UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
(Mark One)
|
x
|
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the fiscal year ended December
29, 2007
OR
|
o
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period from
________ to ________.
Commission file number
001-16797
ADVANCE AUTO PARTS,
INC.
(Exact name of registrant as
specified in its charter)
|
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
54-2049910
(I.R.S.
Employer
Identification No.)
|
|
5008 Airport
Road
Roanoke,
Virginia
(Address
of Principal Executive Offices)
|
24012
(Zip
Code)
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(540) 362-4911
(Registrant’s
telephone number, including area code)
Securities Registered Pursuant to
Section 12(b) of the Act:
|
Title of each
class
Common Stock
($0.0001 par value)
|
Name of each exchange on which
registered
New York
Stock Exchange
|
Securities Registered Pursuant to
Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes x No
o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer x | Accelerated filer o | |
| Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o No
x
As of
July 13, 2007, the last business day of the registrant’s most recently completed
second fiscal quarter, the aggregate market value of the 106,659,839 shares of
Common Stock held by non-affiliates of the registrant was $4,245,061,592, based
on the last sales price of the Common Stock on July 13, 2007, as reported by the
New York Stock Exchange.
As of
February 22, 2008, the registrant had outstanding 94,517,071 shares
of Common Stock, par value $0.0001 per share (the only class of common equity of
the registrant outstanding).
Documents Incorporated by
Reference:
Portions
of the definitive proxy statement of the registrant to be filed within 120 days
of December 29, 2007, pursuant to Regulation 14A under the Securities Exchange
Act of 1934, for the 2008 Annual Meeting of Stockholders to be held on May 15,
2008, are incorporated by reference into Part III.
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, which are usually identified by the use of words such as
"will," "anticipates," "believes," "estimates," "expects," "projects,"
"forecasts," "plans," "intends," "should" or similar expressions. We intend
those forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 and are included in this statement for purposes of complying with
these safe harbor provisions.
These
forward-looking statements reflect current views about our plans, strategies and
prospects, which are based on the information currently available and on current
assumptions.
Although
we believe that our plans, intentions and expectations as reflected in or
suggested by those forward-looking statements are reasonable, we may not give
assurance that the plans, intentions or expectations will be achieved. 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 the forward-looking
statements made in this report. These risks, uncertainties and contingencies
include, but are not limited to, the following:
|
·
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the
implementation of our business strategies and
goals;
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| · |
our
ability to expand our business;
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| · |
competitive
pricing and other competitive pressures;
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| · |
a
decrease in demand for our products;
|
| · |
the
occurrence of natural disasters and/or extended periods of unfavorable
weather;
|
| · |
our
ability to obtain affordable insurance against the financial impacts of
natural disasters;
|
| · |
the
availability of suitable real estate locations;
|
| · |
our
overall credit rating which impacts our debt interest rate and ability to
obtain additional debt;
|
| · |
deterioration
in general economic conditions;
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| · |
our
ability to attract and retain qualified team
members;
|
| · |
our
relationship with our vendors;
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| · |
our
involvement as a defendant in litigation or incurrence of judgements,
fines or legal costs;
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| · |
adherence
to the restrictions and covenants imposed under our revolving and term
loan facilities;
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| · |
war
or acts of terrorism; and
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| · |
other
statements that are not of historical fact made throughout this report,
including in 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.
|
Business.
|
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 31 of each year. Fiscal
2003 included 53 weeks of operations. All other fiscal years
presented included 52 weeks of operations.
Overview
We
primarily operate 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 DIFM, customers in the
United States, based on store count and sales.
We were
formed 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 strong
comparable store sales growth, new store openings and strategic acquisitions.
Since 1996, we have aggressively expanded our sales to DIFM 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. More recently 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.
Operating
Segments
We
conduct our operations 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, which continues to operate as an independent, wholly-owned
subsidiary.
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
December 29, 2007, we operated 3,153 stores within the United States, Puerto
Rico and the Virgin Islands. We operated 3,123 stores throughout 40 states in
the Northeastern, Southeastern and Midwestern regions of the United States.
