30, 2007, the
Company also began including in its warranty reserves the warranty obligation on
certain other products sold in addition to batteries. A 10% change in
the warranty reserves at January 3, 2009 would have affected net income by
approximately $1.8 million for the fiscal year ended January 3,
2009.
Self-Insurance
Reserves
We are
self-insured for general and automobile liability, workers' compensation and the
health care claims of our Team Members, although we maintain stop-loss coverage
with third-party insurers to limit our total liability exposure. Our
self-insurance program, started in 2001, has not reached full maturity. A
reserve for liabilities associated with these losses is established for claims
filed, claims incurred but not yet reported, projected future claims using
actuarial methods followed in the insurance industry and our historical claims
experience. Each year, our reserve for self-insurance increases over
the prior year because each year adds an additional layer of reserves without an
equal amount of prior year reserves being fully relieved. Generally, claims have
historically taken several years to settle and thus are not relieved at the same
rate as additional reserves are added each year. Our self-insurance reserves
increased by $5.0 million in fiscal 2008 compared to fiscal 2007. This increase
was primarily the result of the increase in the number of workers’ compensation
claims and automobile accident claims as well as an increase in the total cost
to settle workers’ compensation claims as compared to the prior
year. Although the increase in self-insured reserves in fiscal 2008
is less than in fiscal 2007, the increase in the number of claims continues to
be driven by overall growth, including an increase in total number of stores,
employees and Commercial delivery vehicles.
While we
do not expect the amounts ultimately paid to differ significantly from our
estimates, our self-insurance reserves and corresponding selling, general and
administrative expenses could be affected if future claim experience differs
significantly from historical trends and actuarial assumptions. A 10% change in
our self-insurance liabilities at January 3, 2009 would have affected net income
by approximately $5.7 million for the fiscal year ended January 3,
2009.
Tax
Reserves
The
determination of our income tax liabilities is based upon the tax codes,
regulations and pronouncements of the taxing jurisdictions in which we do
business. Our income tax returns are periodically examined by those
jurisdictions. These examinations include, among other things, auditing our
filing positions, the timing of deductions and allocation of income among the
various jurisdictions. At any particular time, multiple years are subject to
examination by various taxing authorities.
In
evaluating our income tax positions, we record reserves for potential exposures.
These tax reserves are adjusted in the period actual developments give rise to
such change. Those developments could be, but are not limited to: settlement of
tax audits, expiration of the statute of limitations, the evolution of tax
codes and regulations, along with varying applications of tax policy and
administration within those jurisdictions.
These tax
reserves contain uncertainties because management is required to make
assumptions and apply judgment to estimate exposures associated with our various
filing positions. Although management believes that the judgments and
estimates are reasonable, actual results could differ and the company may be
exposed to gains or losses that could be material. To the extent that actual
results differ from our estimates, the effective tax rate in any particular
period could be materially affected. Favorable tax developments would be
recognized as a reduction in our effective tax rate in the period of resolution.
Unfavorable tax developments would require an increase in our effective tax rate
and a possible use of cash in the period of resolution. A 10% change
in the tax reserves at January 3, 2009 would have affected net income by
approximately $1.4 million for the fiscal year ended January 3,
2009.
Components
of Statement of Operations
Net
Sales
Net sales
consist primarily of merchandise sales from our retail store locations to both
our DIY and Commercial customers. Our total sales growth is comprised of both
comparable store sales and new store sales. We calculate comparable store sales
based on the change in store sales starting once a store has been opened for 13
complete accounting periods (approximately one year). We include sales from
relocated stores in comparable store sales from the original date of
opening. Beginning in fiscal 2008, we also include in comparable store sales the
net sales from the Offshore and AI stores. The comparable periods have been
adjusted accordingly. Fiscal 2008 comparable store sales exclude the effect of
the 53rd
week.
Cost
of Sales
Our cost
of sales consists of merchandise costs, net of incentives under vendor programs;
inventory shrinkage, defective merchandise and warranty costs; and warehouse and
distribution expenses. Gross profit as a percentage of net sales may be
affected by (i) variations in our product mix, (ii) price changes in response to
competitive factors and fluctuations in merchandise costs, (iii) vendor
programs, (iv) inventory shrinkage, (v) defective merchandise and warranty costs
and (v) warehouse and distribution costs. We seek to minimize fluctuations in
merchandise costs and instability of supply by entering into long-term
purchasing agreements, without minimum purchase volume requirements, when we
believe it is advantageous. Our gross profit may not be comparable to those of
our competitors due to differences in industry practice regarding the
classification of certain costs. See Note 2 to our consolidated financial
statements elsewhere in this report for additional discussion of these
costs.
Selling,
General and Administrative Expenses
Selling,
general and administrative (“SG&A”) expenses consist of store payroll, store
occupancy (including rent and depreciation), advertising expenses, Commercial
delivery expenses, other store expenses and general and administrative expenses,
including salaries and related benefits of store support center team members,
share-based compensation expense, store support center administrative office
expenses, data processing, professional expenses, self-insurance costs and other
related expenses. See Note 2 to our consolidated financial statements for
additional discussion of these costs.
Consolidated
Results of Operations
The
following table sets forth certain of our operating data expressed as a
percentage of net sales for the periods indicated.
|
|
Fiscal
Year Ended
|
|
|
|
January
3,
|
|
|
December
29,
|
|
|
December
30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of sales
|
|
|
52.1 |
|
|
|
52.1 |
|
|
|
52.3 |
|
Gross
profit
|
|
|
47.9 |
|
|
|
47.9 |
|
|
|
47.7 |
|
Selling,
general and administrative expenses
|
|
|
39.8 |
|
|
|
39.3 |
|
|
|
39.0 |
|
Operating
income
|
|
|
8.1 |
|
|
|
8.6 |
|
|
|
8.7 |
|
Interest
expense
|
|
|
(0.7 |
) |
|
|
(0.7 |
) |
|
|
(0.8 |
) |
Loss
on extinguishment of debt
|
|
|
- |
|
|
|
- |
|
|
|
0.0 |
|
Other
income, net
|
|
|
(0.0 |
) |
|
|
0.0 |
|
|
|
0.1 |
|
Income
tax expense
|
|
|
2.8 |
|
|
|
3.0 |
|
|
|
3.0 |
|
Net
income
|
|
|
4.6 |
|
|
|
4.9 |
|
|
|
5.0 |
|
Fiscal
2008 Compared to Fiscal 2007
Net
Sales
Net sales
for fiscal 2008 were $5,142.3 million, an increase of $297.9 million, or 6.1%,
over net sales for fiscal 2007. The net sales increase was due to contributions
from the 107 net new AAP and AI stores opened within the last year, $88.8
million in sales from the 53rd week
and an increase in comparable store sales of 1.5%.
AAP
produced sales of $4,976.6 million, an increase of $267.2 million, or 5.7%.
AAP’s sales increase was primarily driven by a 1.3% comparable store sales
increase, $86.5 million in sales from the 53rd week
and sales from the 90 net new stores opened within the last year. The AAP
comparable store sales increase was driven by (i) an increase in average ticket
sales and customer traffic in our Commercial business and (ii) an increase in
average ticket sales by our DIY customers offset by a decrease in DIY customer
count. AI produced sales of $165.7 million, an increase of $30.6 million, or
22.7%. AI’s sales increase was primarily driven by a 9.2% comparable store sales
increase, $2.3 million in sales from the 53rd week
and sales from 17 net new stores opened within the last year.
We expect
to experience similar trends during fiscal 2009 as we continue to realize
benefits from our turnaround strategies partially offset by the continuation of
a challenging macroeconomic environment.
Gross
Profit
Gross
profit for fiscal 2008 was $2,463.1 million, or 47.9% of net sales, as compared
to $2,321.0 million, or 47.9% of net sales, in fiscal 2007, remaining flat.
Gross profit reflects a reduction of $37.5 million, or 73 basis points, or bps,
resulting from a non-cash obsolete inventory write-down due to a change in our
inventory management approach for slow moving inventory. Offsetting this
reduction in gross profit as a percentage of net sales were improvements in
gross profit from more effective pricing, decreased inventory shrink, and higher
sales from AI, which generated a higher gross profit rate. The impact on gross
profit from the 53rd week was
approximately $44 million and did not materially affect our gross profit
rate.
SG&A
SG&A
expenses for fiscal 2008 were $2,048.1 million, or 39.8% of net sales, as
compared to $1,904.5 million, or 39.3% of net sales, for fiscal 2007, or an
increase of 52 basis points. The increase in SG&A expenses as a percentage
of sales was driven primarily by investments in strategic initiatives, increased
incentive compensation and legal settlement costs partially offset by favorable
medical costs. Our SG&A rate for fiscal 2008 was favorably
impacted
by approximately 14 bps from the 53rd week as
a result of not including an additional week of fixed expenses that are
typically expensed in a 52-week year.
Operating
Income
Operating
income for fiscal 2008 was $414.9 million, or 8.1% of net sales, as compared to
$416.4 million, or 8.6% of net sales, in fiscal 2007, or a decrease of 53 basis
points. AAP produced operating income of $410.7 million, or 8.3% of net sales,
for fiscal 2008 as compared to $417.2 million, or 8.9% of net sales, in fiscal
2007. AI generated operating income for fiscal 2008 of $4.2 million as compared
to an operating loss of $0.8 million in fiscal 2007. Operating income increased
primarily due to AI’s positive sales results for the year and a decrease in
payroll expense as a percentage of sales. The Company's overall operating
income was reduced by a non-cash obsolete inventory write-down of $37.5 million
while results from the 53rd week
contributed approximately $15.8 million to our operating income.
Interest
Expense
Interest
expense for fiscal 2008 was $33.7 million, or 0.7% of net sales, as compared to
$34.8 million, or 0.7% of net sales, in fiscal 2007. The decrease in interest
expense was a result of lower average borrowing rates partially offset by higher
average outstanding borrowings as compared to fiscal 2007.
Income
Taxes
Income
tax expense for fiscal 2008 was $142.7 million, as compared to
$144.3 million for fiscal 2007. Our effective income tax rate was 37.5% and
37.7% for fiscal 2008 and fiscal 2007, respectively.
Net
Income & EPS
Net
income for fiscal 2008 was $238.0 million, or $2.50 per diluted share, for
fiscal 2008, as compared to $238.3 million, or $2.28 per diluted share, for
fiscal 2007. As a percentage of sales, net income for fiscal 2008 was 4.6%, as
compared to 4.9% for fiscal 2007. The increase in diluted earnings per share was
primarily due to a reduced share count as a result of the shares repurchased
during the last year. Net income and diluted earnings per share were reduced by
the non-cash obsolete inventory write-down of $23.7 million (net of tax) and
$0.25, respectively. Our results from the 53rd week
contributed approximately $9.6 million of net income and earnings per diluted
share of $0.10.
Fiscal
2007 Compared to Fiscal 2006
Net
Sales
Net sales
for fiscal 2007 were $4,844.4 million, an increase of $227.9 million, or 4.9%,
over net sales for fiscal 2006. The net sales increase was due to an increase in
comparable store sales of 0.8% and contributions from the 196 AAP and AI stores
opened within the prior year. The comparable store sales increase was driven by
an increase in average ticket sales and customer traffic in our Commercial
business and an increase in average ticket sales by our DIY customers offset by
a decrease in DIY customer count. AI produced sales of $135.0 million in fiscal
2007, an increase $23.9 million or 21.6%, compared to fiscal 2006. AI’s sales
increase was driven primarily by our acceleration of new-store growth through
fiscal 2006 and 2007.
Gross
Profit
Gross
profit for fiscal 2007 was $2,321.0 million, or 47.9% of net sales, as compared
to $2,201.2 million, or 47.7% of net sales, in fiscal 2006. The increase in
gross profit as a percentage of net sales was due primarily to improved
procurement costs, a positive shift in sales mix and lower logistics expense
partially offset by strategic price changes associated with our focused effort
on remaining competitive in the parts category.
SG&A
SG&A
expenses for fiscal 2007 were $1,904.5 million, or 39.3% of net sales, as
compared to $1,797.8 million,
or 39.0% of net
sales, for fiscal 2006. SG&A expenses increased as a percentage of sales
primarily as a result of an increase in certain fixed occupancy costs and lower
than anticipated sales growth, partially offset by reduced advertising
expense.
Operating
Income
Operating
income for fiscal 2007 was $416.4 million, or 8.6% of net sales, as compared to
$403.4 million, or 8.7% of net sales, in fiscal 2006. This decrease in operating
income, as a percentage of net sales, was reflective of higher selling, general
and administrative expenses partially offset by an increase in gross profit. AAP
produced operating income of $417.2 million, or 8.9% of net sales, for fiscal
2007 as compared to $402.3 million, or 8.9% of net sales, in fiscal 2006. AI
generated an operating loss for fiscal 2007 of $0.8 million as compared to
operating income of $1.1 million in fiscal 2006. This decrease in operating
income was primarily driven by lower than anticipated sales, additional expenses
associated with the transition to AI’s new distribution center early in fiscal
2007 and the reinvestment of resources to accelerate AI’s store growth and roll
out of certain AI branded product.
Interest
Interest
expense for fiscal 2007 was $34.8 million, or 0.7% of net sales, as compared to
$36.0 million, or 0.8% of net sales, in fiscal 2006. The decrease in interest
expense was a result of lower average outstanding borrowings and lower average
borrowing rates as compared to fiscal 2006.
Income
Taxes
Income
tax expense for fiscal 2007 was $144.3 million, as compared to
$138.6 million for fiscal 2006. Our effective income tax rate was 37.7% and
37.5% for fiscal 2007 and 2006, respectively.
Net
Income & EPS
We
generated net income of $238.3 million, or $2.28 per diluted share, for fiscal
2007, as compared to $231.3 million, or $2.16 per diluted share, for fiscal
2006. As a percentage of sales, net income for fiscal 2007 was 4.9%, as compared
to 5.0% for fiscal 2006.
Quarterly
Consolidated Financial Results (in thousands, except per share
data)
|
|
16-Weeks
|
|
|
12-Weeks
|
|
|
12-Weeks
|
|
|
12-Weeks
|
|
|
16-Weeks
|
|
|
12-Weeks
|
|
|
12-Weeks
|
|
|
13-Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
4/21/2007
|
|
|
7/14/2007
|
|
|
10/6/2007
|
|
|
12/29/2007
|
|
|
4/19/2008
|
|
|
7/12/2008
|
|
|
10/4/2008
|
|
|
1/3/2009
|
|
Net
sales
|
|
$ |
1,468,120 |
|
|
$ |
1,169,859 |
|
|
$ |
1,158,043 |
|
|
$ |
1,048,382 |
|
|
$ |
1,526,132 |
|
|
$ |
1,235,783 |
|
|
$ |
1,187,952 |
|
|
$ |
1,192,388 |
|
Gross
profit
|
|
|
709,403 |
|
|
|
562,861 |
|
|
|
555,113 |
|
|
|
493,592 |
|
|
|
743,451 |
|
|
|
600,838 |
|
|
|
577,119 |
|
|
|
541,656 |
|
Net
income
|
|
|
76,101 |
|
|
|
68,424 |
|
|
|
59,040 |
|
|
|
34,752 |
|
|
|
82,086 |
|
|
|
75,386 |
|
|
|
56,155 |
|
|
|
24,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.72 |
|
|
$ |
0.64 |
|
|
$ |
0.58 |
|
|
$ |
0.35 |
|
|
$ |
0.86 |
|
|
$ |
0.79 |
|
|
$ |
0.59 |
|
|
$ |
0.26 |
|
Diluted
|
|
$ |
0.71 |
|
|
$ |
0.64 |
|
|
$ |
0.57 |
|
|
$ |
0.35 |
|
|
$ |
0.86 |
|
|
$ |
0.79 |
|
|
$ |
0.59 |
|
|
$ |
0.26 |
|
Liquidity and Capital
Resources
Overview
of Liquidity
Our
primary cash requirements to maintain our current operations include payroll and
benefits, the purchase of inventory, contractual obligations, capital
expenditures as well as the payment of quarterly cash dividends. In addition, we
have used available funds to repurchase shares of common stock under our stock
repurchase program and to repay borrowings under our credit facility. We have
funded these requirements primarily through cash generated from operations,
supplemented by borrowings under our credit facilities as needed. We believe
funds generated from our expected results
of operations,
available cash and cash equivalents, and available borrowings under our
revolving credit facility will be sufficient to fund our primary obligations for
the next fiscal year.
At January 3, 2009, our
cash and cash equivalents balance was $37.4 million, an increase of $22.7
million compared to fiscal year-end 2007. This increase resulted from additional
cash flows from operating activities (including higher comparable store sales)
and lower capital expenditures, partially offset by an increase in expenditures
for financing activities (including the return of capital to our shareholders
through the payment of dividends and the repurchase of common stock during
fiscal 2008). Additional discussion of our cash flow results is set forth in the
Analysis of Cash Flows
section.
At
January 3, 2009, our outstanding indebtedness was $49.5 million lower when
compared to December 29, 2007 and consisted of borrowings of $251.5 million
under our revolving credit facility, $200.0 million under our term loan, $4.0
million outstanding on an economic development note and $0.7 outstanding under
other financing arrangements. Additionally, we had $101.3 million in letters of
credit outstanding, which reduced our total availability under the revolving
credit facility to $397.2 million.
In light
of the uncertainty in the credit markets, it is possible that one or more of the
banks in our revolving credit facility syndicate may be unable to provide our
remaining available credit. We have 15 lenders participating in our revolving
credit facility, each with a commitment of not more than 15% of the total $750
million commitment. Furthermore, all of these lenders have met their contractual
funding commitments to us through January 3, 2009. An inability to obtain
sufficient financing at cost-effective rates could have a materially adverse
impact on our business, financial condition, results of operations and cash
flows.
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, store remodels prior to fiscal 2008, maintenance of existing
stores, the construction and upgrading of distribution centers, and the
development of proprietary information systems and purchased information
systems. Our capital expenditures were $185.0 million in fiscal 2008, or $25.6
million less than fiscal 2007, primarily due to a reduction in store
development. During fiscal 2008, we opened 109 AAP and 18 AI stores, remodeled
five AAP stores and relocated 10 AAP stores.
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 investments
we make in information technology and logistics networks. During fiscal 2009, we
anticipate adding 75 new AAP and 30 new AI stores. We will
relocate and remodel only in the normal course of business. We
retired the 2010 store format and related remodel program during fiscal
2008.
We also
plan to make continued investments in the maintenance of our existing stores and
logistics network as well as investing in new information systems to support our
turnaround strategies, including the implementation of an Oracle merchandising
system over a multi-year timeframe. In 2009, we anticipate that our capital
expenditures will be approximately $180.0 million to
$200.0 million.
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. In
substance, the program allows 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. At January 3, 2009 and December 29, 2007, $136.4 million and $153.5
million, respectively, was payable to the bank by us under this
program.
We are anticipating the
balance in financed vendor accounts payable to diminish as we transition our
merchandise vendors to a customer-managed services arrangement, or vendor
program, entered into during the fourth quarter of fiscal 2008. Under this
vendor program, a third party provides an accounts payable tracking system which
facilitates participating suppliers’ ability to finance our payment obligations
with designated third-party financial institutions. Participating suppliers may,
at their sole discretion, make offers to participating financial institutions to
finance one or more of our payment obligations prior to their scheduled due
dates at a discounted price. Our obligations to suppliers, including amounts due
and scheduled payment dates, are not impacted by suppliers’
decisions to finance our accounts payable due to them under this arrangement.
Our goal in entering into this arrangement is to capture overall supply chain
savings in the form of pricing, payment terms or vendor funding, created by
facilitating our suppliers’ ability to finance payment obligations at more
favorable discount rates, while providing them with greater working capital
flexibility.
As of
January 3, 2009, we had $14.3 million in outstanding payables under our vendor
program and had remaining availability of approximately $25 million. It is
possible any ongoing or worsening deterioration in the credit markets could
adversely impact our ability to secure funding for any of these programs, which
would reduce our anticipated savings, including but not limited to, causing us
to increase our borrowings under our revolving credit facility.
Stock
Repurchase Program
On May
15, 2008, our Board of Directors authorized a new $250 million stock repurchase
program. The new program cancelled and replaced the remaining portion of our
previous $500 million stock repurchase program (authorized on August 8, 2007).
This 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.
During
fiscal 2008, we repurchased 6.1 million shares of common stock at an aggregate
cost of $216.5 million, or an average price of $35.28 per share, of which 4.6
million shares of common stock were repurchased under the previous $500 million
stock repurchase program during the first quarter of fiscal 2008. After May 15,
2008, we repurchased 1.5 million shares of common stock for $61.1 million,
leaving $188.9 million remaining under our current $250 million stock
repurchase program, excluding related expenses. Additionally, during fiscal 2008
we settled $3.0 million on shares repurchased prior to the end of fiscal
2007.
Cash
Dividend
On
February 15, 2006, our Board of Directors declared a quarterly cash dividend,
the first in our history. We have paid quarterly dividends of $0.06 per share to
stockholders of record for each of our subsequent quarters. Subsequent to
January 3, 2009, our Board of Directors declared a quarterly dividend of $0.06
per share to be paid on April 10, 2009 to all common stockholders of record as
of March 27, 2009.
Analysis
of Cash Flows
A summary
and analysis of our cash flows for fiscal 2008, 2007 and 2006 is reflected in
the table and following discussion.
|
|
Fiscal
Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
Cash
flows from operating activities
|
|
$ |
478.7 |
|
|
$ |
410.5 |
|
|
$ |
333.6 |
|
Cash
flows from investing activities
|
|
|
(181.6 |
) |
|
|
(202.1 |
) |
|
|
(258.6 |
) |
Cash
flows from financing activities
|
|
|
(274.4 |
) |
|
|
(204.9 |
) |
|
|
(104.6 |
) |
Net
increase (decrease) in cash and
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
equivalents
|
|
$ |
22.7 |
|
|
$ |
3.5 |
|
|
$ |
(29.6 |
) |
Operating
Activities
For
fiscal 2008, net cash provided by operating activities increased $68.2 million
to $478.7 million. This net increase in operating cash was driven primarily
by:
|
$23.4
million increase in earnings exclusive of a $23.6 million non-cash
obsolete inventory write-down (net of tax) as a result of our favorable
operating income during fiscal 2008 (inclusive of
the approximate $9.6 million impact of the 53rd
week); and
|
|
a
$29.5 million increase in cash flows resulting from the timing of the
payment of accrued operating
expenses.
|
For
fiscal 2007, net cash provided by operating activities increased $76.9 million
to $410.5 million. Net income increased by $7.0 million during fiscal 2007.
Significant changes in fiscal 2007 working capital resulted in the following
sources of cash:
|
a
$41.2 million increase in cash flows from inventory, net of accounts
payable, reflective of our slow down of inventory growth in line with our
current sales trend, while maintaining adequate levels of inventory to
support our parts availability initiative;
and
|
|
a
$35.7 million increase in cash flows comprised of other movements in
working capital, including the timing in payment of certain operating
expenses.
|
Investing
Activities
For
fiscal 2008, net cash used in investing activities decreased by $20.5 million to
$181.6 million. The decrease in cash used was primarily due
to:
|
a
$25.6 million decrease in capital expenditures reflective of a reduction
in store development; and
|
|
the
absence of $6.6 million in insurance proceeds, received in fiscal
2007.
|
For
fiscal 2007, net cash used in investing activities decreased by $56.5 million to
$202.1 million. Significant components of this decrease consisted
of:
|
a
decrease in capital expenditures of $48.0 million resulting primarily from
less spending on capital assets in our store locations, the impact of the
reduced scope in remodels and fewer relocations as compared to 2006;
and
|
|
the
absence of a $12.5 million business acquisition payment made in fiscal
2006.
|
Financing
Activities
For
fiscal 2008, net cash used in financing activities increased by $69.6 million to
$274.4 million.
Cash
flows from financing activities increased as a result of:
|
a
$63.5 million decrease in the repurchase of common stock under our stock
repurchase program.
|
Cash
flows from financing activities decreased as result of:
|
a
$5.2 million cash outflow resulting from the timing of bank
overdrafts;
|
|
a
$43.2 million decrease in financed vendor accounts payable driven by the
transition of our vendors from our vendor financing program to our
customer-managed services
arrangement;
|
|
a
reduction of $78.6 million in net borrowings primarily under our credit
facilities; and
|
|
a
$7.3 million decrease in additional tax benefits associated with from the
decreased number of stock options
exercised.
|
For
fiscal 2007, net cash used in financing activities increased by $100.3 million
to $204.9 million.
Cash
flows from financing activities increased as result of:
|
an
$11.8 million cash inflow resulting from the timing of bank
overdrafts;
|
|
a
$17.8 million increase in financed vendor accounts payable, which
reflected the growth in our vendor financing
program;
|
|
a $25.3
million increase from the issuance of common stock, resulting from an
increase in the exercise of stock options mainly associated with the
departure of our former CEO and another executive officer during fiscal
2007; and
|
|
a
$6.6 million cash inflow from additional tax benefits realized from the
increased level of stock options
exercised.
|
Cash
flows from financing activities decreased as a result of:
|
a
reduction of $14.3 million in net borrowings primarily under our credit
facilities;
|
|
$6.0
million of additional cash dividends paid due primarily to the timing in
payments; and
|
|
an
additional $145.4 million of common stock repurchased under our stock
repurchase program.
|
Off-Balance-Sheet
Arrangements
As of
January 3, 2009, we had no off-balance-sheet arrangements as defined in
Regulation S-K Item 303 of the SEC regulations. We include other
off-balance-sheet arrangements in our contractual obligation table including
operating lease payments, interest payments on our credit facility and letters
of credit outstanding.
Contractual
Obligations
In
addition to our revolving credit facility, we utilize operating leases as
another source of financing. The amounts payable under these operating leases
are included in our schedule of contractual obligations. Our future contractual
obligations related to long-term debt, operating leases and other contractual
obligations at January 3, 2009 were as follows:
Contractual
Obligations
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
(in
thousands)
|
|
Long-term
debt (1)
|
|
$ |
456,164 |
|
|
$ |
1,003 |
|
|
$ |
1,043 |
|
|
$ |
452,162 |
|
|
$ |
742 |
|
|
$ |
689 |
|
|
$ |
525 |
|
Interest
payments
|
|
$ |
59,216 |
|
|
$ |
19,317 |
|
|
$ |
20,149 |
|
|
$ |
19,675 |
|
|
$ |
44 |
|
|
$ |
24 |
|
|
$ |
7 |
|
Operating
leases(2)
|
|
$ |
2,149,234 |
|
|
$ |
282,967 |
|
|
$ |
247,640 |
|
|
$ |
226,361 |
|
|
$ |
202,022 |
|
|
$ |
177,500 |
|
|
$ |
1,012,744 |
|
Purchase
obligations(3)
|
|
$ |
6,291 |
|
|
$ |
6,291 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Other
long-term liabilities(4)
|
|
$ |
68,744 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
(1)
|
Long-term
debt represents primarily the principal amounts due under our term loan
and revolving credit facility, which become due in October
2011.
|
(2)
|
We
lease certain store locations, distribution centers, office space,
equipment and vehicles. Our property leases generally contain renewal and
escalation clauses and other concessions. These provisions are considered
in our calculation of our minimum lease payments which are recognized as
expense on a straight-line basis over the applicable lease term. In
accordance with SFAS No. 13, “Accounting for Leases,” as amended by SFAS
No. 29, “Determining Contingent Rental,” any lease payments that are based
upon an existing index or rate, are included in our minimum lease payment
calculations.
|
(3)
|
For
the purposes of this table, purchase obligations are defined as agreements
that are enforceable and
|
|
legally
binding and that specify all material 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
obligations consist of the amount of diesel fuel required to be purchased
by us under certain fixed price fuel supply agreements. All of these
agreements expire in 2009.
|
(4)
|
Primarily
includes employee benefits accruals, restructuring and closed store
liabilities and deferred income taxes for which no contractual payment
schedule exists and we expect the payments to occur beyond 12 months from
January 3, 2009. Additionally, Other long-term liabilities include $20.6
million of unrecognized income tax benefits. During the next 12 months, it
is possible that we could conclude on
approximately $2 to $3 million of the contingencies associated with
these tax uncertainties, a portion of which may be settled in cash. We do
not anticipate any significant impact on our liquidity and capital
resources due to the conclusion of these tax
matters.
|
Long
Term Debt
Term
Loan
We
entered into a $200 million unsecured four-year term loan on December 4,
2007, with our wholly-owned subsidiary, Advance Stores Company, Incorporated, or
Stores, serving as borrower. As of January 3, 2009, we had borrowed $200 million
under this term loan, as compared to borrowings of $50 million as of December
29, 2007. The entire $200 million of proceeds from this term loan were used to
repurchase shares of our common stock under our stock repurchase
program. The term loan terminates on October 5, 2011. Voluntary
prepayments and voluntary reductions of the term loan balance are permitted in
whole or in part, at our option, in minimum principal amounts as specified in
the term loan.
The
interest rate on the term loan is based, at our option, on an adjusted
LIBOR rate, plus a margin, or an alternate base rate, plus a margin. The
current margin is 1.00% and 0.0% per annum for the adjusted LIBOR and alternate
base rate borrowings, respectively. We have elected to use the 90-day adjusted
LIBOR rate and have the ability and intent to continue to use this rate on our
hedged borrowings. Under the terms of the term loan, the interest rate is
based on our credit rating.
Revolving
Credit Facility
In
addition to the term loan, we have a $750 million unsecured five-year revolving
credit facility with Stores serving as the borrower. The revolving credit
facility also provides for the issuance of letters of credit with a sub limit of
$300 million, and swingline loans in an amount not to exceed $50 million. We may
request, subject to agreement by one or more lenders, that the total revolving
commitment be increased by an amount not exceeding $250 million (up to a total
commitment of $1 billion) during the term of the credit agreement. Voluntary
prepayments and voluntary reductions of the revolving balance are permitted in
whole or in part, at our option, in minimum principal amounts as specified in
the revolving credit facility. The revolving credit facility
terminates on October 5, 2011.
As of
January 3, 2009, we had $251.5 million
outstanding under our revolving credit facility, and letters of credit
outstanding of $101.3 million, which reduced the availability under the
revolving credit facility to $397.2 million. The letters of credit serve as
collateral for our self-insurance policies and routine purchase of imported
merchandise. A commitment fee is charged on the unused portion of the
revolver, payable in arrears. The current commitment fee rate is 0.150% per
annum.
The
interest rate on borrowings under the revolving credit facility is based, at our
option, on an adjusted LIBOR rate, plus a margin, or an alternate base rate,
plus a margin. The current margin is 0.75% and 0.0% per annum for the adjusted
LIBOR and alternate base rate borrowings, respectively. We have elected to
use the 90-day adjusted LIBOR
rate and have the ability
and intent to continue to use this rate on our hedged borrowings. Under the
terms of the revolving credit facility, the interest rate (and commitment fee)
is based on our credit rating.
Other
As of
January 3, 2009, we had $4.0 million outstanding under an economic development
note and $0.7 million outstanding under other financing arrangements. At January
3, 2009, we had interest rate swaps in place that effectively fixed our interest
rate on approximately 60% of our long-term debt.
Guarantees
and Covenants
The term
loan and revolving credit facility are fully and unconditionally guaranteed by
Advance Auto Parts, Inc. Our debt agreements collectively contain covenants
restricting our ability to, among other things: (1) create, incur or assume
additional debt (including hedging arrangements), (2) incur liens or engage in
sale-leaseback transactions, (3) make loans and investments, (4) guarantee
obligations, (5) engage in certain mergers, acquisitions and asset sales, (6)
change the nature of our business and the business conducted by our subsidiaries
and (7) change our status as a holding company. We are required to comply with
financial covenants with respect to a maximum leverage ratio and a minimum
consolidated coverage ratio. We were in compliance with these covenants at
January 3, 2009. Our term loan and revolving credit
facility also provide for customary events of default, covenant defaults
and cross-defaults to our other material indebtedness.
Credit
Ratings
At
January 3, 2009, we had a credit rating from Standard & Poor’s of BB+ and a
credit rating of Ba1 from Moody’s Investor Service, unchanged from December 29,
2007. The current outlook of Standard & Poor’s and Moody’s is negative and
stable, respectively, but does not affect our current credit ratings. The
current pricing grid used to determine our borrowing rates under our term loan
and revolving credit facility is based on our credit ratings. If these credit
ratings decline, our interest expense may increase. Conversely, if these credit
ratings improve, our interest expense may decrease. If our credit ratings
decline, our access to financing may become more limited.
New
Accounting Pronouncements
In
June 2008, the Financial Accounting Standards Board, or FASB, issued FASB
Staff Position, or FSP, EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.” FSP
EITF 03-6-1 addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting, and therefore need
to be included in the earnings allocation in computing earnings per share under
the two-class method as described in Statement of Financial Accounting
Standards, or SFAS, No. 128, “Earnings per Share.” Under the guidance of FSP
EITF 03-6-1, nonvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings-per-share pursuant to the two-class method. FSP EITF 03-6-1
is effective for financial statements issued for fiscal years beginning after
December 15, 2008 and all prior-period earnings per share data
presented shall be adjusted retrospectively. Early application is not
permitted. We do not anticipate the adoption of FSP EITF 03-6-1 will
have an impact on our earnings per share.
In June
2008, the FASB Issued EITF No. 08-3, “Accounting by Lessees for
Nonrefundable Maintenance Deposits.” EITF 08-3 requires that nonrefundable
maintenance deposits paid by a lessee under an arrangement accounted for as a
lease be accounted for as a deposit asset until the underlying maintenance is
performed. When the underlying maintenance is performed, the deposit may be
expensed or capitalized in accordance with the lessee’s maintenance accounting
policy. Upon adoption entities must recognize the effect of the change as a
change in accounting principle. EITF 08-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008. We do not expect the
adoption of EITF 08-3 to have a material impact on our financial condition,
results of operations or cash flows.
In
April 2008, the FASB issued FASB Staff Position No. FAS 142-3,
“Determination of the Useful Life of Intangible Assets,” which amends the
factors that must be considered in developing renewal or extension
assumptions used to
determine the useful life over which to amortize the cost of a recognized
intangible asset under SFAS 142, “Goodwill and Other Intangible Assets.” The FSP
requires an entity to consider its own assumptions about renewal or extension of
the term of the arrangement, consistent with its expected use of the asset, and
is an attempt to improve consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS 141, “Business Combinations.” The
FSP is effective for fiscal years beginning after December 15, 2008, and
the guidance for determining the useful life of a recognized intangible asset
must be applied prospectively to intangible assets acquired after the effective
date. The FSP is not expected to have a significant impact on our financial
condition, results of operations or cash flow.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities - an amendment of SFAS
No. 133.” SFAS No. 161 is intended to improve financial
standards for derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity's financial position, financial performance and cash flows. Entities
are required to provide enhanced disclosures about: (i) how and why an entity
uses derivative instruments; (ii) how derivative instruments and related hedged
items are accounted for under SFAS No. 133 and its related interpretations;
and (iii) how derivative instruments and related hedged items affect an entity's
financial position, financial performance and cash flows. SFAS No. 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. We are evaluating the
impact the adoption of SFAS No. 161 will have on our consolidated financial
statements.
In
February 2008, the FASB issued FASB Staff Position No. FAS 157-1, “Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13.” FSP No. FAS 157-1 amends SFAS
No. 157, “Fair Value Measurements,” to exclude SFAS No. 13, “Accounting for
Leases,” and other accounting pronouncements that address fair value
measurements for purposes of lease classification or measurement under SFAS No.
13. However, this scope exception does not apply to assets acquired and
liabilities assumed in a business combination that are required to be measured
at fair value under SFAS No. 141 or SFAS No. 141(R), Business Combinations
(revised 2007), regardless of whether those assets and liabilities are related
to leases. The FSP will be effective upon the full adoption of SFAS 157 during
the first quarter of fiscal 2009 and will not have a material impact on our
financial position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which
replaces SFAS No. 141, “Business Combinations.” SFAS No. 141R, among other
things, establishes principles and requirements for how an acquirer entity
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed and any controlling interests in the acquired
entity; recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. Costs of the acquisition
will be recognized separately from the business combination. SFAS No. 141R
applies to business combinations for fiscal years beginning after December 15,
2008. We will consider this standard when evaluating potential future
transactions to which it would apply.
Effective
December 30, 2007, we adopted the provisions of SFAS No. 157, “Fair Value
Measurements” on our financial assets and liabilities subject to the deferral
provisions of FSP157-2. SFAS No. 157 clarifies the definition of fair value,
establishes a framework for defining fair value as it relates to other
accounting pronouncements that require or permit fair value measurements, and
expands the disclosures of fair value measurements. We did not apply the
provisions of SFAS No. 157 for nonfinancial assets and liabilities except for
those recognized or disclosed on a recurring basis (at least annually) as
allowed by the issuance of FSP No. 157-2. The deferral provided by FSP
No. 157-2 applies to such items as (i) nonfinancial assets and liabilities
initially measured at fair value in a business combination (but not measured at
fair value in subsequent periods) and (ii) nonfinancial long-lived asset groups
measured at fair value for an impairment assessment. We are evaluating the
impact FSP No. 157-2 will have on our nonfinancial assets and liabilities
that are measured at fair value and are recognized or disclosed at fair value on
a nonrecurring basis. The adoption of SFAS 157 did not have a material impact on
our financial condition, results of operations or cash flows. We will fully
adopt SFAS 157 effective during our first quarter of fiscal 2009.
Effective
December 30, 2007, we adopted the provisions of SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value. We elected not to apply fair value on our existing financial
assets and liabilities upon adoption. Therefore, this adoption did not have a
material effect on our financial position, results of operations or cash
flows.
|
|
Quantitative
and Qualitative Disclosures about Market
Risks.
|
Interest
Rate Risk
We are
exposed to cash flow risk due to changes in interest rates with respect to our
long-term bank debt as a result of the movements in LIBOR. Our long-term bank
debt consists of borrowings under a revolving credit facility and a term
loan. While we cannot predict the impact interest rate movements will have on
our bank debt, exposure to rate changes is managed through the use of hedging
activities.
Our future exposure to
interest rate risk is mitigated as a result of our entering into an interest
rate swap in fiscal 2007 on an aggregate of $50 million of debt under our term
loan and four interest rate swap agreements in fiscal 2006 on an aggregate of
$225 million of debt under our revolving credit facility. The interest rate
swaps entered into during 2006 replaced the previously outstanding swaps
terminated as a result of our refinancing in October
2006.
At
January 3, 2009, our outstanding swaps fixed the Company’s LIBOR rate on an
aggregate of $275 million of hedged debt at interest rates ranging from 4.01% to
4.98%. All of the swaps expire in October 2011.
The table
below presents principal cash flows and related weighted average interest rates
on our long-term bank debt outstanding at January 3, 2009, by expected maturity
dates. Additionally, the table includes (i) the notional amounts of our hedged
debt, and (ii) 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 January 3, 2009. Implied forward rates
should not be considered a predictor of actual future interest
rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Liability
|
|
Long-term
bank debt:
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
rate
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
451,500 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
451,500 |
|
|
$ |
370,500 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average interest rate
|
|
|
2.1 |
% |
|
|
2.6 |
% |
|
|
3.3 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2.5 |
% |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
to fixed(2)
|
|
$ |
275,000 |
|
|
$ |
275,000 |
|
|
$ |
275,000 |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
21,979 |
|
Weighted
average pay rate
|
|
|
3.6 |
% |
|
|
3.1 |
% |
|
|
2.4 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3.0 |
% |
|
|
- |
|
Weighted
average receive rate
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
(1)
|
The
fair value of our bank debt is approximated based on similar
issues available to us as of January 3,
2009.
|
(2)
|
Amounts
presented may not be outstanding for the entire
year.
|
|
|
Financial
Statements and Supplementary Data.
|
See
financial statements included in Item 15 “Exhibits, Financial Statement
Schedules” of this annual report.
|
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
|
None.
Disclosure Controls and
Procedures. Disclosure controls and procedures are 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.
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 in
accordance with Rule 13a-15(b) under the Exchange Act. 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.
Management's Report on Internal
Control over Financial Reporting. Management’s Report on Internal Control
over Financial Reporting is set forth in Part IV, Item 15 of this annual
report.