These stores operated under the “Advance Auto Parts” trade name except for
certain stores in the state of Florida, which operated under the “Advance
Discount Auto Parts” trade name. These stores offer 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
30 stores under the “Western Auto” and “Advance Auto Parts” trade names, located
in Puerto Rico and the Virgin Islands, or Offshore.
We also
provide our customers online shopping and access to over two million stock
keeping units, or SKUs. Our online site allows our customers to pick
up merchandise at a conveniently located store or have their purchases
shipped
directly to their home or business.
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, brighter lighting, clean
graphics 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 new stores approximating
7,000 square feet. We have recently introduced a 6,000 square foot prototype
store. 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 DIFM 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 SKU offering of approximately 16,000 SKUs while certain
stores carry slightly more SKUs within centralized market locations where there
is demand for a more customized assortment of merchandise. Additionally, certain
of our stores serve as Local Area Warehouses, or LAWs, where they carry an
additional customized assortment of 10,000 SKUs for next day delivery to
selected stores within the service area of each respective LAW. The standard SKU
offering within each of our stores is replenished from one of our eight
distribution centers on an average of once per week.
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 an additional assortment of approximately
80,000 less common parts and accessories on same-day or overnight basis. Lastly,
our customers have access to over 275,000 SKUs though our Special Order Center,
an in-store kiosk where they order the requested item 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 (“POS”) system, including a
fully integrated electronic parts catalog to identify and suggest the
appropriate quality and price options for the SKUs that 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 good 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.
Some of
the products offered in our stores include the following:
|
Filters
|
Alternators
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Transmissions
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Windshield
Wipers
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|
Radiators
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Batteries
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Clutches
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Windshield
Washer Fluid
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|
Brake
pads
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Shock
Absorbers
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Electronic
Ignition Components
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Floor
Mats
|
|
Belts
and Hoses
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Struts
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Engines
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Steering
Wheel Covers
|
|
Radiator
hoses
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Suspension
Parts
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Oil
and Transmission Fluid
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Lighting
|
|
Starters
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Spark
Plugs
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Antifreeze
|
Wash
and Waxes
|
We also provide a variety of services
free of charge to our customers including:
| Battery installation | “How-To” Project Kiosks | Electrical system testing |
| Wiper installation | “How-To” Video Clinics | Oil and battery recycling |
Our
retail stores are 100% company operated and are divided into four geographic
areas. A senior vice president, who is supported by five to six
regional vice presidents, manages each area of retail
stores. Division managers report to the regional vice presidents and
have direct responsibility for store operations in a specific division, which
typically consists of 13 to 16 stores. Depending on store size and
sales volume, each store is staffed by eight to 14 team members under the
leadership of a store manager. We offer training to our employees, who we refer
to as team members, including formal classroom workshops, online seminars and
certification by the National Institute for Automotive Service Excellence
("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. In
addition to the in-store customer service provided to our DIY customers, we also
maintain a commercial sales team dedicated to the development of our commercial
business and the support of our DIFM customers, certain of which consist of
national and regional accounts. Since 1996, we have aggressively
expanded our sales to DIFM customers through our commercial delivery program.
Sales to DIFM customers represented approximately 25% of our AAP sales in 2007
and consisted of sales to both walk-in commercial customers and sales delivered
to our commercial customers’ place of business, including independent garages,
service stations and auto dealers. Our commercial strategy consists of the
development of commercial marketing and merchandising initiatives with the
continued focus on getting our DIFM customers to use us as their “first call”
supplier. At December 29, 2007, we had 2,604 AAP stores with commercial delivery
programs, or 83% of total AAP stores, which was slightly up from 81% at December
30, 2006.
Store
Development. Our store development
program has historically focused on adding new stores within existing markets,
relocating and remodeling 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 addition of new stores will continue
to play a significant role in our future growth and success.