There were no changes in
our internal control over financial reporting that occurred during the quarter
ended January 3, 2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
|
|
Directors,
Executive Officers and Corporate
Governance.
|
See the information set forth in the
sections entitled “Meetings and Committees of the Board – Compensation Committee
Interlocks and Insider Participation,” “Compensation Committee Report” and
“Executive Compensation” in the 2009 Proxy Statement, which is incorporated
herein by reference.
|
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
See
the information set forth in the sections entitled “Equity Compensation Plan
Information” and "Security Ownership of Certain Beneficial Owners and
Management" in the 2009 Proxy Statement, which is incorporated herein by
reference.
|
|
Certain
Relationships and Related Transactions, and Director Independence.
|
See the
information set forth in the sections entitled "Related-Party Transactions,”
“Proposal No. 1 – Election of Directors –Compensation Committee Interlocks and
Insider Participation” and “Corporate Governance” in the 2009 Proxy Statement,
which is incorporated herein by reference.
|
|
Principal
Accountant Fees and Services.
|
See the
information set forth in the section entitled “2008 and 2007 Audit Fees” in the
2009 Proxy Statement, which is incorporated herein by reference.
Item
15. Exhibits, Financial Statement
Schedules.
Management
of Advance Auto Parts, Inc. and its subsidiaries (collectively the “Company”) is
responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13(a) – 15(f) under the Securities
Exchange Act of 1934. The Company’s internal control over financial reporting is
a process designed under the supervision of the Company’s principal executive
officer and principal financial officer, and effected by the Company’s Board of
Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the
Company’s financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America.
Our
internal control over financial reporting includes policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
Company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and
that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements.
As of
January 3, 2009, management, including the Company’s principal executive officer
and principal financial officer, assessed the effectiveness of the Company’s
internal control over financial reporting based on the criteria established in
Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on this assessment, management has determined
that the Company’s internal control over financial reporting as of January 3,
2009 is effective. Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud
may not be prevented or detected on a timely basis. Also, projections
of any evaluation of the effectiveness of the internal control over financial
reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Deloitte
& Touche LLP, the Company’s independent registered public accounting firm
who audited the Company’s consolidated financial statements, has issued an
attestation report on the Company’s internal control over financial reporting as
of January 3, 2009 which is included on page F-3 herein.
/s/
Darren
R. Jackson |
|
/s/ Michael A. Norona |
|
Darren R. Jackson |
|
Michael A. Norona |
|
Chief Executive Officer and
Director
|
Executive Vice President,
Chief Financial Officer and
Secretary
|
March 3,
2009
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Stockholders of
Advance
Auto Parts, Inc. and Subsidiaries
Roanoke,
Virginia
We have
audited the accompanying consolidated balance sheets of Advance Auto Parts, Inc.
and subsidiaries (the "Company") as of January 3, 2009 and December 29, 2007,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended January
3, 2009. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Advance Auto Parts, Inc. and subsidiaries as
of January 3, 2009 and December 29, 2007, and the results of their operations
and their cash flows for each of the three years in the period ended January 3,
2009, in conformity with accounting principles generally accepted in the United
States of America.
As
discussed in Notes 2, 12 and 16 to the consolidated financial statements, the
Company changed its method of accounting for uncertain tax positions to conform
to FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, in 2007, and its method of accounting for share-based payments to
conform to FASB Statement No. 123(R), Share-Based Payment, in
2006.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of January 3, 2009, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 3, 2009 expressed an unqualified
opinion on the Company's internal control over financial reporting.
/s/ Deloitte & Touche
LLP
Richmond,
Virginia
March 3,
2009
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Advance
Auto Parts, Inc. and Subsidiaries
Roanoke,
Virginia
We have
audited the internal control over financial reporting of Advance Auto Parts,
Inc. and subsidiaries (the "Company") as of January 3, 2009, based on criteria
established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to
express an opinion on the Company's internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of January 3, 2009, based on the criteria
established in Internal
Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended January 3, 2009 of the Company and our report dated March 3,
2009 expressed an unqualified opinion on those financial statements and included
an explanatory paragraph regarding the Company’s adoption of new accounting
standards.
/s/ Deloitte & Touche
LLP
Richmond,
Virginia
March 3,
2009
CONSOLIDATED BALANCE
SHEETS
January 3, 2009 and December 29,
2007
(in thousands, except per share
data)
|
|
January
3,
|
|
|
December
29,
|
|
Assets
|
|
2009
|
|
|
2007
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
37,358 |
|
|
$ |
14,654 |
|
Receivables,
net
|
|
|
97,203 |
|
|
|
84,983 |
|
Inventories,
net
|
|
|
1,623,088 |
|
|
|
1,529,469 |
|
Other
current assets
|
|
|
49,977 |
|
|
|
53,719 |
|
Total
current assets
|
|
|
1,807,626 |
|
|
|
1,682,825 |
|
Property
and equipment, net of accumulated depreciation of
|
|
|
|
|
|
|
|
|
$817,428
and $753,024
|
|
|
1,071,405 |
|
|
|
1,047,944 |
|
Assets
held for sale
|
|
|
2,301 |
|
|
|
3,274 |
|
Goodwill
|
|
|
34,603 |
|
|
|
33,718 |
|
Intangible
assets, net
|
|
|
27,567 |
|
|
|
26,844 |
|
Other
assets, net
|
|
|
20,563 |
|
|
|
10,961 |
|
|
|
$ |
2,964,065 |
|
|
$ |
2,805,566 |
|
Liabilities and Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Bank
overdrafts
|
|
$ |
20,588 |
|
|
$ |
30,000 |
|
Current
portion of long-term debt
|
|
|
1,003 |
|
|
|
610 |
|
Financed
vendor accounts payable
|
|
|
136,386 |
|
|
|
153,549 |
|
Accounts
payable
|
|
|
791,330 |
|
|
|
688,970 |
|
Accrued
expenses
|
|
|
372,510 |
|
|
|
301,414 |
|
Other
current liabilities
|
|
|
43,177 |
|
|
|
51,385 |
|
Total
current liabilities
|
|
|
1,364,994 |
|
|
|
1,225,928 |
|
Long-term
debt
|
|
|
455,161 |
|
|
|
505,062 |
|
Other
long-term liabilities
|
|
|
68,744 |
|
|
|
50,781 |
|
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; 103,000 shares issued and 94,852 outstanding
|
|
|
|
|
|
|
|
|
in
2008 and 101,072 shares issued and 99,060 outstanding in
2007
|
|
|
10 |
|
|
|
10 |
|
Additional
paid-in capital
|
|
|
335,991 |
|
|
|
274,659 |
|
Treasury
stock, at cost, 8,148 and 2,012 shares
|
|
|
(291,114 |
) |
|
|
(74,644 |
) |
Accumulated
other comprehensive loss
|
|
|
(9,349 |
) |
|
|
(701 |
) |
Retained
earnings
|
|
|
1,039,628 |
|
|
|
824,471 |
|
Total
stockholders' equity
|
|
|
1,075,166 |
|
|
|
1,023,795 |
|
|
|
$ |
2,964,065 |
|
|
$ |
2,805,566 |
|
The
accompanying notes to the consolidated financial statements
are an
integral part of these statements.
CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Years Ended January 3, 2009,
December 29, 2007 and December 30, 2006
(in thousands, except per share
data)
|
|
Fiscal
Years
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(53
weeks)
|
|
|
(52
weeks)
|
|
|
(52
weeks)
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
5,142,255 |
|
|
$ |
4,844,404 |
|
|
$ |
4,616,503 |
|
Cost of sales, including
purchasing and warehousing costs
|
|
|
2,679,191 |
|
|
|
2,523,435 |
|
|
|
2,415,339 |
|
Gross
profit
|
|
|
2,463,064 |
|
|
|
2,320,969 |
|
|
|
2,201,164 |
|
Selling,
general and administrative expenses
|
|
|
2,048,137 |
|
|
|
1,904,540 |
|
|
|
1,797,814 |
|
Operating
income
|
|
|
414,927 |
|
|
|
416,429 |
|
|
|
403,350 |
|
Other,
net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(33,729 |
) |
|
|
(34,809 |
) |
|
|
(35,992 |
) |
Gain
on extinguishment of debt
|
|
|
- |
|
|
|
- |
|
|
|
986 |
|
Other
(expense) income, net
|
|
|
(506 |
) |
|
|
1,014 |
|
|
|
1,571 |
|
Total
other, net
|
|
|
(34,235 |
) |
|
|
(33,795 |
) |
|
|
(33,435 |
) |
Income
before provision for income taxes
|
|
|
380,692 |
|
|
|
382,634 |
|
|
|
369,915 |
|
Provision
for income taxes
|
|
|
142,654 |
|
|
|
144,317 |
|
|
|
138,597 |
|
Net
income
|
|
|
238,038 |
|
|
|
238,317 |
|
|
|
231,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
2.51 |
|
|
$ |
2.30 |
|
|
$ |
2.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
2.50 |
|
|
$ |
2.28 |
|
|
$ |
2.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
94,655 |
|
|
|
103,826 |
|
|
|
106,129 |
|
Dilutive
effect of share-based compensation
|
|
|
650 |
|
|
|
828 |
|
|
|
995 |
|
Average
common shares outstanding - assuming dilution
|
|
|
95,305 |
|
|
|
104,654 |
|
|
|
107,124 |
|
The
accompanying notes to the consolidated financial statements
are an
integral part of these statements.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For the Years Ended January 3, 2009,
December 29, 2007 and December 30, 2006
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
(Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Treasury
Stock,
|
|
|
Other
|
|
|
Deficit)
|
|
|
Total
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
at
cost
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
(Loss)
|
|
|
Earnings
|
|
|
Equity
|
|
Balance,
December 31, 2005
|
|
|
- |
|
|
$ |
- |
|
|
|
109,637 |
|
|
$ |
11 |
|
|
$ |
564,965 |
|
|
|
1,439 |
|
|
$ |
(55,668 |
) |
|
$ |
3,090 |
|
|
$ |
407,373 |
|
|
$ |
919,771 |
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
231,318 |
|
|
|
231,318 |
|
Unrealized
loss on hedge arrangement, net of $12 tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(61 |
) |
|
|
- |
|
|
|
(61 |
) |
Adjustment
to adopt FASB Statement No. 158, net of $2,041 tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,316 |
|
|
|
- |
|
|
|
3,316 |
|
Reclassification
of gain on hedge arrangements into earnings, before tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,873 |
) |
|
|
- |
|
|
|
(2,873 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231,700 |
|
Issuance
of shares upon the exercise of stock options
|
|
|
- |
|
|
|
- |
|
|
|
741 |
|
|
|
- |
|
|
|
14,043 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,043 |
|
Tax
benefit from share-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,272 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,272 |
|
Share-based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
19,052 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
19,052 |
|
Stock
issued under employee stock purchase plan
|
|
|
- |
|
|
|
- |
|
|
|
90 |
|
|
|
- |
|
|
|
2,908 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,908 |
|
Treasury
stock purchased
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,678 |
|
|
|
(136,671 |
) |
|
|
- |
|
|
|
- |
|
|
|
(136,671 |
) |
Treasury
stock retired
|
|
|
- |
|
|
|
- |
|
|
|
(5,117 |
) |
|
|
- |
|
|
|
(192,339 |
) |
|
|
(5,117 |
) |
|
|
192,339 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cash
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(25,473 |
) |
|
|
(25,473 |
) |
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
252 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
252 |
|
Balance,
December 30, 2006
|
|
|
- |
|
|
$ |
- |
|
|
|
105,351 |
|
|
$ |
11 |
|
|
$ |
414,153 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
3,472 |
|
|
$ |
613,218 |
|
|
$ |
1,030,854 |
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
238,317 |
|
|
|
238,317 |
|
Changes
in net unrecognized other postretirement benefit costs, net of $414
tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
636 |
|
|
|
- |
|
|
|
636 |
|
Unrealized
loss on hedge arrangement, net of $3,087 tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,809 |
) |
|
|
- |
|
|
|
(4,809 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234,144 |
|
Issuance
of shares upon the exercise of stock options
|
|
|
- |
|
|
|
- |
|
|
|
1,867 |
|
|
|
- |
|
|
|
40,468 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
40,468 |
|
Tax
benefit from share-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,088 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,088 |
|
Issuance
of restricted stock, net of forfeitures
|
|
|
- |
|
|
|
- |
|
|
|
130 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Amortization
of restricted stock balance
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,341 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,341 |
|
Share-based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,755 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,755 |
|
Stock
issued under employee stock purchase plan
|
|
|
- |
|
|
|
- |
|
|
|
53 |
|
|
|
- |
|
|
|
1,888 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,888 |
|
Treasury
stock purchased
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,341 |
|
|
|
(285,869 |
) |
|
|
- |
|
|
|
- |
|
|
|
(285,869 |
) |
Treasury
stock retired
|
|
|
- |
|
|
|
- |
|
|
|
(6,329 |
) |
|
|
(1 |
) |
|
|
(211,225 |
) |
|
|
(6,329 |
) |
|
|
211,225 |
|
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
Cash
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(24,789 |
) |
|
|
(24,789 |
) |
Adoption
of FIN No. 48
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,275 |
) |
|
|
(2,275 |
) |
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
191 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
191 |
|
Balance,
December 29, 2007
|
|
|
- |
|
|
$ |
- |
|
|
|
101,072 |
|
|
$ |
10 |
|
|
$ |
274,659 |
|
|
|
2,012 |
|
|
$ |
(74,644 |
) |
|
$ |
(701 |
) |
|
$ |
824,471 |
|
|
$ |
1,023,795 |
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
238,038 |
|
|
|
238,038 |
|
Changes
in net unrecognized other postretirement benefit costs, net of $52
tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
81 |
|
|
|
- |
|
|
|
81 |
|
Unrealized
loss on hedge arrangement, net of $5,605 tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,729 |
) |
|
|
- |
|
|
|
(8,729 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229,390 |
|
Issuance
of shares upon the exercise of stock options
|
|
|
- |
|
|
|
- |
|
|
|
1,421 |
|
|
|
- |
|
|
|
31,989 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
31,989 |
|
Tax
benefit from share-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,405 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,405 |
|
Issuance
of restricted stock, net of forfeitures
|
|
|
- |
|
|
|
- |
|
|
|
427 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Amortization
of restricted stock balance
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,661 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,661 |
|
Share-based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,046 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,046 |
|
Stock
issued under employee stock purchase plan
|
|
|
- |
|
|
|
- |
|
|
|
80 |
|
|
|
- |
|
|
|
2,801 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,801 |
|
Treasury
stock purchased
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,136 |
|
|
|
(216,470 |
) |
|
|
- |
|
|
|
- |
|
|
|
(216,470 |
) |
Cash
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(22,881 |
) |
|
|
(22,881 |
) |
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
430 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
430 |
|
Balance,
January 3, 2009
|
|
|
- |
|
|
$ |
- |
|
|
|
103,000 |
|
|
$ |
10 |
|
|
$ |
335,991 |
|
|
|
8,148 |
|
|
$ |
(291,114 |
) |
|
$ |
(9,349 |
) |
|
$ |
1,039,628 |
|
|
$ |
1,075,166 |
|
The
accompanying notes to the consolidated financial statements
are an
integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
For the Years Ended January 3, 2009,
December 29, 2007 and December 30, 2006
(in
thousands)
|
|
Fiscal
Years
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(53 weeks)
|
|
|
(52 weeks)
|
|
|
(52 weeks)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
238,038 |
|
|
$ |
238,317 |
|
|
$ |
231,318 |
|
Adjustments
to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
146,580 |
|
|
|
147,264 |
|
|
|
139,423 |
|
Amortization
of deferred debt issuance costs
|
|
|
360 |
|
|
|
236 |
|
|
|
534 |
|
Share-based
compensation
|
|
|
17,707 |
|
|
|
18,096 |
|
|
|
19,052 |
|
Loss
on disposal of property and equipment, net
|
|
|
2,232 |
|
|
|
11,066 |
|
|
|
2,103 |
|
Benefit
for deferred income taxes
|
|
|
(2,702 |
) |
|
|
(20,535 |
) |
|
|
(6,562 |
) |
Excess
tax benefit from share-based compensation
|
|
|
(9,047 |
) |
|
|
(11,841 |
) |
|
|
(5,272 |
) |
Inventory
write-down
|
|
|
37,484 |
|
|
|
- |
|
|
|
- |
|
Loss
on extinguishment of debt
|
|
|
- |
|
|
|
- |
|
|
|
1,887 |
|
Net
(increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
|
(11,943 |
) |
|
|
5,951 |
|
|
|
(2,318 |
) |
Inventories,
net
|
|
|
(130,657 |
) |
|
|
(66,129 |
) |
|
|
(92,239 |
) |
Other
assets
|
|
|
(6,178 |
) |
|
|
(10,709 |
) |
|
|
9,412 |
|
Net
increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
102,360 |
|
|
|
37,383 |
|
|
|
22,339 |
|
Accrued
expenses
|
|
|
84,806 |
|
|
|
55,256 |
|
|
|
15,264 |
|
Other
liabilities
|
|
|
9,699 |
|
|
|
6,187 |
|
|
|
(1,337 |
) |
Net
cash provided by operating activities
|
|
|
478,739 |
|
|
|
410,542 |
|
|
|
333,604 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(184,986 |
) |
|
|
(210,600 |
) |
|
|
(258,586 |
) |
Insurance
proceeds related to damaged property
|
|
|
- |
|
|
|
6,636 |
|
|
|
- |
|
Proceeds
from sales of property and equipment
|
|
|
6,790 |
|
|
|
1,821 |
|
|
|
12,444 |
|
Business
acquisitions, net of cash acquired
|
|
|
- |
|
|
|
- |
|
|
|
(12,500 |
) |
Other
|
|
|
(3,413 |
) |
|
|
- |
|
|
|
- |
|
Net
cash used in investing activities
|
|
|
(181,609 |
) |
|
|
(202,143 |
) |
|
|
(258,642 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
in bank overdrafts
|
|
|
(9,412 |
) |
|
|
(4,206 |
) |
|
|
(15,964 |
) |
(Decrease)
increase in financed vendor accounts payable
|
|
|
(17,163 |
) |
|
|
26,006 |
|
|
|
8,192 |
|
Early
extinguishment of debt
|
|
|
- |
|
|
|
- |
|
|
|
(433,775 |
) |
Dividends
paid
|
|
|
(23,181 |
) |
|
|
(25,152 |
) |
|
|
(19,153 |
) |
(Payments)
borrowings on note payable
|
|
|
(666 |
) |
|
|
4,232 |
|
|
|
(60 |
) |
Borrowings
under credit facilities
|
|
|
438,600 |
|
|
|
495,400 |
|
|
|
678,075 |
|
Payments
on credit facilities
|
|
|
(488,100 |
) |
|
|
(471,200 |
) |
|
|
(205,800 |
) |
Payment
of debt related costs
|
|
|
- |
|
|
|
(821 |
) |
|
|
(1,070 |
) |
Proceeds
from the issuance of common stock, primarily exercise
|
|
|
|
|
|
|
|
|
|
of
stock options
|
|
|
35,220 |
|
|
|
42,547 |
|
|
|
17,203 |
|
Excess
tax benefit from share-based compensation
|
|
|
9,047 |
|
|
|
11,841 |
|
|
|
5,272 |
|
Repurchase
of common stock
|
|
|
(219,429 |
) |
|
|
(282,910 |
) |
|
|
(137,560 |
) |
Other
|
|
|
658 |
|
|
|
(610 |
) |
|
|
23 |
|
Net
cash used in financing activities
|
|
|
(274,426 |
) |
|
|
(204,873 |
) |
|
|
(104,617 |
) |
Net
increase (decrease) in cash and cash equivalents
|
|
|
22,704 |
|
|
|
3,526 |
|
|
|
(29,655 |
) |
Cash and cash
equivalents, beginning of period
|
|
|
14,654 |
|
|
|
11,128 |
|
|
|
40,783 |
|
Cash and cash
equivalents, end of period
|
|
$ |
37,358 |
|
|
$ |
14,654 |
|
|
$ |
11,128 |
|
The
accompanying notes to the consolidated financial statements
are an
integral part of these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- (Continued)
For the Years Ended January 3, 2009,
December 29, 2007 and December 30, 2006
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Years
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(53 weeks)
|
|
|
(52 weeks)
|
|
|
(52 weeks)
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
27,224 |
|
|
$ |
26,112 |
|
|
$ |
24,822 |
|
Income
tax payments, net
|
|
|
106,715 |
|
|
|
158,314 |
|
|
|
130,131 |
|
Non-cash
transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
purchases of property and equipment
|
|
|
26,299 |
|
|
|
30,523 |
|
|
|
24,011 |
|
Repurchases
of common stock not settled
|
|
|
- |
|
|
|
2,959 |
|
|
|
- |
|
Retirement
of common stock
|
|
|
- |
|
|
|
211,225 |
|
|
|
192,339 |
|
Changes
in other comprehensive income
|
|
|
(8,648 |
) |
|
|
(4,173 |
) |
|
|
382 |
|
Adoption
of FIN No. 48, net of tax
|
|
|
- |
|
|
|
2,275 |
|
|
|
- |
|
Declared
but unpaid cash dividends
|
|
|
5,657 |
|
|
|
5,957 |
|
|
|
6,320 |
|
The
accompanying notes to the consolidated financial statements
are an
integral part of these statements.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
Advance
Auto Parts, Inc. (“Advance”) conducts all of its operations through its wholly
owned subsidiary, Advance Stores Company, Incorporated (“Stores”) and its
subsidiaries (collectively, the “Company”). The Company operates
3,243 stores within the United States, Puerto Rico and the Virgin Islands. The
Company operates 3,215 stores throughout 40 states in the Northeastern,
Southeastern and Midwestern regions of the United States. These stores operate
under the “Advance Auto Parts” trade name except for certain stores in the State
of Florida which operate under the “Advance Discount Auto Parts” trade name.