Our 3,153
AAP stores were located in the following states and territories at December 29,
2007:
|
Number
of
|
Number
of
|
Number
of
|
||||||||
|
Location
|
Stores
|
Location
|
Stores
|
Location
|
Stores
|
|||||
|
Alabama
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117
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Maryland
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72
|
Oklahoma
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30
|
|||||
|
Arkansas
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36
|
Massachusetts
|
50
|
Pennsylvania
|
156
|
|||||
|
Colorado
|
36
|
Michigan
|
83
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Puerto
Rico
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29
|
|||||
|
Connecticut
|
32
|
Minnesota
|
16
|
Rhode
Island
|
7
|
|||||
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Delaware
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5
|
Mississippi
|
58
|
South
Carolina
|
122
|
|||||
|
Florida
|
447
|
Missouri
|
41
|
South
Dakota
|
7
|
|||||
|
Georgia
|
226
|
Nebraska
|
19
|
Tennessee
|
144
|
|||||
|
Illinois
|
82
|
New
Hampshire
|
9
|
Texas
|
162
|
|||||
|
Iowa
|
26
|
New
Mexico
|
1
|
Vermont
|
7
|
|||||
|
Indiana
|
96
|
New
Jersey
|
47
|
Virgin
Islands
|
1
|
|||||
|
Kansas
|
26
|
New
York
|
117
|
Virginia
|
166
|
|||||
|
Kentucky
|
89
|
North
Carolina
|
225
|
West
Virginia
|
65
|
|||||
|
Louisiana
|
59
|
North
Dakota
|
4
|
Wisconsin
|
45
|
|||||
|
Maine
|
11
|
Ohio
|
180
|
Wyoming
|
2
|
The
following table sets forth information concerning increases in the total number
of our AAP stores during the past five years:
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Beginning
Stores
|
2,995 | 2,810 | 2,652 | 2,539 | 2,435 | |||||||||||||||
|
New
Stores
(1)
|
175 | 190 | 169 | 125 | 125 | |||||||||||||||
|
Stores
Closed
|
(17 | ) | (5 | ) | (11 | ) | (12 | ) | (21 | ) | ||||||||||
|
Ending
Stores (2)
|
3,153 | 2,995 | 2,810 | 2,652 | 2,539 | |||||||||||||||
| (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
point-of-sale, or 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
that 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 exchange data with our vendors and ultimately catalog and
deliver updated, accurate product 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, LAW, 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 allows our team members 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 together 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
centralized corporate offices in Roanoke, Virginia, or store support
center. In 2007, we purchased merchandise from over 400 vendors, with
no single vendor accounting for more than 7% 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®,
Bendix®,
Purolator®,
Dayco® and
Trico®, 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 the names of
Professional’s FavoriteTM, Joe’s
GarageTM,
Mechanic’s ChoiceTM, Auto
XpressTM,
AutocraftTM,
EnduranceTM,
WeareverTM,
JobmateTM and
MirageTM.
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, or E-3, to monitor the distribution center, PDQ®
warehouse and store inventory levels and order additional product when
appropriate while streamlining costs associated with the handling of that
product. E-3 utilizes the most up-to-date information from our POS system as
well as inventory movement forecasting based upon history, sales trends by SKU,
seasonality and demographic shifts in demand. E-3
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 for efficiently
managing incoming shipments to the distribution centers and stores. Benefits
from this system include reduced vendor to distribution center freight costs,
visibility of purchase orders and shipments for the entire supply chain, a
reduction in distribution center inventory, or safety stock, due to consistent
transit times, decreased third party freight and billing service costs,
decreased distribution center to store freight costs and higher store in-stock
position.
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 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, robotic picking, 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 stores. During 2007, we announced our
plan to build a new distribution center in Indiana now scheduled to open in
early-2010.
We
currently offer approximately 58,000 SKUs to substantially support all of our
retail stores via our 13 stand-alone PDQ®
warehouses and/or our eight distribution centers (all of which stock PDQ® items).
Stores have visibility to inventory in their respective facilities 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 45,000 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.
Advertising.