These stores offer a broad selection of brand name and proprietary automotive
replacement parts, accessories and maintenance items for domestic and imported
cars and light trucks. In addition, the Company operates 28 stores located in
Puerto Rico and the Virgin Islands under the “Western Auto” and “Advance Auto
Parts” trade names. Autopart International, or AI, is an independently run
subsidiary of Stores and operates 125 stores under the “Autopart International”
trade name throughout the Northeastern region of the United
States.
2.
Summary of Significant Accounting Policies:
Accounting
Period
The
Company's fiscal year ends on the Saturday nearest the end of December, which
results in an extra week every several years. Accordingly, our fiscal year ended
January 3, 2009, or fiscal 2008, included 53 weeks of operations. All other
fiscal years presented included 52 weeks of operations.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
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 materially from those
estimates.
Cash,
Cash Equivalents and Bank Overdrafts
Cash and
cash equivalents consist of cash in banks and money market funds with original
maturities of three months or less. Included in cash equivalents are credit card
and debit card receivables from banks, which generally settle within two to four
business days. Bank overdrafts consist of outstanding checks not yet presented
to a bank for settlement, net of cash held in accounts with right of
offset.
Inventory
Inventory
amounts are stated at the lower of cost or market. The cost of the Company’s
merchandise inventory is determined using the last-in, first-out ("LIFO")
method. Under the LIFO method, the Company’s cost of sales reflects the costs of
the most recently purchased inventories, while the inventory carrying balance
represents the costs relating to prices paid in prior years.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
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 these incentives are under long-term agreements
(terms in excess of one year), while others are negotiated on an annual basis or
less (short-term). Both cooperative advertising allowances and volume rebates
are earned based on inventory purchases and initially recorded as a reduction to
inventory. These deferred amounts are included as a reduction to cost of sales
as the inventory is sold since these payments do not represent reimbursements
for specific, incremental and identifiable costs. Total deferred vendor
incentives included in Inventory, net was $50,527 and $39,118 at January 3, 2009
and December 29, 2007, respectively.
Similarly,
the Company recognizes other promotional incentives earned under long-term
agreements as a reduction to cost of sales. However, 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 generally recognized as a reduction to cost of sales over the duration of
any short-term agreements.
Amounts
received or receivable from vendors not yet earned are reflected as deferred
revenue in the accompanying 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 consolidated balance sheets. Total deferred revenue was $12,266 and
$9,238 at January 3, 2009 and December 29, 2007, respectively. Earned amounts
that are receivable from vendors are included in Receivables, net except for
that portion expected to be received after one year, which is included in Other
assets, net on the accompanying consolidated balance sheets.
Preopening
Expenses
Preopening
expenses, which consist primarily of payroll and occupancy costs related to the
opening of new stores, are expensed as incurred.
Income
Taxes
The
Company accounts for income taxes under the asset and liability method in
accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements.
Under the asset and liability method, deferred tax assets and liabilities are
determined based on the differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in income in the
period of the enactment date.
The
Company accounts for uncertainties in income taxes pursuant to Financial
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” or FIN 48,
which clarifies the accounting for uncertainty in income taxes recognized in the
financial statements under SFAS No. 109. The Company recognizes tax
benefits and/or tax liabilities for uncertain income tax positions pursuant to
FIN 48 based on a two-step process. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation processes, if any.
The second step requires the Company to estimate and measure the tax benefit as
the largest amount that is more than 50% likely to be realized upon ultimate
settlement. It is inherently difficult and subjective to estimate such amounts,
as the Company must determine the probability of various possible outcomes. We
reevaluate these uncertain tax positions on a quarterly basis or when new
information becomes available to management. The reevaluations are based on
many factors, including but not limit to, changes in facts or
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
circumstances,
changes in tax law, successfully settled issues under audit, expirations due to
statutes of limitations, and new federal or state audit activity. Any change in
either the Company’s recognition or measurement could result in the recognition
of a tax benefit or an increase to the tax accrual.
The
Company also follows guidance provided under FIN 48 on derecognition of
benefits, classification, interest and penalties, accounting in interim periods,
disclosure and transition. Refer to Note 12 for a further discussion of
income taxes.
Advertising
Costs
The
Company expenses advertising costs as incurred in accordance with the American
Institute of Certified Public Accountant’s Statement of Position, or SOP, 93-7,
“Reporting on Advertising Costs.” Gross advertising expense incurred was
approximately $75,321, $78,823 and $97,215 in fiscal 2008, 2007 and 2006,
respectively.
Self-Insurance
The
Company is self-insured for general and automobile liability, workers'
compensation and health care claims of its team members while maintaining
stop-loss coverage with third-party insurers to limit its total liability
exposure. Expenses associated with these liabilities are calculated for (i)
claims filed and (ii) claims incurred but not yet reported using actuarial
methods followed in the insurance industry as well as the Company’s historical
claims experience.
Warranty
Liabilities
The
warranty obligation on the majority of merchandise sold by the Company with a
manufacturer’s warranty is the responsibility of the Company’s vendors.
However, the Company has an obligation to provide customers free replacement of
merchandise or merchandise at a prorated cost if under a warranty and not
covered by the manufacturer. Merchandise sold with warranty coverage
by the Company primarily includes batteries but may also include other parts
such as brakes and shocks. The Company estimates its warranty obligation based
on the historical return experience of the product sold and records any change
as income or expense in the period the product is sold.
Revenue
Recognition
The
Company recognizes merchandise revenue at the point of sale to customers. The
majority of sales are made for cash and credit with no recourse; however, the
Company extends credit to certain Commercial customers through a third-party
provider of private label credit cards. Receivables under the private label
credit card program are generally transferred to a third-party provider with no
recourse. On receivables sold with recourse, the Company provides an
allowance for doubtful accounts based upon factors related to credit risk of
specific customers, historical trends and other relevant
information.
Sales
Returns and Allowances
The
Company’s accounting policy for sales returns and allowances consists of
establishing reserves for estimated returns at the time of sale. The Company
estimates returns based on current sales levels and the Company’s historical
return experience on a specific product basis. The Company’s reserve for sales
returns and allowances was not material at January 3, 2009 and December 29,
2007.
Sales
Taxes
The
Company presents sales net of sales taxes in its consolidated statements of
operations.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
Share-Based
Payments
The
Company provides share-based compensation to its employees and directors, which
it accounts for pursuant to SFAS 123, “Accounting for Stock-Based Compensation,”
as revised by SFAS 123R (revised 2004),
“Share-Based Payment.” In accordance with SFAS 123R, the Company is required to
exercise judgment and make estimates when determining the projected (i) fair
value of each award granted and (ii) number of awards expected to vest. The
Company uses the Black-Scholes option-pricing model to value all share-based
awards and the straight-line method to amortize this fair value as compensation
cost over the requisite service period.
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 during the period, which is
reduced by stock held in treasury and shares of nonvested restricted stock.
Diluted earnings per share of common stock reflects the weighted-average number
of shares of common stock outstanding, outstanding deferred stock units and the
impact of outstanding stock options, stock appreciation rights and shares of
nonvested restricted stock (collectively “share-based awards”),
calculated on the treasury stock method as modified by the adoption of SFAS
123R. There were antidilutive share-based awards equal to 3,313, 3,192 and 2,140
shares of common stock for the fiscal years ended January 3, 2009, December 29,
2007 and December 30, 2006, respectively.
Derivative
Instruments and Hedging Activities
Interest
Rate Swaps
The
Company utilizes interest rate swaps to limit its cash flow risk on its variable
rate debt. In accordance with SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” the fair value of the Company’s outstanding
hedges is recorded as an asset or liability in the accompanying condensed
consolidated balance sheets at January 3, 2009 and December 29, 2007,
respectively. The Company uses the 90-day adjusted LIBOR interest rate and has
the intent and ability to continue to use this rate on its hedged borrowings.
Accordingly, the Company does not recognize any ineffectiveness on the swaps as
allowed under Derivative Implementation Group Issue No. G7, “Cash Flow Hedges:
Measuring the Ineffectiveness of a Cash Flow Hedge under Paragraph 30(b) When
the Shortcut Method Is Not Applied.”
Effective
December 30, 2007, the Company adopted FASB Staff Position
No. FIN 39-1, “Amendment of FASB Interpretation No. 39,” or
FSP FIN 39-1, without an impact on its financial position, results of
operations or cash flows. FSP FIN 39-1 amends FASB
Interpretation No. 39, “Offsetting of Amounts Related to Certain
Contracts,” requiring a reporting entity to offset fair value amounts recognized
for the right to reclaim cash collateral (a receivable) or the obligation to
return cash collateral (a payable) against fair value amounts recognized for
derivative instruments executed with the same counterparty under the same master
netting arrangement that have been offset in accordance with FIN 39.
FSP FIN 39-1 also amends FIN 39 for certain terminology modifications.
Upon adoption of FSP FIN 39-1, the Company did not change its accounting
policy of not offsetting fair value amounts recognized for derivative
instruments under master netting arrangements.
The
Company records the effective portion of the changes in fair value of its
hedging instruments in Accumulated other comprehensive income (loss) through the
maturity date of the applicable hedge arrangement. Any amounts
received or paid under these hedges will be recorded in the statement of
operations as earned or incurred.
Forward
Contracts
The
Company utilizes forward commodity contracts to manage the risk of fluctuating
fuel prices. The Company has elected to apply the normal purchase
election allowed under SFAS No. 133 and therefore does not account for these
contracts at fair value.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
Accumulated
Other Comprehensive Income (Loss)
Accumulated
other comprehensive income (loss) is reported by the Company in accordance with
SFAS No. 130,
“Reporting Comprehensive Income.” The purpose of reporting
comprehensive income is to report a measure of all changes in equity of
an enterprise
that result from transactions and other economic events of the period.
Pursuant to SFAS No. 130, other comprehensive income refers
to revenues, expenses, gains, and losses that are included in comprehensive
income but excluded from net income.
The
Company’s Accumulated other comprehensive loss is comprised of the fair value
adjustments of interest rate swap transactions and the unrealized gain
associated with the Company’s postretirement benefit plan.
Goodwill
and Other Intangible Assets
In
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the
Company tests goodwill and other indefinite-lived intangibles for impairment at
least on an annual basis or if circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying amount. Testing
for impairment is a two-step process as prescribed in SFAS No. 142. The
first step is a review for potential impairment, while the second step measures
the amount of impairment, if any.
Under the
first step, the Company compares the fair value of its reporting units with
their respective carrying amounts, including goodwill. If the fair value of a
reporting unit exceeds its carrying amount, goodwill of the reporting unit is
considered not
impaired and the second step of the impairment test is unnecessary. If
the carrying amount of the reporting unit exceeds its fair value, the second
step of the impairment test must be performed to measure the amount of
impairment loss to be recognized, if any. An impairment loss would be recognized
when the fair value of goodwill or other intangible asset is below its carrying
value.
The
Company has elected to conduct its annual impairment testing as of the first day
of its fourth quarter. During fiscal 2008, the Company did not recognize any
impairment to its goodwill or other intangible assets.
Valuation
of Long-Lived Assets
The
Company evaluates the recoverability of its long-lived assets under the
provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets.” SFAS No. 144 requires the review for impairment of
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset might not be recoverable and exceeds its fair
value.
Significant
factors, which would trigger an impairment review, include the
following:
|
Significant
decrease in the market price of a long-lived asset (asset
group);
|
|
Significant
changes in how assets are used or are planned to be
used;
|
|
Significant
adverse change in legal factors or business climate, including adverse
regulatory action;
|
|
Significant
negative industry trends;
|
|
An
accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of a long-lived asset (asset
group);
|
|
Significant
changes in technology;
|
|
A
current-period operating or cash flow loss combined with a history of
operating or cash flow losses, or a projection or forecast that
demonstrates continuing losses associated with the use of a long-lived
asset (asset group); and
|
|
A
current expectation that, more likely than not, a long-lived asset (asset
group) will be sold or otherwise disposed of significantly before the end
of its previously estimated useful
life.
|
When such
an event occurs, the Company estimates the future cash flows expected to result
from the use of the long-lived asset (asset group) and its eventual disposition.
These impairment evaluations involve estimates of asset
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
useful
lives and future cash flows. If the undiscounted expected future cash flows are
less than the carrying amount of the asset and the carrying amount of the asset
exceeds its fair value, an impairment loss is recognized. Management utilizes an
expected present value technique, which uses a risk-free interest rate and
multiple cash flow scenarios reflecting a range of possible outcomes, to
estimate the fair value of its long-lived assets. Actual useful lives and cash
flows could differ from those estimated by management using these techniques,
which could have a material affect on our results of operations, financial
position or cash flows.
Financed
Vendor Accounts Payable
The
Company is party to a short-term financing program with a bank allowing it to
extend its payment terms on certain merchandise purchases. The substance of the
program is for the Company to borrow money from the bank to finance purchases
from vendors. The
Company records any discount given by the vendor to its inventory and accretes
this discount to the resulting short-term payable to the bank through interest
expense over the extended term. At January 3, 2009 and December 29, 2007,
$136,386 and $153,549, 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.
Lease
Accounting
The
Company leases certain store locations, distribution centers, office space,
equipment and vehicles. Initial terms for facility leases are typically 10 to 15
years, with renewal options at five year intervals, and may include rent
escalation clauses. The total amount of the minimum rent is expensed on a
straight-line basis over the initial term of the lease unless external economic
factors exist such that renewals are reasonably assured, in which case the
Company would include the renewal period in its amortization period. (In those
instances, the renewal period would be included in the lease term for purposes
of establishing an amortization period and determining if such lease qualified
as a capital or operating lease.) In addition to minimum fixed rental payments,
some leases provide for contingent facility rentals. Contingent facility rentals
are determined on the basis of a percentage of sales in excess of stipulated
minimums for certain store facilities as defined in the individual lease
agreements. Most of the leases provide that the Company pay taxes, maintenance,
insurance and certain other expenses applicable to the leased premises.
Management expects that in the normal course of business leases that expire will
be renewed or replaced by other leases.
Closed
Store Liabilities
The
Company continually reviews the operating performance of its existing store
locations and closes certain stores identified as underperforming. The Company
evaluates and determines if closing an underperforming store location results in
either (i) the elimination of the operations and associated cash flows from the
Company’s ongoing operations, or (ii) if the Company transfers those operations
and associated cash flows to another store in the local market.
Expenses
pertaining to closed store exit activities are included in the Company’s closed
store liabilities. Closed store liabilities include the present value of the
remaining lease obligations and management’s estimate of future costs of
insurance, property tax and common area maintenance expenses (reduced by the
present value of estimated revenues from subleases and lease buyouts) and new
provisions are established by a charge to selling, general and administrative
costs in the accompanying consolidated statements of operations at the time the
facilities actually close.
From time
to time closed store liability estimates require revisions, primarily due to
changes in assumptions associated with revenue from subleases. The effect of
changes in estimates for our closed store liabilities impact both our income
statement and balance sheet: (i) they are included in selling, general and
administrative expenses in the accompanying consolidated
statements of operations, and (ii) they are recorded in accrued expenses
(current portion) and other long-term liabilities (long-term portion) in the
accompanying consolidated balance sheets.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
Cost
of Sales and Selling, General and Administrative Expenses
The
following table illustrates the primary costs classified in each major expense
category:
Cost of
Sales
|
|
SG&A
|
|
|
|
|
|
|
|
|
●
|
Total
cost of merchandise sold including:
|
|
●
|
Payroll
and benefit costs for retail and corporate
|
|
–
|
Freight
expenses associated with moving
|
|
|
team
members;
|
|
|
merchandise
inventories from our vendors to
|
|
●
|
Occupancy
costs of retail and corporate facilities;
|
|
|
our
distribution center,
|
|
●
|
Depreciation
related to retail and corporate assets;
|
|
–
|
Vendor
incentives, and
|
|
●
|
Advertising;
|
|
–
|
Cash
discounts on payments to vendors;
|
|
●
|
Costs
associated with our commercial delivery
|
●
|
Inventory
shrinkage;
|
|
|
program,
including payroll and benefit costs,
|
●
|
Defective
merchandise and warranty costs;
|
|
|
and
transportation expenses associated with moving
|
●
|
Costs
associated with operating our distribution
|
|
|
merchandise
inventories from our retail stores to
|
|
network,
including payroll and benefit costs,
|
|
|
our
customer locations;
|
|
occupancy
costs and depreciation; and
|
|
●
|
Freight
expenses associated with moving
|
●
|
Freight
expenses associated with moving
|
|
|
merchandise
inventories from our centralized
|
|
merchandise
inventories from our distribution
|
|
stores
and Parts Delivered Quickly warehouses,
|
|
center
to our retail stores. |
|
|
or
PDQs®,
to our retail stores after the customer
|
|
|
|
|
|
|
has
special-ordered the merchandise;
|
|
|
|
|
|
●
|
Self-insurance
costs;
|
|
|
|
|
|
●
|
Professional
services; and
|
|
|
|
|
|
●
|
Other
administrative costs, such as credit card
|
|
|
|
|
|
|
service
fees, supplies, travel and
lodging.
|
New
Accounting Pronouncements
In
June 2008, the Financial Accounting Standards Board, or FASB, issued FASB
Staff Position, or FSP, EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.” FSP
EITF 03-6-1 addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting, and therefore need
to be included in the earnings allocation in computing earnings per share under
the two-class method as described in Statement of Financial Accounting
Standards, or SFAS, No. 128, “Earnings per Share.” Under the guidance of FSP
EITF 03-6-1, nonvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings-per-share pursuant to the two-class method. FSP EITF 03-6-1
is effective for financial statements issued for fiscal years beginning after
December 15, 2008 and all prior-period earnings per share data
presented shall be adjusted retrospectively. Early application is not
permitted. The Company does not anticipate the adoption of FSP
EITF 03-6-1 will have an impact on its earnings per share.
In June
2008, the FASB Issued EITF No. 08-3, “Accounting by Lessees for
Nonrefundable Maintenance Deposits.” EITF 08-3 requires that nonrefundable
maintenance deposits paid by a lessee under an arrangement accounted for as a
lease be accounted for as a deposit asset until the underlying maintenance is
performed. When the underlying maintenance is performed, the deposit may be
expensed or capitalized in accordance with the lessee’s maintenance accounting
policy. Upon adoption entities must recognize the effect of the change as a
change in accounting principle. EITF 08-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008. The Company does not
expect the adoption of EITF 08-3 will have a material impact on its
financial condition, results of operations or cash flows.
In
April 2008, the FASB issued FASB Staff Position No. FAS 142-3,
“Determination of the Useful Life of Intangible Assets”, which amends the
factors that must be considered in developing renewal or extension assumptions
used to determine the useful life over which to amortize the cost of a
recognized intangible asset under SFAS 142, “Goodwill and Other Intangible
Assets.” The FSP requires an entity to consider its own assumptions about
renewal or extension of the term of the arrangement, consistent with its
expected use of the asset, and is an
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
attempt
to improve consistency between the useful life of a recognized intangible asset
under SFAS 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS 141, “Business Combinations.”
The FSP is effective for fiscal years beginning after December 15, 2008,
and the guidance for determining the useful life of a recognized intangible
asset must be applied prospectively to intangible assets acquired after the
effective date. The FSP is not expected to have a significant impact on the
Company’s financial condition, results of operations or cash flows.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities - an amendment of SFAS
No. 133.” SFAS No. 161 is intended to improve financial
standards for derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity's financial position, financial performance and cash flows. Entities
are required to provide enhanced disclosures about: (i) how and why an entity
uses derivative instruments; (ii) how derivative instruments and related hedged
items are accounted for under SFAS No. 133 and its related interpretations;
and (iii) how derivative instruments and related hedged items affect an entity's
financial position, financial performance and cash flows. SFAS No. 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The Company is evaluating the impact the
adoption of SFAS No. 161 will have on its consolidated financial
statements.
In
February 2008, the FASB issued FASB Staff Position No. FAS 157-1, “Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13.” FSP No. FAS 157-1 amends SFAS
No. 157, “Fair Value Measurements,” to exclude SFAS No. 13, “Accounting for
Leases,” and other accounting pronouncements that address fair value
measurements for purposes of lease classification or measurement under SFAS No.
13. However, this scope exception does not apply to assets acquired and
liabilities assumed in a business combination that are required to be measured
at fair value under SFAS No. 141 or SFAS No. 141(R), Business Combinations
(revised 2007), regardless of whether those assets and liabilities are related
to leases. The FSP will be effective upon the full adoption of SFAS 157
during the first quarter of fiscal 2009 and will not have a material impact on
the Company’s financial position, results of operations or cash
flows.
In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which
replaces SFAS No. 141, “Business Combinations.” SFAS No. 141R, among other
things, establishes principles and requirements for how an acquirer entity
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed and any controlling interests in the
acquired entity; recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. Costs of the acquisition will
be recognized separately from the business combination. SFAS No. 141R applies to
business combinations for fiscal years beginning after December 15,
2008. The Company will consider this standard when evaluating potential
future transactions to which it would apply.
Effective
December 30, 2007, the Company adopted the provisions of SFAS No. 157, “Fair
Value Measurements” on our financial assets and liabilities subject to the
deferral provisions of FSP No. 157-2. SFAS No. 157 clarifies the definition of
fair value, establishes a framework for defining fair value as it relates to
other accounting pronouncements that require or permit fair value measurements,
and expands the disclosures of fair value measurements. The Company did not
apply the provisions of SFAS No. 157 for nonfinancial assets and liabilities
except for those recognized or disclosed on a recurring basis (at least
annually) as allowed by the issuance of FSP No. 157-2. The deferral provided by
FSP No. 157-2 applies to such items as (i) nonfinancial assets and
liabilities initially measured at fair value in a business combination (but not
measured at fair value in subsequent periods) and (ii) nonfinancial
long-lived asset groups measured at fair value for an impairment
assessment. The Company is evaluating the impact FSP No. 157-2 will
have on its nonfinancial assets and liabilities that are measured at fair value
and are recognized or disclosed at fair value on a nonrecurring basis. The
adoption of SFAS 157 did not have a material impact on the Company’s financial
condition, results of operations or cash flows. The Company will fully adopt the
provisions of SFAS 157 effective during its first quarter of fiscal
2009.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
Effective
December 30, 2007, the Company adopted the provisions of SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159
permits entities to choose to measure many financial instruments and certain
other items at fair value. The Company elected not to apply fair value on its
existing financial assets and liabilities upon adoption. Therefore, this
adoption did not have a material effect on the Company’s financial position,
results of operations or cash flows.
3.
Inventories, net:
Merchandise
Inventory
Inventories
are stated at the lower of cost or market. The Company uses the LIFO
method of accounting for approximately 95% and 93% of inventories at
January 3, 2009 and December 29, 2007, respectively. Under LIFO, the Company’s
cost of sales reflects the costs of the most recently purchased inventories,
while the inventory carrying balance represents the costs for inventories
purchased in fiscal 2008 and prior years. Prior to fiscal 2008, the Company’s
overall costs to acquire inventory for the same or similar products had been
decreasing in recent years due to the Company’s significant growth. However, in
fiscal 2008, the current cost to replace inventory was greater under
LIFO. As a result of utilizing LIFO, the Company recorded an increase
to cost of sales of $12,555 for its fiscal year ended 2008 while having recorded
a reduction to cost of sales of $11,005 and $9,978 for fiscal years ended 2007
and 2006, respectively.
Product
Cores
The
remaining inventories are comprised of product cores, which consist of the
non-consumable portion of certain parts and batteries, which are valued under
the first-in, first-out ("FIFO") method. Product cores are included as part of
the Company’s merchandise costs and are either passed on to the customer or
returned to the vendor. Since product cores are not subject to frequent cost
changes like the Company’s other merchandise inventory, there is no material
difference when applying either the LIFO or FIFO valuation method.
Inventory
Overhead Costs
The
Company capitalizes certain purchasing and warehousing costs into inventory.
Purchasing and warehousing costs included in inventory, at FIFO, at January 3,
2009 and December 29, 2007, were $104,594 and $107,068,
respectively.
Inventory
Balances and Inventory Reserves
Inventory
balances at year-end for fiscal years 2008 and 2007 were as
follows:
|
|
January
3,
|
|
|
December
29,
|
|
|
|
2009
|
|
|
2007
|
|
Inventories
at FIFO, net
|
|
$ |
1,541,871 |
|
|
$ |
1,435,697 |
|
Adjustments
to state inventories at LIFO
|
|
|
81,217 |
|
|
|
93,772 |
|
Inventories
at LIFO, net
|
|
$ |
1,623,088 |
|
|
$ |
1,529,469 |
|
Inventory quantities are
tracked through a perpetual inventory system. The Company uses a cycle counting
program in all distribution centers and PDQs® to
ensure the accuracy of the perpetual inventory quantities of both merchandise
and product core inventory. For our retail stores, we began completing physical
inventories during our third quarter of fiscal 2008 in addition to cycle
counting to ensure the accuracy of the perpetual inventory quantities of
both merchandise and core inventory in these locations. As of January 3, 2009,
the Company had completed physical inventories in approximately one-third of its
retail stores. The Company establishes reserves for estimated shrink
based on results of completed physical inventories, actual results from recent
cycle counts and historical results from the Company’s cycle counting
program.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
The
Company also establishes reserves for potentially excess and obsolete
inventories based on (i) current inventory levels, (ii) the historical analysis
of product sales and (iii) current market conditions. The Company provides
reserves when less than full credit is expected from a vendor or when the
liquidation of excess or obsolete inventory will result in retail prices below
recorded costs. At the end of fiscal 2008, the Company reviewed its
inventory productivity and changed its inventory management approach for slow
moving inventory. As a result, the Company increased its reserve for excess and
obsolete inventories by $34,084, excluding a LIFO and warehousing cost impact of
$3,400. This non-cash expense is also presented as an increase to cost of goods
sold in the Company’s consolidated statement of operations. With this
change in inventory management approach, the Company intends to more effectively
manage slow moving inventory allowing it to add faster moving custom mix
inventory which is expected to increase inventory turnover.
The
following table presents changes in the Company’s inventory reserves for fiscal
2008 and the prior two fiscal years.
|
|
January
3,
|
|
|
December
29,
|
|
|
December
30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
reserves, beginning of period
|
|
$ |
35,565 |
|
|
$ |
31,376 |
|
|
$ |
22,825 |
|
Additions
to inventory reserves
|
|
|
113,605 |
|
|
|
106,387 |
|
|
|
94,206 |
|
Reserves
utilized
|
|
|
(86,272 |
) |
|
|
(102,198 |
) |
|
|
(85,655 |
) |
Inventory
reserves, end of period
|
|
$ |
62,898 |
|
|
$ |
35,565 |
|
|
$ |
31,376 |
|
4.
Goodwill and Intangible Assets:
Goodwill
The
following table reflects the carrying amount of goodwill pertaining to the
Company’s two segments, and the changes in goodwill carrying amounts, for the
years ended January 3, 2009 and December 29, 2007, respectively:
|
|
AAP
Segment
|
|
|
AI
Segment
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 30, 2006
|
|
$ |
16,093 |
|
|
$ |
17,625 |
|
|
$ |
33,718 |
|
Fiscal
2007 activity
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance
at December 29, 2007
|
|
$ |
16,093 |
|
|
$ |
17,625 |
|
|
$ |
33,718 |
|
Fiscal
2008 activity
|
|
|
- |
|
|
|
885 |
|
|
|
885 |
|
Balance
at January 3, 2009
|
|
$ |
16,093 |
|
|
$ |
18,510 |
|
|
$ |
34,603 |
|
During
the second quarter of fiscal 2008, AI recorded goodwill in the amount of $885 in
connection with an acquisition of a small retail chain.
Intangible
Assets Other Than Goodwill
The
carrying amount and accumulated amortization of acquired intangible assets as of
January 3, 2009 and December 29, 2007 are comprised of the
following:
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
|
|
Acquired
intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Not
Subject
|
|
|
|
|
|
|
Subject
to Amortization
|
|
|
to
Amortization
|
|
|
|
|
|
|
Customer
|
|
|
|
|
|
Trademark
and
|
|
|
Intangible
|
|
|
|
Relationships
|
|
|
Other
|
|
|
Tradenames
|
|
|
Assets,
net
|
|
Gross:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
carrying amount at December 30, 2006
|
|
$ |
9,600 |
|
|
$ |
885 |
|
|
$ |
18,800 |
|
|
$ |
29,285 |
|
Additions
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Gross
carrying amount at December 29, 2007
|
|
$ |
9,600 |
|
|
$ |
885 |
|
|
$ |
18,800 |
|
|
$ |
29,285 |
|
Additions
|
|
|
200 |
|
|
|
- |
|
|
|
1,750 |
|
|
|
1,950 |
|
Gross
carrying amount at January 3, 2009
|
|
$ |
9,800 |
|
|
$ |
885 |
|
|
$ |
20,550 |
|
|
$ |
31,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value at December 30, 2006
|
|
$ |
8,419 |
|
|
$ |
707 |
|
|
$ |
18,800 |
|
|
$ |
27,926 |
|
2007
amortization
|
|
|
(955 |
) |
|
|
(127 |
) |
|
|
- |
|
|
|
(1,082 |
) |
Net
book value at December 29, 2007
|
|
$ |
7,464 |
|
|
$ |
580 |
|
|
$ |
18,800 |
|
|
$ |
26,844 |
|
Additions
|
|
|
200 |
|
|
|
- |
|
|
|
1,750 |
|
|
|
1,950 |
|
2008
amortization
|
|
|
(1,098 |
) |
|
|
(129 |
) |
|
|
- |
|
|
|
(1,227 |
) |
Net
book value at January 3, 2009
|
|
$ |
6,566 |
|
|
$ |
451 |
|
|
$ |
20,550 |
|
|
$ |
27,567 |
|
During
the second quarter of fiscal 2008, AI acquired certain customer relationships
for $200 in connection with an acquisition of a small retail chain.
During
the first quarter of fiscal 2008, the Company acquired from a Kentucky entity
for $1,750 the limited territorial rights the Kentucky entity had in the
“Advance Auto Parts” trademark, ownership of certain websites and access to
the Louisville, Kentucky market. This acquisition improved the Company’s
trademark rights, opened a new metropolitan market for the Company and is
expected to increase traffic to the Company’s website.
Future
Amortization Expense
The table
below shows expected amortization expense for the next five years for acquired
intangible assets recorded as of January 3, 2009:
Fiscal
Year
|
|
|
|
|
2009
|
|
$ |
1,143 |
|
|
2010
|
|
|
1,059 |
|
|
2011
|
|
|
967 |
|
|
2012
|
|
|
967 |
|
|
2013
|
|
|
967 |
|
|
|
|
|
|
|
|
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
5.
Receivables, net:
Receivables
consist of the following:
|
|
January
3,
|
|
|
December
29,
|
|
|
|
2009
|
|
|
2007
|
|
|
|
|
|
|
|
|
Trade
|
|
$ |
17,843 |
|
|
$ |
14,782 |
|
Vendor
|
|
|
81,265 |
|
|
|
71,403 |
|
Other
|
|
|
3,125 |
|
|
|
2,785 |
|
Total
receivables
|
|
|
102,233 |
|
|
|
88,970 |
|
Less: Allowance
for doubtful accounts
|
|
|
(5,030 |
) |
|
|
(3,987 |
) |
Receivables,
net
|
|
$ |
97,203 |
|
|
$ |
84,983 |
|
6. Derivative
Instruments and Hedging Activities:
Interest
Rate Swaps
The
Company seeks to manage and mitigate cash flow risk on its variable rate debt
via interest rate swaps. Current outstanding swaps have fixed the Company’s
interest rate on an aggregate of $275,000 of hedged debt at rates ranging
from 4.01% to 4.98%. During fiscal 2007, the Company entered into an interest
rate swap on an aggregate of $50,000 of debt under its term loan. Additionally,
during fiscal 2006, the Company entered into four interest rate swap agreements
on an aggregate of $225,000 of debt under its revolving credit facility. These
four swaps were entered in October 2006 in connection with the termination of
its previous three interest rate swaps. All of the Company’s interest rate
swaps expire in October 2011.
The fair
value of these interest rate swaps are determined based
on a forward yield curve and the contracted interest rates stated in the
interest rate swap agreements. The fair value of the Company’s
interest rate swaps at January 3, 2009 and December 29, 2007, respectively, was
an unrecognized loss of $21,979 and $7,645, which are reflected in
Accumulated other comprehensive income (loss). Any amounts received or paid
under these hedges are recorded in the statement of operations during the
accounting period the interest on the hedged debt is paid. (Based on the
estimated current and future fair values of the hedge arrangements at January 3,
2009, the Company estimates amounts currently included in Accumulated other
comprehensive income (loss) pertaining to the interest rate swaps that will
be reclassified and recorded in the statement of earnings in the next 12 months
will consist of a net loss of $9,222.)
Forward
Contracts
During
fiscal 2008, the Company hedged approximately 70% of its diesel fuel consumption
and has hedged approximately 50% of the Company’s estimated diesel fuel
consumption for fiscal 2009.
7.
Fair Value Measurements:
As
previously discussed, the Company adopted SFAS No. 157, which defines fair
value, establishes a framework for measuring fair value and expands disclosure
requirements. SFAS No. 157 defines fair value as the price that would be
received to sell an asset, or paid to transfer a liability (an exit price), on
the measurement date in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants (with no
compulsion to buy or sell).
The
Company’s financial assets and liabilities measured at fair value are grouped in
three levels. The levels prioritize the inputs used to measure the fair value of
these assets or liabilities. These levels are:
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
|
Level
1 – Unadjusted quoted prices that are available in active markets for
identical assets or liabilities at the measurement
date.
|
|
Level
2 – Inputs other than quoted prices that are observable for assets and
liabilities at the measurement date, either directly or indirectly. These
inputs include quoted prices for similar assets or liabilities in active
markets, quoted prices for identical or similar assets or liabilities in
markets that are less active, inputs other than quoted prices that are
observable for the asset or liability or corroborated by other observable
market data.
|
|
Level
3 – Unobservable inputs for assets or liabilities that are not able to be
corroborated by observable market data and reflect the use of a reporting
entity’s own assumptions. These values are
generally determined using pricing models for which the assumptions
utilize management’s estimates of market participant
assumptions.
|
Assets
and Liabilities Measured at Fair Value on a Recurring Basis
The fair
value hierarchy requires the use of observable market data when available. In
instances where inputs used to measure fair value fall into different levels of
the fair value hierarchy, the fair value measurement has been determined based
on the lowest level input that is significant to the fair value measurement in
its entirety. Our assessment of the significance of a particular item to the
fair value measurement in its entirety requires judgment, including the
consideration of inputs specific to the asset or liability.
The
following table sets forth our financial assets and liabilities that were
measured at fair value on a recurring basis during the 2008 fiscal year,
including at January 3, 2009:
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value at January 3, 2009
|
|
|
Quoted
Prices in Active Markets for Identical
Assets
|
|
|
Significant
Other Observable Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
$ |
21,979 |
|
|
$ |
- |
|
|
$ |
21,979 |
|
|
$ |
- |
|
The fair
value of these interest rate swaps at January 3, 2009 and December 29,
2007, respectively, was an unrecognized loss of $21,979 and
$7,645. The fair value of the Company’s interest rate swaps is mainly
based on observable interest rate yield curves for similar
instruments. As of January 3, 2009 and December 29, 2007, the Company
also reported additional financial assets and liabilities at their respective
carrying amounts, which included cash equivalents and bank overdrafts. The
carrying amounts of these instruments approximate fair value because of their
short maturity.
The
following financial liabilities were measured at fair value for the 2008 fiscal
year pursuant to SFAS 107, “Disclosures about Fair Value of Financial
Instruments.” As of January 3, 2009 and December 29, 2007, the fair value of the
Company’s long-term debt with a carrying value of $455,161 and $505,062,
respectively, was approximately $374,000 and $502,000, respectively, and was
based on similar long-term debt issues available to the Company as of that
date.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
8. Long-term
Debt:
Long-term
debt consists of the following:
|
|
January
3,
2009
|
|
|
December
29,
2007
|
|
Senior
Debt:
|
|
|
|
|
|
|
Revolving
credit facility at variable interest rates
|
|
|
|
|
|
|
(4.81%
and 5.93% at January 3, 2009 and December 29,
|
|
|
|
|
|
|
2007,
respectively) due October 2011
|
|
$ |
251,500 |
|
|
$ |
451,000 |
|
Term
loan at variable interest rates
|
|
|
|
|
|
|
|
|
(3.02%
and 6.19% at January 3, 2009 and December 29,
|
|
|
|
|
|
|
|
|
2007,
respectively) due October 2011
|
|
|
200,000 |
|
|
|
50,000 |
|
Other
|
|
|
4,664 |
|
|
|
4,672 |
|
|
|
|
456,164 |
|
|
|
505,672 |
|
Less:
Current portion of long-term debt
|
|
|
(1,003 |
) |
|
|
(610 |
) |
Long-term
debt, excluding current portion
|
|
$ |
455,161 |
|
|
$ |
505,062 |
|
Term
Loan
As of
January 3, 2009, the Company had borrowed $200,000 under its
unsecured four-year term loan. The Company entered into the term loan on
December 4, 2007, with the Company’s wholly-owned subsidiary, Advance Stores
Company, Incorporated, or Stores, serving as borrower. As of December 29, 2007,
the Company had borrowed $50,000 under the term loan. The entire $200,000
proceeds from this term loan were used to repurchase shares of the
Company's common stock under its stock repurchase program. The term
loan terminates on October 5, 2011.
The
interest rate on the term loan is 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 is 1.0% and 0.0% per annum for the adjusted
LIBOR and alternate base rate borrowings, respectively. The Company has elected
to use the 90-day adjusted LIBOR rate and has the ability and intent to continue
to use this rate on its hedged borrowings. Under the terms of the term
loan, the interest rate is based on the Company’s credit rating.
Revolving
Credit Facility
In
addition to the term loan, the Company has a $750,000 unsecured five-year
revolving credit facility with Stores serving as the borrower. The
revolving credit facility also provides for the issuance of letters of credit
with a sub limit of $300,000, and swingline loans in an amount not to exceed
$50,000. The Company may request, subject to agreement by one or more lenders,
that the total revolving commitment be increased by an amount not exceeding
$250,000 (up to a total commitment of $1,000,000) during the term of the credit
agreement. Voluntary prepayments and voluntary reductions of the revolving balance are permitted in whole or in
part, at the Company’s option, in minimum principal amounts as specified in the
revolving credit facility. The revolving credit facility terminates on
October 5, 2011.
As of
January 3, 2009, the Company had $251,500 outstanding under
its revolving credit facility, and letters of credit outstanding of
$101,254, which reduced the availability under the revolving credit facility to
$397,246. (The letters of credit generally have a term of one year or
less.) A commitment fee is charged on the unused portion of the
revolver, payable in arrears. The current commitment fee rate is 0.15% per
annum.