We have an
extensive advertising program designed to communicate our merchandise offerings,
parts assortment and availability, competitive prices, free services and
commitment to customer service. The program is focused on establishing Advance
Auto Parts as the resource for a customer's automotive needs. We use a mix of
media that reinforces our brand image, including television, radio, promotional
signage, outdoor media, print and our Internet site.
Our
advertising plan is a brand-building program 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 events
at all levels in a grass-roots effort 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
source for parts, but also the best resource for vehicle information. Our goal
with this 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 both DIY and DIFM customers will differentiate
Advance Auto Parts in our industry by positioning us as the source for brand
name parts and products and as 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.
AI
Segment
We
acquired AI in September 2005. The acquisition, which included 61 stores
throughout New England and New York, a distribution center and AI’s wholesale
distribution business, complements our growing presence in the DIFM market in
the Northeast.
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. 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 proprietary
brand. The AI stores offer an average of 9,500 SKUs with access to an additional
17,000 unique SKUs through its logistics network.
At
December 29, 2007, we operated 108 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
|
9
|
|||||
|
Maine
|
5
|
New
Jersey
|
9
|
Rhode
Island
|
4
|
|||||
|
Massachusetts
|
33
|
New
York
|
22
|
Vermont
|
1
|
The
following table sets forth information concerning increases in the total number
of our AI stores:
|
2007
|
2006
|
2005
|
|
|
||||||||||||||||
|
Beginning
Stores
|
87 | 62 | - | |||||||||||||||||
|
New
Stores
|
21 | 25 | 62 | (1) | ||||||||||||||||
|
Stores
Closed
|
- | - | - | |||||||||||||||||
|
Ending
Stores
|
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
February 22, 2008, we employed 25,499 full-time team members and 18,566
part-time team members. Our workforce consisted of 88% of our team members
employed in store-level operations, 9% 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 DIFM 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.,
CSK Auto Corporation 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,
availability, customer service and product offerings, quality and
price.
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 lead-acid batteries and used 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 lead-acid batteries or used
oil onto our properties. We currently provide collection and recycling programs
for used automotive, 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 the 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.
Item 1A. Risk Factors.
Risks
Relating to Our Business
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 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 these initiatives are unsuccessful, or if we are
unable to implement the initiatives efficiently and effectively, 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:
|
·
|
general
economic conditions and 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 beyond our
normal control or increase promotional
spending;
|
| · |
changes
in the automotive aftermarket parts manufacturing industry, such as
consolidation, which may disrupt or sever one or more of our vendor
relationships;
|
| · |
our
ability to anticipate and meet changes in consumer preferences and/or
needs for automotive products (particularly parts availability),
accessories and services in a timely
manner;
|
| · |
our
ability to stimulate DIY customer traffic;
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, which could negatively impact our financial results.
We have
increased our store count significantly from 814 stores at the end of 1997 to
3,261 stores at December 29, 2007. We intend to continue to expand our base of
stores as part of our growth strategy, primarily by opening new stores. We may
not assure you that the implementation of this 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:
|
·
|
our
ability to manage the expansion and hire, train and retain qualified sales
associates;
|
| · |
the
availability of potential store locations in highly visible,
well-trafficked areas; and
|
| · |
the
negotiation of acceptable lease or purchase terms for new
locations.
|
We may
not assure you that 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 our
ability to properly merchandise, market and price the products required in their
respective markets.
Furthermore,
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:
|
·
|
the
difficulty of identifying appropriate strategic partners or acquisition
candidates;
|
| · |
the
difficulty of assimilating and integrating the operations of the
respective
entities;
|
|
·
|
the
potential disruption to our ongoing business and diversion of our
management's attention;
|
| · |
the
inability to maintain uniform standards, controls, procedures and
policies; and
|
| · |
the
impairment of relationships with team members and customers as a result of
changes in
management.
|
We may
not assure you that we will be successful in overcoming these risks or any other
problems encountered with these 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 financial condition, results
of operations and cash flows may be negatively impacted.