The
interest rate on borrowings under the revolving credit facility is 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 is 0.75% and 0.0% per annum for the
adjusted LIBOR and alternate base rate borrowings, respectively. The Company has
elected to use the 90-day adjusted LIBOR rate and has the ability and intent to
continue to use this rate on its hedged borrowings.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
Under the
terms of the revolving credit facility, the interest rate (and commitment
fee) is based on the Company’s credit rating.
Other
As of
January 3, 2009, the Company had $4,664 outstanding under an economic
development note and other financing arrangements.
Guarantees
and Covenants
The term
loan and revolving credit facility are fully and unconditionally guaranteed by
Advance Auto Parts, Inc. The Company’s debt agreements collectively contain
covenants restricting its ability to, among other things: (1) create,
incur or assume additional debt (including hedging arrangements), (2) incur
liens or engage in sale-leaseback transactions, (3) make loans and investments,
(4) guarantee obligations, (5) engage in certain mergers, acquisitions and asset
sales, (6) change the nature of the Company’s business and the business
conducted by its subsidiaries and (7) change the Company’s status as a holding
company. The Company is also required to comply with financial covenants
with respect to a maximum leverage ratio and a minimum consolidated coverage
ratio. The Company was in compliance with these covenants at
January 3, 2009. The Company’s term loan and revolving credit facility also
provide for customary events of default, covenant defaults and cross-defaults to
its other material indebtedness.
At
January 3, 2009, the aggregate future annual maturities of long-term debt
instruments are as follows:
2009
|
|
$ |
1,003 |
|
2010
|
|
|
1,043 |
|
2011
|
|
|
452,162 |
|
2012
|
|
|
742 |
|
2013
|
|
|
689 |
|
Thereafter
|
|
|
525 |
|
|
|
$ |
456,164 |
|
9. Property
and Equipment:
Property
and equipment are stated at cost, less accumulated depreciation. Expenditures
for maintenance and repairs are charged directly to expense when incurred; major
improvements are capitalized. When items are sold or retired, the related cost
and accumulated depreciation are removed from the account balances, with any
gain or loss reflected in the consolidated statements of
operations.
Depreciation
of land improvements, buildings, furniture, fixtures and equipment, and vehicles
is provided over the estimated useful lives, which range from 2 to 40 years, of
the respective assets using the straight-line method. Depreciation of building
and leasehold improvements is provided over the shorter of the original useful
lives of the respective assets or the term of the lease using the straight-line
method. The term of the lease is generally the initial term of the lease unless
external economic factors exist such that renewals are reasonably assured, in
which case the renewal period would be included in the lease term for purposes
of establishing an amortization period. Depreciation expense was $145,353,
$146,182 and $138,064 for the fiscal years ended 2008, 2007 and 2006,
respectively.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
Property
and equipment consists of the following:
|
Original
Useful
Lives
|
|
January
3,
2009
|
|
|
December
29, 2007
|
|
Land
and land improvements
|
0 -
10 years
|
|
$ |
289,682 |
|
|
$ |
274,710 |
|
Buildings
|
40
years
|
|
|
351,603 |
|
|
|
358,366 |
|
Building
and leasehold improvements
|
10
- 40 years
|
|
|
229,372 |
|
|
|
208,395 |
|
Furniture,
fixtures and equipment
|
3 -
12 years
|
|
|
897,778 |
|
|
|
868,421 |
|
Vehicles
|
2 -
10 years
|
|
|
25,545 |
|
|
|
26,382 |
|
Construction
in progress
|
|
|
|
90,195 |
|
|
|
60,464 |
|
Other
|
|
|
|
4,658 |
|
|
|
4,230 |
|
|
|
|
|
1,888,833 |
|
|
|
1,800,968 |
|
Less
- Accumulated depreciation and amortization
|
|
|
|
(817,428 |
) |
|
|
(753,024 |
) |
Property
and equipment, net
|
|
|
$ |
1,071,405 |
|
|
$ |
1,047,944 |
|
The Company capitalized approximately $2,388, $2,274 and $3,641
incurred for the development of internal use computer software in accordance
with the American Institute of Certified Public Accountant’s Statement of
Position 98-1, “Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use,” or SOP 98-1, during fiscal 2008, 2007 and 2006,
respectively. These costs are included in the furniture, fixtures and equipment
category above and are depreciated on the straight-line method over three to
seven years.
10. Accrued
Expenses:
Accrued
expenses consist of the following:
|
|
January
3,
|
|
|
December
29,
|
|
|
|
2009
|
|
|
2007
|
|
Payroll
and related benefits
|
|
$ |
75,471 |
|
|
$ |
42,845 |
|
Warranty
reserves
|
|
|
28,662 |
|
|
|
17,757 |
|
Capital
expenditures
|
|
|
26,299 |
|
|
|
21,523 |
|
Self-insurance
reserves
|
|
|
90,554 |
|
|
|
85,523 |
|
Taxes
payable
|
|
|
69,714 |
|
|
|
48,201 |
|
Other
|
|
|
81,810 |
|
|
|
85,565 |
|
Total
accrued expenses
|
|
$ |
372,510 |
|
|
$ |
301,414 |
|
Additional
information appears below regarding the Company’s accrued expenses for warranty
reserves and self-insurance reserves.
Warranty
Reserves
The
following table presents changes in the Company’s warranty
reserves:
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
|
|
January
3,
|
|
|
December
29,
|
|
|
December
30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Warranty
reserves, beginning of period
|
|
$ |
17,757 |
|
|
$ |
13,069 |
|
|
$ |
11,352 |
|
Additions
to warranty reserves
|
|
|
38,459 |
|
|
|
24,722 |
|
|
|
17,352 |
|
Reserves
utilized
|
|
|
(27,554 |
) |
|
|
(20,034 |
) |
|
|
(15,635 |
) |
Warranty
reserves, end of period
|
|
$ |
28,662 |
|
|
$ |
17,757 |
|
|
$ |
13,069 |
|
Effective
December 30, 2007, the Company began including in its warranty reserve the
warranty obligation on certain other products sold in addition to batteries. A
portion of this obligation is funded by the Company’s vendors. The overall
increase in the Company’s warranty reserves is primarily attributable to an
increase in the quantity and cost of batteries sold during fiscal 2008 as well
as an increase in related warranty claims.
Self-insurance
Reserves
The
following table presents changes in the Company’s self-insurance
reserves:
|
|
January
3,
|
|
|
December
29,
|
|
|
December
30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Self-insurance
reserves, beginning of period
|
|
$ |
85,523 |
|
|
$ |
71,519 |
|
|
$ |
54,899 |
|
Additions
to self-insurance reserves
|
|
|
89,315 |
|
|
|
102,641 |
|
|
|
97,201 |
|
Reserves
utilized
|
|
|
(84,284 |
) |
|
|
(88,637 |
) |
|
|
(80,581 |
) |
Self-insurance
reserves, end of period
|
|
$ |
90,554 |
|
|
$ |
85,523 |
|
|
$ |
71,519 |
|
11. Stock
Repurchase Program:
On May
15, 2008, the Company’s Board of Directors authorized a new $250,000 stock
repurchase program. The new program cancelled and replaced the remaining portion
of the Company’s previous $500,000 stock repurchase program (authorized on
August 8, 2007). 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.
During
fiscal 2008, the Company repurchased 6,136 shares of its common stock at an
aggregate cost of $216,470, or an average price of $35.28 per share, of which
4,563 shares of common stock were repurchased under the previous $500,000 stock
repurchase program. Additionally, the Company settled $2,959 on shares
repurchased at the end of fiscal 2007.
As of
January 3, 2009, the Company had repurchased 1,573 shares of its common stock at
an aggregate cost of $61,089, excluding related expenses, under its
$250,000 stock repurchase program leaving $188,911 remaining under this program,
excluding related expenses.
12.
Income Taxes:
The
Company adopted the provisions of FIN 48 on December 31, 2006 and upon adoption
the Company recorded an increase of $2,275 to the liability for unrecognized tax
benefits and a corresponding decrease in its balance of retained earnings. The
following table lists each category and summarizes the activity of the Company’s
unrecognized tax benefits for the fiscal years ended January 3, 2009 and
December 29, 2007:
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
Unrecognized Tax
Benefits
|
|
January
3,
|
|
|
December
29,
|
|
|
|
2009
|
|
|
2007
|
|
Unrecognized
tax benefits, beginning of period
|
|
$ |
14,145 |
|
|
$ |
16,453 |
|
Gross
increases related to prior period tax positions
|
|
|
514 |
|
|
|
1,279 |
|
Gross
decreases related to prior period tax positions
|
|
|
(1,280 |
) |
|
|
(1,853 |
) |
Gross
increases related to current period tax positions
|
|
|
1,882 |
|
|
|
5,340 |
|
Settlements
|
|
|
(317 |
) |
|
|
(539 |
) |
Expiration
of statute of limitations
|
|
|
(1,147 |
) |
|
|
(271 |
) |
Unrecognized
tax benefits, end of period
|
|
$ |
13,797 |
|
|
$ |
20,409 |
|
As of
January 3, 2009 the entire amount of unrecognized tax benefits, if recognized,
would reduce the Company’s annual effective tax rate.
The
Company has chosen to provide for potential interest and penalties associated
with uncertain tax positions as a part of income tax expense. During fiscal
2008, the Company accrued potential interest and penalties of $1,550 and $207,
respectively, related to these unrecognized tax benefits. During fiscal 2007,
the Company accrued potential interest and penalties of $1,827 and $709. As
of January 3, 2009, the Company had recorded a liability for potential interest
and penalties of $5,022 and $1,743, respectively. As of December 29,
2007, the Company had recorded a liability for potential interest and penalties
of $4,421 and $1,843, respectively, which was included in the above table. The
Company has not provided for any penalties associated with tax contingencies
unless considered probable of assessment. The Company does not expect its
unrecognized tax benefits to change significantly over the next 12
months.
During
the next 12 months, it is possible the Company could conclude on approximately
$2,000 to $3,000 of the contingencies associated with unrecognized tax
uncertainties due mainly to the conclusion of audits and the expiration of
statutes of limitations. The majority of these resolutions would be achieved
through the completion of current income tax examinations.
The
Company files U.S. and state income tax returns in jurisdictions with varying
statutes of limitations. The 2006 year is currently under examination with the
Internal Revenue Service. The 2005 through 2008 tax years generally
remain subject to examination by federal and most state taxing
authorities. One major tax jurisdiction has an examination pending
final settlement for periods prior to 2005. In management’s opinion,
any amounts assessed will not have a material effect on the Company’s financial
position, results of operations or liquidity.
Provision for Income
Taxes
Provision
(benefit) for income taxes from continuing operations for fiscal 2008, 2007 and
2006 consists of the following:
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
2008-
|
|
|
|
|
|
|
Federal
|
|
$ |
128,952 |
|
|
$ |
(1,435 |
) |
|
$ |
127,517 |
|
State
|
|
|
16,404 |
|
|
|
(1,267 |
) |
|
|
15,137 |
|
|
|
$ |
145,356 |
|
|
$ |
(2,702 |
) |
|
$ |
142,654 |
|
2007-
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
143,726 |
|
|
$ |
(17,444 |
) |
|
$ |
126,282 |
|
State
|
|
|
21,126 |
|
|
|
(3,091 |
) |
|
|
18,035 |
|
|
|
$ |
164,852 |
|
|
$ |
(20,535 |
) |
|
$ |
144,317 |
|
2006-
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
126,726 |
|
|
$ |
(4,874 |
) |
|
$ |
121,852 |
|
State
|
|
|
18,433 |
|
|
|
(1,688 |
) |
|
|
16,745 |
|
|
|
$ |
145,159 |
|
|
$ |
(6,562 |
) |
|
$ |
138,597 |
|
The
provision (benefit) for income taxes from continuing operations differed from
the amount computed by applying the federal statutory income tax rate due
to:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
at
statutory U.S. federal income tax rate (35%)
|
|
$ |
133,242 |
|
|
$ |
133,922 |
|
|
$ |
129,470 |
|
State
income taxes, net of federal
income
tax benefit
|
|
|
9,839 |
|
|
|
11,723 |
|
|
|
10,884 |
|
Non-deductible
expenses
|
|
|
2,177 |
|
|
|
1,181 |
|
|
|
1,155 |
|
Valuation
allowance
|
|
|
491 |
|
|
|
221 |
|
|
|
70 |
|
Other,
net
|
|
|
(3,095 |
) |
|
|
(2,730 |
) |
|
|
(2,982 |
) |
|
|
$ |
142,654 |
|
|
$ |
144,317 |
|
|
$ |
138,597 |
|
Deferred Income Tax
Assets/(Liabilities)
Deferred
tax assets and liabilities are determined based on the differences between the
financial statements and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Deferred income taxes reflect the net income tax effect of temporary differences
between the basis of assets and liabilities for financial reporting purposes and
for income tax reporting purposes. Net deferred income tax balances are
comprised of the following:
|
|
January
3,
|
|
|
December
29,
|
|
|
|
2009
|
|
|
2007
|
|
Deferred
income tax assets
|
|
$ |
100,177 |
|
|
$ |
73,660 |
|
Valuation
allowance
|
|
|
(1,887 |
) |
|
|
(1,396 |
) |
Deferred
income tax liabilities
|
|
|
(136,942 |
) |
|
|
(118,404 |
) |
Net
deferred income tax liabilities
|
|
$ |
(38,652 |
) |
|
$ |
(46,140 |
) |
At
January 3, 2009 and December 29, 2007, the Company had cumulative net deferred
income tax liabilities of $38,652 and $46,140, respectively. The deferred
income tax assets also include state net operating loss carry-forwards, or NOLs,
of approximately $2,581 and $3,214, respectively. These NOLs may be used to
reduce future taxable income and expire periodically through fiscal year 2027.
Due to uncertainties related to the realization of
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
certain
deferred tax assets for NOLs in certain jurisdictions, the Company recorded a
valuation allowance of $1,887 as of January 3, 2009 and $1,396 as of December
29, 2007. The amount of deferred income tax assets realizable, however, could
change in the near future if projections of future taxable
income change.
Temporary
differences which give rise to significant deferred income tax assets
(liabilities) are as follows:
|
|
January
3,
|
|
|
December
29,
|
|
|
|
2009
|
|
|
2007
|
|
Current
deferred income tax assets (liabilities):
|
|
|
|
|
|
|
Inventory
valuation differences
|
|
$ |
(94,373 |
) |
|
$ |
(86,012 |
) |
Accrued
medical and workers compensation
|
|
|
28,527 |
|
|
|
26,125 |
|
Accrued
expenses not currently deductible for tax
|
|
|
28,394 |
|
|
|
13,635 |
|
Net
operating loss carryforwards
|
|
|
510 |
|
|
|
817 |
|
Other,
net
|
|
|
3,606 |
|
|
|
- |
|
Total
current deferred income tax assets (liabilities)
|
|
$ |
(33,336 |
) |
|
$ |
(45,435 |
) |
|
|
|
|
|
|
|
|
|
Long-term
deferred income tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
(42,569 |
) |
|
|
(32,392 |
) |
Postretirement
benefit obligation
|
|
|
3,612 |
|
|
|
3,661 |
|
Share-based
compensation
|
|
|
17,562 |
|
|
|
12,854 |
|
Net
operating loss carryforwards
|
|
|
2,071 |
|
|
|
2,397 |
|
Valuation
allowance
|
|
|
(1,887 |
) |
|
|
(1,396 |
) |
Other,
net
|
|
|
15,895 |
|
|
|
14,171 |
|
Total
long-term deferred income tax assets (liabilities)
|
|
$ |
(5,316 |
) |
|
$ |
(705 |
) |
These
amounts are recorded in Other current liabilities and Other long-term
liabilities in the accompanying consolidated balance sheets, as
appropriate.
13. Lease
Commitments:
At
January 3, 2009, future minimum lease payments due under non-cancelable
operating leases with lease terms ranging from 1 year to 20 years through the
year 2028 for all open stores are as follows:
|
|
Total
|
|
|
2009
|
|
$ |
282,967 |
|
|
2010
|
|
|
247,640 |
|
|
2011
|
|
|
226,361 |
|
|
2012
|
|
|
202,022 |
|
|
2013
|
|
|
177,500 |
|
|
Thereafter
|
|
|
1,012,744 |
|
|
|
|
$ |
2,149,234 |
|
|
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
The
Company anticipates its future minimum lease payments will be off-set by future
minimum sub-lease income. At January 3, 2009 and December 29, 2007, future
minimum sub-lease income to be received under non-cancelable operating leases is
$5,042 and $7,596, respectively.
Net Rent
Expense
Net rent
expense for fiscal 2008, 2007 and 2006 was as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Minimum
facility rentals
|
|
$ |
261,315 |
|
|
$ |
245,135 |
|
|
$ |
217,588 |
|
Contingent
facility rentals
|
|
|
642 |
|
|
|
730 |
|
|
|
1,090 |
|
Equipment
rentals
|
|
|
4,338 |
|
|
|
5,490 |
|
|
|
5,735 |
|
Vehicle
rentals
|
|
|
17,202 |
|
|
|
14,572 |
|
|
|
13,554 |
|
|
|
|
283,497 |
|
|
|
265,927 |
|
|
|
237,967 |
|
Less: Sub-lease
income
|
|
|
(3,940 |
) |
|
|
(4,038 |
) |
|
|
(4,166 |
) |
|
|
$ |
279,557 |
|
|
$ |
261,889 |
|
|
$ |
233,801 |
|
Rent
expense associated with closed locations is included in other selling, general
and administrative expenses.
14.
Contingencies:
In the
case of all known contingencies, the Company accrues for an obligation,
including estimated legal costs, when it is probable and the amount is
reasonably estimable. As facts concerning contingencies become known to the
Company, the Company reassesses its position with respect to accrued liabilities
and other potential exposures. Estimates that are particularly sensitive to
future change include legal matters and tax matters not subject to FIN 48, which
are subject to change as events evolve, and as additional information becomes
available during the administrative and litigation process.
The
Company’s Western Auto subsidiary, together with other defendants including
automobile manufacturers, automotive parts manufacturers and other retailers,
has been named as a defendant in lawsuits alleging injury as a result of
exposure to asbestos-containing products. The Company and some of its
subsidiaries also have been named as defendants in many of these lawsuits. The
plaintiffs have alleged that these products were manufactured, distributed
and/or sold by the various defendants. To date, these products have included
brake and clutch parts and roofing materials. Many of the cases pending against
the Company or its subsidiaries are in the early stages of litigation. The
damages claimed against the defendants in some of these proceedings are
substantial. Additionally, some of the automotive parts manufacturers named as
defendants in these lawsuits have declared bankruptcy, which will limit
plaintiffs’ ability to recover monetary damages from those defendants. Although
the Company diligently defends against these claims, the Company may enter into
discussions regarding settlement of these and other lawsuits, and may enter into
settlement agreements, if it believes settlement is in the best interests of the
Company’s shareholders. The Company believes that most of these claims are at
least partially covered by insurance. Based on discovery to date, the Company
does not believe the cases currently pending will have a material adverse effect
on the Company’s operating results, financial position or liquidity. However, if
the Company was to incur an adverse verdict in one or more of these claims and
was ordered to pay damages that were not covered by insurance, these claims
could have a material adverse affect on its operating results, financial
position and liquidity. If the number of claims filed against the Company or any
of its subsidiaries alleging injury as a result of exposure to
asbestos-containing products increases substantially, the costs associated with
concluding these claims, including damages resulting from any adverse verdicts,
could have a material adverse effect on its operating results, financial
position or liquidity in future periods.
The
Company is involved in various types of legal proceedings arising from claims of
employment discrimination or other types of employment matters as a result of
claims by current and former employees. The
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
damages
claimed against the Company in some of these proceedings are substantial.
Because of the uncertainty of the outcome of such legal matters and because the
Company’s liability, if any, could vary widely, including the size of any
damages awarded if plaintiffs are successful in litigation or any negotiated settlement, the
Company cannot reasonably estimate the possible loss or range of loss which may
arise. The Company is also involved in various other claims
and legal proceedings arising in the normal course of
business. Although the final outcome of these legal matters cannot be
determined, based on the facts presently known, it is management’s opinion that
the final outcome of such claims and lawsuits will not have a material adverse
effect on the Company’s financial position, results of operations or liquidity.