If
overall demand for products sold by our stores slows, our business, financial
condition, results of operations and cash flows will suffer.
Overall
demand for products sold by our stores depends on many factors and may slow for
any number of reasons, including:
|
·
|
the
weather, as vehicle maintenance may be deferred during periods of
unfavorable weather;
|
| · |
the
economy, as during periods of good economic conditions, more of our DIY
customers may pay others to repair and maintain their cars instead of
working on their own cars. In periods of declining economic conditions,
including higher fuel prices, higher credit costs, possible recession and
other factors, both DIY and DIFM customers may defer vehicle maintenance
or repair;
|
| · |
the
decline of the average age of vehicles, miles driven or number of cars on
the road may result in a reduction in the demand for our product
offerings; and
|
| · |
the
refusal of vehicle manufacturers to make available to the automotive
aftermarket industry diagnostic, repair and maintenance information that
our DIY and DIFM 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.
We depend on the services of many
qualified team members and may not be able to attract and retain such qualified
team members.
Our
success depends to a significant extent on the continued services and experience
of our many team members. At February 25, 2008, we employed 44,065 team members.
We cannot assure you that we will be able to retain our current qualified team
members as well as 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 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 financial condition, results of
operations and cash flows.
If
we are unable to compete successfully against other companies in the automotive
aftermarket industry, we could lose customers and our revenues may
decline.
The sale
of automotive parts, accessories and maintenance items is highly competitive in
many ways, including location, price, name recognition and customer service. We
compete in both the DIY and DIFM categories of the automotive aftermarket
industry, and 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, longer operating histories, greater name
recognition or larger and more established customer bases. Our response to these
competitive disadvantages may require us to reduce our prices beyond our normal
control or increase our promotional spending, which would lower revenue and
profitability. Competitive disadvantages may also prevent us from introducing
new product lines or 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 could lose customers and our revenues may
decline.
Disruptions
in our relationships with vendors or in our vendors' operations could increase
our cost of goods sold.
Our
business depends on developing and maintaining close relationships with our
vendors and upon the 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 may increase the cost of the products we
purchase from them or the ability for us to source product from them. In
addition, the trend towards consolidation among automotive parts suppliers may
disrupt or end our relationship with some vendors, and could lead to less
competition and, consequently, higher prices.
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 matters 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
greatly exceeds our coverage limits or our insurance policies do not cover a
claim, it could have a material adverse affect on our business and operating
results.
Additionally,
we are subject to numerous federal, state and local laws and governmental
regulations relating to employment matters, environmental protection, product
quality standards and building and zoning requirements. If we fail to comply
with existing or future laws or regulations, we may be subject to governmental
or judicial fines or sanctions. 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 availability
of merchandise and adversely impact our sales.
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 bring 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.
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 impose operating and financial
restrictions on us and our subsidiaries and require us to meet certain financial
tests. 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.
|
Properties.
|
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 Georgia
|
12,712
|
Owned
|
|||||
|
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
|
|||||
|
Corporate/Administrative
Offices:
|
|||||||||
|
Roanoke,
Virginia
|
1995
|
All
|
49,000
|
Leased
|
|||||
|
Roanoke,
Virginia
|
2002
|
All
|
144,000
|
Leased
|
|||||
|
AI
Properties:
|
|||||||||
|
Norton,
Massachusetts(2)
|
2006
|
AI
corporate office
|
30,000
|
Leased
|
|||||
|
Norton,
Massachusetts(2)
|
2006
|
New
England, New York - AI
|
317,500
|
Leased
|
|||||
|
(1)
|
Square
footage amounts exclude adjacent office
space.
|
|
(2)
|
This
facility began servicing AI stores in January
2007.