During fiscal 2008, the Company settled several lawsuits that exceeded
previously estimated amounts but did not have a material adverse impact on the
Company’s financial position, results of operations or liquidity.
The
Company has entered into employment agreements with certain team members that
provide severance pay benefits under certain circumstances, including
termination of employment of the team member by the Company. The maximum
contingent liability under these employment agreements is approximately $11,850
and $3,306 at January 3, 2009 and December 29, 2007, respectively, for
which no amount has been accrued.
15. Benefit
Plans:
401(k)
Plan
The
Company maintains a defined contribution Team Member benefit plan, which covers
substantially all Team Members after one year of service and who have attained
the age of 21. The plan allows for Team Member salary deferrals, which are
matched at the Company’s discretion. Company contributions were $9,117, $8,234
and $7,726 in fiscal 2008, 2007 and 2006, respectively.
Deferred
Compensation
The
Company maintains a non-qualified deferred compensation plan for certain Team
Members. This plan provides for a minimum and maximum deferral percentage of the
Team Member’s base salary and bonus, as determined by the Retirement Plan
Committee. The Company establishes and maintains a deferred compensation
liability for this plan. At January 3, 2009 and December 29, 2007 these
liabilities were $4,097 and $4,668, respectively.
Postretirement
Plan
The
Company provides certain health and life insurance benefits for eligible retired
Team Members through a postretirement plan, or 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.
Funded
Status of Benefit Obligations
The
following table provides a reconciliation of the accrued postretirement benefit
obligation recorded, included in Other long-term liabilities in the accompanying
consolidated balance sheets, and the funded status of the plan as of January 3,
2009 and December 29, 2007:
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
|
|
2008
|
|
|
2007
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
Benefit
obligation at beginning of the year
|
|
$ |
8,763 |
|
|
$ |
10,517 |
|
Interest
cost
|
|
|
581 |
|
|
|
550 |
|
Benefits
paid
|
|
|
(767 |
) |
|
|
(673 |
) |
Actuarial
gain
|
|
|
(827 |
) |
|
|
(1,631 |
) |
Benefit
obligation at end of the year
|
|
|
7,750 |
|
|
|
8,763 |
|
Change
in plan assets:
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of the year
|
|
|
- |
|
|
|
- |
|
Employer
contributions
|
|
|
767 |
|
|
|
673 |
|
Participant
contributions
|
|
|
868 |
|
|
|
995 |
|
Benefits
paid
|
|
|
(1,635 |
) |
|
|
(1,668 |
) |
Fair
value of plan assets at end of year
|
|
|
- |
|
|
|
- |
|
Funded
status of plan
|
|
$ |
(7,750 |
) |
|
$ |
(8,763 |
) |
Net
periodic postretirement benefit cost is as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Interest
cost
|
|
|
581 |
|
|
|
550 |
|
|
|
726 |
|
Amortization
of the prior service cost
|
|
|
(677 |
) |
|
|
(581 |
) |
|
|
(581 |
) |
Amortization
of recognized net (gains) losses
|
|
|
(16 |
) |
|
|
- |
|
|
|
210 |
|
|
|
$ |
(112 |
) |
|
$ |
(31 |
) |
|
$ |
355 |
|
The
health care cost trend rate was assumed to be 9.5% for 2009, 9.1% for 2010, 8.7%
for 2011, 8.3% for 2012, 8.0% for 2013, 7.5% for 2014 and 7.2% to 4.0% for 2015
and thereafter. If the health care cost were increased 1% for all future years
the accumulated postretirement benefit obligation would have increased by $179
as of January 3, 2009. The effect of this change on the combined service and
interest cost would have been an increase of $13 for fiscal 2008. If the health
care cost were decreased 1% for all future years the accumulated postretirement
benefit obligation would have decreased by $165 as of January 3, 2009. The
effect of this change on the combined service and interest cost would have been
a decrease of $12 for fiscal 2008.
The
postretirement benefit obligation and net periodic postretirement benefit cost
was computed using the following weighted average discount rates as determined
by the Company’s actuaries for each applicable year:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Postretirement
benefit obligation
|
|
|
6.00% |
|
|
|
5.50% |
|
Net
periodic postretirement benefit cost
|
|
|
6.25% |
|
|
|
6.00% |
|
The
Company expects plan contributions to completely offset benefits paid. The
following table summarizes the Company's expected benefit payments (net of
retiree contributions) to be paid for each of the following fiscal
years:
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
|
|
Amount
|
|
|
2009
|
|
$ |
915 |
|
|
2010
|
|
|
919 |
|
|
2011
|
|
|
930 |
|
|
2012
|
|
|
914 |
|
|
2013
|
|
|
892 |
|
|
2014-2017
|
|
|
3,580 |
|
|
The
Company adopted the measurement date provisions of SFAS No. 158 on December 30,
2007. The change in the measurement date did not have a material impact on the
Company’s financial condition, results of operations or cash
flows. The Company previously adopted the recognition provisions of
SFAS No. 158 on December 30, 2006. As a result, the Company recorded an
actuarial gain of $3,316, net of tax, to Accumulated other comprehensive
loss, net of tax, and recognized previously unamortized prior service cost that
had not yet been included in net periodic postretirement benefit cost as of
December 30, 2006. The adoption of the recognition provisions of SFAS No. 158
had no impact on net income.
At
January 3, 2009, the net unrealized gain on the postretirement plan consists of
an unrealized gain of $4,693 related to prior service cost and an unrealized net
gain of $1,848 related to actuarial gains. Approximately $581 of the unrealized
gain related to prior service cost and $96 related to the actuarial gain are
expected to be recognized as a component of Net periodic postretirement benefit
cost in fiscal 2009.
The
Company reserves the right to change or terminate the employee benefits or plan
contributions at any time. The Company also continues to evaluate ways in which
it 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 material impact on the amount of the reported obligation, annual
expense and projected benefit payments.
16. Share-Based
Compensation:
Overview
The
Company grants share-based compensation awards to its employees and members of
its Board of Directors as provided for under its Long-Term Incentive Plan, or
LTIP. Prior to fiscal 2007, the Company granted equity compensation to its
employees in the form of fixed stock options and deferred stock units, or DSUs,
that vest over time. Beginning in fiscal 2007, the Company phased out the
granting of stock options by primarily granting stock appreciation rights, or
SARs, and restricted stock (considered nonvested stock under SFAS 123R), which
also vest over time.
During
the fourth quarter of fiscal 2008, the Company shifted its annual LTIP grant
cycle from the first quarter to the fourth quarter of the fiscal year, which
will enable performance targets and awards to be put in place prior to the
commencement of the performance period. Therefore, the Company made two annual
share-based grants during fiscal 2008. Additionally, the Company granted awards
to executives hired earlier in fiscal 2008. Thus, the number of awards granted
during fiscal 2008 was significantly higher than prior years.
General Terms of
Awards
Time
Vested Awards
The terms
of the SARs granted are similar in several respects to the stock options
previously granted. The SARs generally vest over a three-year period in equal
annual installments beginning on the first anniversary of the grant date, with
the exception of SARs granted to our Chief Executive Officer and Chief Financial
Officer hired in early fiscal 2008. The 2008 grants to our CEO and CFO provide
for 25% of the SARs to vest immediately with exercise restrictions during the
first year and the remainder of the award to vest in equal installments over a
three-year period
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
consistent
with all other Company SARs granted. Additionally, all SARs granted are
non-qualified, terminate on the seventh anniversary of the grant date and
contain no post-vesting restrictions other than normal trading black-out periods
prescribed by the Company’s corporate governance
policies.
Restricted
stock shares granted during fiscal 2007 vest at the end of a three-year period.
During this period, holders of restricted stock are entitled to receive
dividends and voting rights. The shares are restricted until they vest and
cannot be sold by the recipient until the restriction has lapsed at the end of
the three-year period. Beginning in fiscal 2008, all new restricted stock awards
granted vest pro-rata over a three-year period in equal annual installments
beginning on the first anniversary of the grant date (with the exception of
certain shares of restricted stock granted to its Chief Executive Officer and
Chief Financial Officer hired in early fiscal 2008, which vest at the end of a
three-year period following the grant date).
Performance-Based
Awards
Although
the Company will continue to grant SARs and restricted stock, a portion of each
respective award will be performance-based. The actual number of shares vested
is determined at the end of a three-year performance period based on results
achieved versus company performance goals. Depending on the Company’s results
during the three-year performance period, the actual number of shares vesting at
the end of the period may range from 0% to 150% of the targeted shares
granted.
Deferred
Stock Units
The
Company grants share-based awards annually to its Board of Directors in
connection with its annual meeting of stockholders. In addition to SARs, the
Company grants DSUs 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 (i) an annual
retainer for directors, and (ii) wages for certain highly compensated employees
of the Company. These deferred stock units are settled in common stock with the
participants at a future date, or over a specified time period as elected by the
participants in accordance with the DSU Plan.
Share-Based Compensation
Expense & Cash
Flows
The
expense the Company has incurred annually related to the issuance of share-based
compensation is included in Selling, general and administrative expense. The
Company also receives cash upon the exercise of stock options, as well as when
employees purchase stock under the employee stock purchase plan, or ESPP. Total
share-based compensation expense and cash received included in the Company’s
consolidated statements of operations and consolidated statement of cash flows
are reflected in the table below, including the related income tax benefits, for
fiscal years ended January 3, 2009, December 29, 2007 and December 30, 2006 as
follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Share-based
compensation expense
|
|
$ |
17,707 |
|
|
$ |
18,096 |
|
|
$ |
19,052 |
|
Deferred
income income tax benefit
|
|
|
6,640 |
|
|
|
6,822 |
|
|
|
7,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
received upon exercise and per ESPP
|
|
|
35,220 |
|
|
|
42,547 |
|
|
|
17,203 |
|
Excess
tax benefit share-based compensation
|
|
|
9,047 |
|
|
|
11,841 |
|
|
|
5,272 |
|
As of
January 3, 2009, there was $27,405 of unrecognized compensation expense related
to all share-based awards (excluding DSUs) that is expected to be recognized
over a weighted average period of 2.1 years.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
Time-Based Share
Awards
Stock Appreciation Rights and Stock
Options
The fair
value of each SAR and stock option was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
Black-Scholes
Option Valuation Assumptions (1)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Risk-free
interest rate (2)
|
|
2.5%
|
|
4.8%
|
|
4.6%
|
Expected
dividend yield
|
|
0.8%
|
|
0.6%
|
|
0.6%
|
Expected
stock price volatility (3)
|
|
32.3%
|
|
29.0%
|
|
28.0%
|
Expected
life of awards (in months) (4)
|
|
50
|
|
51
|
|
44
|
(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 awards.
|
(3)
|
Expected
volatility is based on the historical volatility of the Company’s common
stock for the period consistent with the expected life of the
Company’s awards.
|
(4)
|
The
expected life of the Company’s awards represents the estimated period
of time until exercise and is based on historical experience of previously
granted awards.
|
The
following table summarizes the time-vested fixed stock option and time-vested
SARs activity for the fiscal year ended January 3, 2009:
|
|
Number
of
Awards
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 29, 2007
|
|
|
5,939 |
|
|
$ |
32.68 |
|
|
|
|
|
|
|
Granted
|
|
|
2,331 |
|
|
|
31.66 |
|
|
|
|
|
|
|
Exercised
|
|
|
(1,421 |
) |
|
|
22.98 |
|
|
|
|
|
|
|
Forfeited
|
|
|
(595 |
) |
|
|
38.43 |
|
|
|
|
|
|
|
Outstanding
at January 3, 2009
|
|
|
6,254 |
|
|
$ |
33.95 |
|
|
|
4.81 |
|
|
$ |
15,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
and expected to vest
|
|
|
6,070 |
|
|
$ |
34.19 |
|
|
|
4.47 |
|
|
$ |
14,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable
|
|
|
2,973 |
|
|
$ |
33.89 |
|
|
|
3.44 |
|
|
$ |
8,067 |
|
The
weighted average fair value of SARs and stock options granted during the
fiscal years ended January 3, 2009, December 29, 2007 and December 30, 2006, was
$8.66, $11.39 and $10.68 per share, respectively. The aggregate intrinsic value
reflected in the table is based on the Company’s closing stock price of $34.14
as of the last trading day of the period ended January 3, 2009. The aggregate
intrinsic value of options and SARs (the amount by which the market price of the
stock on the date of exercise exceeded the exercise price) exercised during the
fiscal years ended January 3, 2009, December 29, 2007 and December 30, 2006, was
$25,890, $33,179 and $14,001, respectively.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
Restricted
Stock
The
following table summarizes the restricted stock activity for the fiscal year
ended January 3, 2009:
|
|
Number
of
Awards
|
|
Weighted-
Average
Grant
Date
Fair Value
|
|
|
|
|
|
|
Nonvested
at December 29, 2007
|
|
130
|
|
|
$ 38.17
|
Granted
|
|
454
|
|
|
32.21
|
Vested
|
|
(2)
|
|
|
34.74
|
Forfeited
|
|
(27)
|
|
|
36.74
|
Nonvested
at January 3, 2009
|
|
555
|
|
|
$ 33.28
|
The fair
value of each share of restricted stock is determined based on the market price
of the Company’s common stock on the date of grant. The weighted average fair
value of shares granted during the fiscal years ended January 3, 2009 and
December 29, 2007 was $32.21 and $38.14 per share, respectively. The total grant
date fair value of shares vested during 2008 was approximately $53.
Performance-Based
Awards
Performance-Based
SARs
During
the fourth quarter of fiscal 2008, the Company granted 271 shares of
performance-based SARs. The grant date fair value of performance-based SARs
granted in fiscal 2008 was $7.62 per share. There were no performance-based SARs
granted during fiscal years 2007 or 2006. Additionally, there were no
performance-based SARs exercised during the year ended January 3, 2009 as none
of the performance-based SARs have vested.
The fair
value of performance-based SARs was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
Black-Scholes
Option Valuation Assumptions (1)
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate (2)
|
|
1.9%
|
|
|
|
|
Expected
dividend yield
|
|
0.9%
|
|
|
|
|
Expected
stock price volatility (3)
|
|
36.7%
|
|
|
|
|
Expected
life of awards (in months) (4)
|
|
50
|
|
|
|
|
(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 performance-based SARs.
|
(3)
|
Expected
volatility is based on the historical volatility of the Company’s common
stock for the period consistent with the expected life of the Company’s
performance-based SARs.
|
(4)
|
The
expected life of the Company’s performance-based SARs represents the
estimated period of time until exercise and is based on historical
experience of previously granted
awards.
|
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
Performance-Based
Restricted Stock
During the fourth quarter of fiscal
2008, the Company granted 49 shares of performance-based restricted stock. The
fair value of each share was based on the market price of the Company’s common
stock on the date of grant. The fair value of performance-based restricted stock
granted in fiscal 2008 was $25.81 per share. There were no shares of
performance-based restricted stock granted during fiscal 2007 or 2006.
Additionally, no shares of performance-based restricted stock vested during the
year ended January 3, 2009.
There has been no expense recognized
for performance-based awards since vesting was not considered probable as of
January 3, 2009.
Deferred Stock
Units
The LTIP
permits the granting of Deferred Stock Units, or DSUs, to members of the
Company’s Board of Directors. The Company granted 12 and eight DSUs in fiscal
years 2008 and 2007, respectively, at a weighted average fair value of $38.94
and $41.64, respectively. The DSUs are awarded at a price equal to the market
price of the Company’s underlying stock on the date of the grant. For fiscal
years 2008 and 2007, respectively, the Company recognized a total of $480 and
$344, on a pre-tax basis, in compensation expense for these DSU
grants.
LTIP
Availability
At
January 3, 2009, there are 3,998 shares of common stock currently available for
future issuance under the LTIP. This availability includes 3,000 shares of
common stock the Company registered with the Securities Exchange Commission
during fiscal 2008, which had been previously approved by shareholders. The
Company issues new shares of common stock upon exercise of stock options and
SARs.
Employee Stock Purchase
Plan
The
Company also offers an ESPP. Eligible Team Members may purchase the Company's
common stock at 95% of its fair market value on the date of purchase. There are
annual limitations on Team Member elections of either $25 per Team Member or ten
percent of compensation, whichever is less. Under the plan, Team Members
acquired 80, 53 and 90 shares in fiscal years 2008, 2007 and 2006, respectively.
At January 3, 2009, there were 1,328 shares available to be issued under the
plan.
17. Accumulated
Other Comprehensive Income (Loss):
Comprehensive
income is computed as net earnings plus certain other items that are recorded
directly to shareholders’ equity during the accounting period. In addition to
net earnings, comprehensive income also includes unrealized gains or losses on
interest rate swaps and postretirement plan benefits, net of tax. Accumulated
other comprehensive income (loss), net of tax, for fiscal years 2006, 2007 and
2008 consisted of the following:
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
|
|
Unrealized
Gain
(Loss)
on Hedging
Arrangements
|
|
|
Unrealized
Gain on Postretirement
Plan
|
|
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
$ |
3,090 |
|
|
$ |
- |
|
|
$ |
3,090 |
|
Fiscal
2006 activity
|
|
|
(2,934 |
) |
|
|
3,316 |
|
|
|
382 |
|
Balance,
December 30, 2006
|
|
$ |
156 |
|
|
$ |
3,316 |
|
|
$ |
3,472 |
|
Fiscal
2007 activity
|
|
|
(4,809 |
) |
|
|
636 |
|
|
|
(4,173 |
) |
Balance,
December 29, 2007
|
|
$ |
(4,653 |
) |
|
$ |
3,952 |
|
|
$ |
(701 |
) |
Fiscal
2008 activity
|
|
|
(8,729 |
) |
|
|
81 |
|
|
|
(8,648 |
) |
Balance,
January 3, 2009
|
|
$ |
(13,382 |
) |
|
$ |
4,033 |
|
|
$ |
(9,349 |
) |
18. Segment
and Related Information:
The
Company has the following two reportable segments: AAP and AI. The AAP
segment is comprised of store operations within the United States, Puerto Rico
and the Virgin Islands which operate under the trade names “Advance Auto Parts,”
“Advance Discount Auto Parts” and “Western Auto.” These stores offer a broad
selection of brand name and proprietary automotive replacement parts,
accessories and maintenance items for domestic and imported cars and light
trucks.
The AI
segment consists solely of the operations of Autopart International, which
continues to operate as an independent, wholly-owned subsidiary. AI’s business
serves the growing commercial market in addition to warehouse distributors and
jobbers located throughout the Northeastern region of the United
States.
The
Company evaluates each of its segment’s financial performance-based on net sales
and operating profit for purposes of allocating resources and assessing
performance. The accounting policies of the reportable segments are the same as
those described in the summary of significant accounting policies in Note
2.
The
following table summarizes financial information for each of the Company's
business segments for the years ended January 3, 2009 and December 29,
2007, respectively.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
AAP
|
|
$ |
4,976,603 |
|
|
$ |
4,709,390 |
|
|
$ |
4,505,437 |
|
AI
|
|
|
165,652 |
|
|
|
135,014 |
|
|
|
111,066 |
|
Total
net sales
|
|
$ |
5,142,255 |
|
|
$ |
4,844,404 |
|
|
$ |
4,616,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of Sales, by Product Group
|
|
|
|
|
|
|
|
|
|
|
|
|
in
AAP Segment (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Parts
|
|
|
58 |
% |
|
|
57 |
% |
|
|
57 |
% |
Accessories
|
|
|
17 |
% |
|
|
18 |
% |
|
|
18 |
% |
Chemicals
|
|
|
12 |
% |
|
|
12 |
% |
|
|
12 |
% |
Oil
|
|
|
9 |
% |
|
|
9 |
% |
|
|
9 |
% |
Other
|
|
|
4 |
% |
|
|
4 |
% |
|
|
4 |
% |
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision (benefit) for
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
AAP
|
|
$ |
376,464 |
|
|
$ |
383,392 |
|
|
$ |
368,818 |
|
AI
|
|
|
4,228 |
|
|
|
(758 |
) |
|
|
1,097 |
|
Total
income (loss) before provision (benefit) for
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
$ |
380,692 |
|
|
$ |
382,634 |
|
|
$ |
369,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
AAP
|
|
$ |
140,838 |
|
|
$ |
144,579 |
|
|
$ |
138,144 |
|
AI
|
|
|
1,816 |
|
|
|
(262 |
) |
|
|
453 |
|
Total
provision (benefit) for income taxes
|
|
$ |
142,654 |
|
|
$ |
144,317 |
|
|
$ |
138,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
AAP
|
|
$ |
2,807,486 |
|
|
$ |
2,663,791 |
|
|
$ |
2,565,986 |
|
AI
|
|
|
156,579 |
|
|
|
141,775 |
|
|
|
116,695 |
|
Total
segment assets
|
|
$ |
2,964,065 |
|
|
$ |
2,805,566 |
|
|
$ |
2,682,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
AAP
|
|
$ |
141,202 |
|
|
$ |
142,194 |
|
|
$ |
135,159 |
|
AI
|
|
|
5,378 |
|
|
|
5,070 |
|
|
|
4,264 |
|
Total
depreciation and amortization
|
|
$ |
146,580 |
|
|
$ |
147,264 |
|
|
$ |
139,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
AAP
|
|
$ |
180,623 |
|
|
$ |
203,486 |
|
|
$ |
251,024 |
|
AI
|
|
|
4,363 |
|
|
|
7,114 |
|
|
|
7,562 |
|
Total
capital expenditures
|
|
$ |
184,986 |
|
|
$ |
210,600 |
|
|
$ |
258,586 |
|
(1) –
Sales by product group are not available for the AI segment.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)
January 3, 2009, December 29, 2007
and December 30, 2006
(in thousands, except per share
data)
19.
Quarterly Financial Data (unaudited):
The
following table summarizes quarterly financial data for fiscal years 2008 and
2007:
2008
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(16
weeks)
|
|
|
(12
weeks)
|
|
|
(12
weeks)
|
|
|
(13
weeks)
|
|
Net
sales
|
|
$ |
1,526,132 |
|
|
$ |
1,235,783 |
|
|
$ |
1,187,952 |
|
|
$ |
1,192,388 |
|
Gross
profit
|
|
|
743,451 |
|
|
|
600,838 |
|
|
|
577,119 |
|
|
|
541,656 |
|
Income
from continuing operations
|
|
|
82,086 |
|
|
|
75,386 |
|
|
|
56,155 |
|
|
|
24,411 |
|
Net
income
|
|
|
82,086 |
|
|
|
75,386 |
|
|
|
56,155 |
|
|
|
24,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
0.86 |
|
|
|
0.79 |
|
|
|
0.59 |
|
|
|
0.26 |
|
Diluted
earnings per share
|
|
|
0.86 |
|
|
|
0.79 |
|
|
|
0.59 |
|
|
|
0.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(16
weeks)
|
|
|
(12
weeks)
|
|
|
(12
weeks)
|
|
|
(12
weeks)
|
|
Net
sales
|
|
$ |
1,468,120 |
|
|
$ |
1,169,859 |
|
|
$ |
1,158,043 |
|
|
$ |
1,048,382 |
|
Gross
profit
|
|
|
709,403 |
|
|
|
562,861 |
|
|
|
555,113 |
|
|
|
493,592 |
|
Income
from continuing operations
|
|
|
76,101 |
|
|
|
68,424 |
|
|
|
59,040 |
|
|
|
34,752 |
|
Net
income
|
|
|
76,101 |
|
|
|
68,424 |
|
|
|
59,040 |
|
|
|
34,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
0.72 |
|
|
|
0.64 |
|
|
|
0.58 |
|
|
|
0.35 |
|
Diluted
earnings per share
|
|
|
0.71 |
|
|
|
0.64 |
|
|
|
0.57 |
|
|
|
0.35 |
|
Note: Quarterly
and year-to-date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the
quarters may not round to per share amounts for the year.
The accompanying notes to
the consolidated financial statements
are an integral part of
these statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Stockholders of
Advance
Auto Parts, Inc. and Subsidiaries
Roanoke,
Virginia
We have
audited the consolidated financial statements of Advance Auto Parts, Inc. and
subsidiaries (the “Company”) as of January 3, 2009 and December 29, 2007, and
for each of the three years in the period ended January 3, 2009, and the
Company’s internal control over financial reporting as of January 3, 2009, and
have issued our reports thereon dated March 3, 2009 (which report expresses an
unqualified opinion on those financial statements and includes an explanatory
paragraph regarding the Company’s adoption of new accounting standards); such
consolidated financial statements and reports are included elsewhere in this
Form 10-K. Our audits also included the consolidated financial
statement schedules of the Company listed in Item 15. These
consolidated financial statement schedules are the responsibility of the
Company’s management. Our responsibility is to express an opinion
based on our audits. In our opinion, such consolidated financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
/s/ Deloitte & Touche
LLP
Richmond,
Virginia
March 3,
2009
SCHEDULE I - CONDENSED FINANCIAL
INFORMATION OF THE REGISTRANT
Condensed
Parent Company Balance Sheets
January
3, 2009 and December 29, 2007
(in
thousands, except per share data)
|
|
January
3,
|
|
|
December
29,
|
|
|
|
2009
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
23 |
|
|
$ |
23 |
|
Other
current assets
|
|
|
- |
|
|
|
3 |
|
Property
and equipment, net of accumulated depreciation
|
|
|
37 |
|
|
|
- |
|
Other
assets, net
|
|
|
5 |
|
|
|
- |
|
Investment
in subsidiary
|
|
|
1,927,219 |
|
|
|
1,677,384 |
|
Total
assets
|
|
$ |
1,927,284 |
|
|
$ |
1,677,410 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity
|
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
$ |
120 |
|
|
$ |
33 |
|
Dividends
payable
|
|
|
5,657 |
|
|
|
5,957 |
|
Intercompany
payable, net
|
|
|
846,341 |
|
|
|
647,625 |
|
Total
liabilities
|
|
|
852,118 |
|
|
|
653,615 |
|
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; 103,000 shares issued and 94,852 outstanding
|
|
|
|
|
|
|
|
|
in
2008 and 101,072 issued and 99,060 outstanding in 2007
|
|
|
10 |
|
|
|
10 |
|
Additional
paid-in capital
|
|
|
335,991 |
|
|
|
274,659 |
|
Treasury
stock, at cost, 8,148 and 2,012 shares
|
|
|
(291,114 |
) |
|
|
(74,644 |
) |
Accumulated
other comprehensive loss
|
|
|
(9,349 |
) |
|
|
(701 |
) |
Retained
earnings
|
|
|
1,039,628 |
|
|
|
824,471 |
|
Total
stockholders' equity
|
|
|
1,075,166 |
|
|
|
1,023,795 |
|
Total
liabilities and stockholders' equity
|
|
$ |
1,927,284 |
|
|
$ |
1,677,410 |
|
The
accompanying notes to the condensed parent company financial
information
are an
integral part of this schedule.
ADVANCE AUTO PARTS,
INC.
SCHEDULE I - CONDENSED FINANCIAL
INFORMATION OF THE REGISTRANT
Condensed
Parent Company Statements of Operations
For
the Years Ended January 3, 2009, December 29, 2007 and December 30,
2006
(in
thousands, except per share data)
|
|
Fiscal
Years
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(53
Weeks)
|
|
|
(52
Weeks)
|
|
|
(52
Weeks)
|
|
Selling,
general and administrative expenses
|
|
$ |
23,761 |
|
|
$ |
166 |
|
|
$ |
165 |
|
Other
income, net
|
|
|
24,551 |
|
|
|
- |
|
|
|
- |
|
Income
(loss) before provision (benefit) for income taxes
|
|
|
790 |
|
|
|
(166 |
) |
|
|
(165 |
) |
Income
tax provision (benefit)
|
|
|
714 |
|
|
|
(60 |
) |
|
|
(58 |
) |
Income
(loss) before equity in earnings of subsidiaries
|
|
|
76 |
|
|
|
(106 |
) |
|
|
(107 |
) |
Equity
in earnings of subsidiaries
|
|
|
237,962 |
|
|
|
238,423 |
|
|
|
231,425 |
|
Net
income
|
|
$ |
238,038 |
|
|
$ |
238,317 |
|
|
$ |
231,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per basic share
|
|
$ |
2.51 |
|
|
$ |
2.30 |
|
|
$ |
2.18 |
|
Net
income per diluted share
|
|
$ |
2.50 |
|
|
$ |
2.28 |
|
|
$ |
2.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
94,655 |
|
|
|
103,826 |
|
|
|
106,129 |
|
Dilutive
effect of share-based compensation
|
|
|
650 |
|
|
|
828 |
|
|
|
995 |
|
Average
common shares outstanding - assuming dilution
|
|
|
95,305 |
|
|
|
104,654 |
|
|
|
107,124 |
|
The
accompanying notes to the condensed parent company financial
information
are an
integral part of this schedule.
ADVANCE AUTO PARTS,
INC.
SCHEDULE I - CONDENSED FINANCIAL
INFORMATION OF THE REGISTRANT
Condensed
Parent Company Statements of Cash Flows
For
the Years Ended January 3, 2009, December 29, 2007 and December 30,
2006
(in
thousands)
|
|
Fiscal
Years
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(53
Weeks)
|
|
|
(52
Weeks)
|
|
|
(52
Weeks)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
238,038 |
|
|
$ |
238,317 |
|
|
$ |
231,318 |
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided
(used in) by operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of subsidiary
|
|
|
(237,962 |
) |
|
|
(238,423 |
) |
|
|
(231,425 |
) |
Depreciation
|
|
|
30 |
|
|
|
- |
|
|
|
- |
|
Net
decrease (increase) in working capital
|
|
|
85 |
|
|
|
(24 |
) |
|
|
295 |
|
Net
cash provided (used in) by operating activities
|
|
|
191 |
|
|
|
(130 |
) |
|
|
188 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net intercompany with subsidiaries
|
|
|
(191 |
) |
|
|
130 |
|
|
|
(188 |
) |
Net
cash (used in) provided by investing activities
|
|
|
(191 |
) |
|
|
130 |
|
|
|
(188 |
) |
Cash
flows from financing activities:
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cash
and cash equivalents, beginning of year
|
|
|
23 |
|
|
|
23 |
|
|
|
23 |
|
Cash
and cash equivalents, end of year
|
|
$ |
23 |
|
|
$ |
23 |
|
|
$ |
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Income
taxes paid, net
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Noncash
transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of Parent's common stock by Stores
|
|
$ |
219,429 |
|
|
$ |
282,910 |
|
|
$ |
137,560 |
|
Retirement
of common stock
|
|
|
- |
|
|
|
211,225 |
|
|
|
192,339 |
|
Proceeds
received by Stores from stock transactions under the
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent's
stock subscription plan and Stores' stock option plan
|
|
|
35,220 |
|
|
|
42,547 |
|
|
|
17,203 |
|
Cash
dividends paid by Stores on behalf of Parent
|
|
|
23,181 |
|
|
|
25,152 |
|
|
|
19,153 |
|
Declared
but unpaid cash dividends
|
|
|
5,657 |
|
|
|
5,957 |
|
|
|
6,320 |
|
Changes
in other comprehensive income
|
|
|
8,648 |
|
|
|
(4,173 |
) |
|
|
382 |
|
Adoption
of FIN No. 48, net of tax
|
|
|
- |
|
|
|
2,275 |
|
|
|
- |
|
The
accompanying notes to the condensed parent company financial
information
are an
integral part of this schedule.
ADVANCE AUTO PARTS,
INC.
SCHEDULE I - CONDENSED FINANCIAL
INFORMATION OF THE REGISTRANT
Notes
to the Condensed Parent Company Statements
January
3, 2009 and December 29, 2007
(in
thousands, except per share data)
1.
Presentation
These
condensed financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in annual financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to those rules and regulations,
although management believes that the disclosures made are adequate to make the
information presented not misleading.
2.
Organization
Advance
Auto Parts, Inc. (“the Company”) is a holding company, which is the 100%
shareholder of Advance Stores Company, Incorporated and its subsidiaries
("Stores") during the periods presented. The parent/subsidiary relationship
between the Company and Stores includes certain related party transactions.
These transactions consist primarily of interest on intercompany advances,
dividends, capital contributions and allocations of certain costs. Deferred
income taxes have not been provided for financial reporting and tax basis
differences on the undistributed earnings of the
subsidiaries. Effective fiscal 2008, the Company and its subsidiaries
realigned duties and responsibilities within its overall organization that
resulted in certain operating expenses being included in and recognized at the
parent company level.
The
Company fully and unconditionally guarantees the term loan and revolving
credit facility of Stores. These debt agreements do not contain
restrictions on the payment of dividends, loans or advances between the Company
and Stores and Stores’ subsidiaries. Therefore, there are no such restrictions
as of January 3, 2009 and December 29, 2007.
3.
Summary of Significant Accounting Policies
Accounting
Period
The
Company's fiscal year ends on the Saturday nearest the end of December, which
results in an extra week every several years. Accordingly, fiscal 2008 includes
53 weeks of operations. All other fiscal years presented included 52 weeks of
operations.
New
Accounting Pronouncements
In
June 2008, the Financial Accounting Standards Board, or FASB, issued FASB
Staff Position, or FSP, EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.” FSP
EITF 03-6-1 addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting, and therefore need
to be included in the earnings allocation in computing earnings per share under
the two-class method as described in Statement of Financial Accounting
Standards, or SFAS, No. 128, “Earnings per Share.” Under the guidance of FSP
EITF 03-6-1, nonvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings-per-share pursuant to the two-class method. FSP EITF 03-6-1
is effective for financial statements issued for fiscal years beginning after
December 15, 2008 and all prior-period earnings per share data
presented shall be adjusted retrospectively. Early application
is not permitted. The Company does not anticipate the adoption
of FSP EITF 03-6-1 will have an impact on its earnings per
share.
In
April 2008, the FASB issued FASB Staff Position No. FAS 142-3,
“Determination of the Useful Life of Intangible Assets”, which amends the
factors that must be considered in developing renewal or extension assumptions
used to determine the useful life over which to amortize the cost of a
recognized intangible asset under SFAS 142, “Goodwill and Other Intangible
Assets.” The FSP requires an entity to consider its own assumptions about
renewal or extension of the term of the arrangement, consistent with its
expected use of the asset, and is an
See Notes
to the Consolidated Financial Statements for Additional
Disclosures.
ADVANCE AUTO PARTS,
INC.
SCHEDULE I - CONDENSED FINANCIAL
INFORMATION OF THE REGISTRANT
Notes
to the Condensed Parent Company Statements
January
3, 2009 and December 29, 2007
(in
thousands, except per share data)
attempt
to improve consistency between the useful life of a recognized intangible asset
under SFAS 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS 141, “Business Combinations.”
The FSP is effective for fiscal years beginning after December 15, 2008,
and the guidance for determining the useful life of a recognized intangible
asset must be applied prospectively to intangible assets acquired after the
effective date. The FSP is not expected to have a significant impact on the
Company’s financial condition, results of operations or cash flow.
In
February 2008, the FASB issued FASB Staff Position No. FAS 157-1, “Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13.” FSP No. FAS 157-1 amends SFAS
No. 157, “Fair Value Measurements,” to exclude SFAS No. 13, “Accounting for
Leases,” and other accounting pronouncements that address fair value
measurements for purposes of lease classification or measurement under SFAS No.
13. However, this scope exception does not apply to assets acquired and
liabilities assumed in a business combination that are required to be measured
at fair value under SFAS No. 141 or No. 141(R), Business Combinations (revised
2007), regardless of whether those assets and liabilities are related to leases.
The FSP will be effective upon the full adoption of SFAS 157
during the first quarter of fiscal 2009 and will not have a material impact on
the Company’s financial position, results of operations or cash
flows.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.” SFAS No. 160,
among other things, provides guidance and establishes amended accounting and
reporting standards for a parent company’s noncontrolling interest in a
subsidiary. SFAS No. 160 is effective for fiscal years beginning on or
after December 15, 2008. The Company does not expect the adoption of SFAS No.
160 to have a material impact on its financial condition, results of operations
or cash flows.
In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which
replaces SFAS No. 141, “Business Combinations.” SFAS No. 141R, among other
things, establishes principles and requirements for how an acquirer entity
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed and any controlling interests in the acquired
entity; recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. Costs of the acquisition will
be recognized separately from the business combination. SFAS No. 141R applies to
business combinations for fiscal years beginning after December 15,
2008. The Company will consider this standard when evaluating potential
future transactions to which it would apply.
Effective
December 30, 2007, the Company adopted the provisions of SFAS No. 157, “Fair
Value Measurements” on our financial assets and liabilities subject to the
deferral provisions of FSP 157-2. SFAS No. 157 clarifies the definition of fair
value, establishes a framework for defining fair value as it relates to other
accounting pronouncements that require or permit fair value measurements, and
expands the disclosures of fair value measurements. The Company did not apply
the provisions of SFAS No. 157 for nonfinancial assets and liabilities except
for those recognized or disclosed on a recurring basis (at least annually) as
allowed by the issuance of FSP No. 157-2. The deferral provided by FSP
No. 157-2 applies to such items as (i) nonfinancial assets and liabilities
initially measured at fair value in a business combination (but not measured at
fair value in subsequent periods) and (ii) nonfinancial long-lived asset
groups measured at fair value for an impairment assessment. The Company is
evaluating the impact FSP No. 157-2 will have on its nonfinancial assets
and liabilities that are measured at fair value and are recognized or disclosed
at fair value on a nonrecurring basis. The adoption of SFAS 157 did not have a
material impact on the Company’s financial condition, results of operations or
cash flows. The Company will fully adopt the provisions of SFAS 157 effective
during its first quarter of fiscal 2009.
Effective
December 30, 2007, the Company adopted the provisions of SFAS No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities.”
SFAS No. 159 permits entities to choose to measure many financial instruments
and certain other items at fair value. The Company elected not to apply fair
value on its existing financial assets and liabilities upon adoption. Therefore,
this adoption did not have a material effect on the Company’s financial
position, results of operations or cash flows.
See Notes
to the Consolidated Financial Statements for Additional
Disclosures.
SCHEDULE II - VALUATION AND
QUALIFYING ACCOUNTS
(in thousands)
Allowance for doubtful accounts
receivable:
|
|
Balance at
Beginning
of
Period
|
|
Charges to
Expenses
|
|
Deductions
|
|
|
|
Other
|
|
|
Balance at
End of
Period
|
|
December
30, 2006
|
|
$
|
4,686
|
|
$
|
1,228
|
|
$
|
(1,274
|
)
|
(1
|
)
|
$
|
-
|
|
|
$
|
4,640
|
|
December
29, 2007
|
|
|
4,640
|
|
|
996
|
|
|
(1,649
|
)
|
(1
|
)
|
|
-
|
|
|
|
3,987
|
|
January
3, 2009
|
|
|
3,987
|
|
|
3,340
|
|
|
(2,297
|
)
|
(1
|
)
|
|
-
|
|
|
|
5,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Accounts
written off during the period. These amounts did not impact our statement
of operations for any year
presented.
|
Note: Other valuation and qualifying accounts have
not been reported in this schedule because they are either not applicable or
because the information has been included elsewhere in this report.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
Dated:
March 3, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
ADVANCE
AUTO PARTS, INC.
|
|
|
By: |
/s/
Michael A. Norona
|
|
|
Michael A.
Norona
Executive
Vice President, Chief Financial Officer and
Secretary
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
|
Title
|
Date
|
|
|
|
|
/s/
Darren R. Jackson
|
|
Chief
Executive Officer
|
March
3, 2009
|
Darren
R. Jackson
|
|
and
Director (Principal
|
|
|
|
Executive
Officer)
|
|
|
|
|
|
/s/
Michael A. Norona
|
|
Executive
Vice President, Chief
|
March
3, 2009
|
Michael
A. Norona
|
|
Financial
Officer and Secretary
|
|
|
|
(Principal
Financial and
|
|
|
|
Accounting
Officer)
|
|
|
|
|
|
/s/
John C. Brouillard
|
|
Chairman
and Director
|
March
3, 2009
|
John
C. Brouillard
|
|
|
|
|
|
|
|
/s/
John F. Bergstrom
|
|
Director
|
March
3, 2009
|
John
F. Bergstrom
|
|
|
|
|
|
|
|
/s/
Lawrence P. Castellani
|
|
Director
|
|
|
|
|
|
|
|
|
|
/s/
Nicholas J. LaHowchic
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
/s/
Francesca Spinelli
|
|
Director
|
|
Francesca
Spinelli
|
|
|
|
|
|
|
|