|
At
December 29, 2007, we owned 621 of our stores and leased 2,640 stores. The
expiration dates, including the exercise of renewal options, of the store leases
are summarized as follows:
|
Years
|
AAP
Stores
|
AI
Stores
|
Total
|
|||
|
2007-2008
|
12
|
5
|
17
|
|||
|
2009-2013
|
218
|
53
|
271
|
|||
|
2014-2018
|
629
|
30
|
659
|
|||
|
2019-2028
|
842
|
20
|
862
|
|||
|
2029-2038
|
704
|
-
|
704
|
|||
|
2039-2055
|
127
|
-
|
127
|
|||
|
2,532
|
108
|
2,640
|
|
Legal
Proceedings.
|
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 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 | ||||
|
Fiscal
Year Ended December 30, 2006
|
||||||||
|
Fourth
Quarter
|
$ | 38.58 | $ | 34.01 | ||||
|
Third
Quarter
|
$ | 35.31 | $ | 27.65 | ||||
|
Second
Quarter
|
$ | 42.30 | $ | 28.40 | ||||
|
First
Quarter
|
$ | 45.50 | $ | 38.35 | ||||
The
closing price of our common stock on February 22, 2008 was $33.60. At February
25, 2008, there were 406 holders of record of our common stock.
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.
The
following table sets forth the information with respect to repurchases of our
common stock for the quarter ended December 29, 2007 (amounts in thousands,
except per share amounts):
|
Period
|
Total
Number of Shares Purchased
|
Average
Price
Paid
per
Share (1)
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(2)
|
Maximum
Dollar Value that May Yet Be Purchased Under the Plans or Programs (2)(3)
|
||||||||||||
|
October
7, 2007, to November 3, 2007
|
841 | $ | 35.63 | 841 | $ | 305,179 | ||||||||||
|
November
4, 2007, to December 1, 2007
|
- | - | - | 305,179 | ||||||||||||
|
December
2, 2007, to December 29, 2007
|
1,171 | 38.10 | 1,171 | 260,567 | ||||||||||||
|
Total
|
2,012 | $ | 37.07 | 2,012 | $ | 260,567 | ||||||||||
| (1) | Average price paid per share excludes related expenses paid on previous repurchases. |
| (2) |
All
of the above repurchases were made on the open market at prevailing market
rates plus related expenses under our stock repurchase program, which
authorized the repurchase of up to $500 million in common
stock. Our stock repurchase program was authorized by our Board
of Directors and publicly announced on August 8, 2007 and replaced the
remaining portion of the $300 million stock repurchase program authorized
by our Board of Directors and announced on August 17,
2005.
|
| (3) | The maximum dollar value yet to be purchased under our stock repurchase program excludes related expenses paid on previous purchases or anticipated expenses on future purchases. |
Equity
Compensation Plan Information
The
following table sets forth our shares authorized for issuance under our equity
compensation plans at December 29, 2007.
|
Number
of shares to be issued upon exercise of outstanding options, warrants, and
rights
(1)
|
Weighted-average
exercise price of outstanding options, warrants, and rights
(2)
|
Number
of securities remaining available
for
future issuance
under
equity compensation
plans(1)(3)
|
||||||||||
|
Equity
compensation plans
|
||||||||||||
|
approved
by stockholders
|
6,097 | (4) | $ | 32.68 | 3,766 | |||||||
|
Equity
compensation plans
|
||||||||||||
|
not
approved by stockholders
|
- | - | - | |||||||||
|
Total
|
6,097 | $ | 32.68 | 3,766 | ||||||||
| (1) |
Number
of shares presented is in thousands.
|
| (2) |
Includes
weighted average exercise price of outstanding stock options and stock
appreciation rights, or SARs, only.
|
| (3) |
Excludes
shares reflected in the first column.
|
| (4) |
Includes
grants of stock options, SARs, restricted stock and deferred stock
units.
|
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 December 28, 2002, 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 INDEX
|
Company
/ Index
|
Dec
28, 2002
|
Jan
3, 2004
|
Jan
1, 2005
|
Dec
31, 2005
|
Dec
30, 2006
|
Dec
29, 2007
|
|
Advance
Auto Parts
|
100
|
165.69
|
177.78
|
265.32
|
218.51
|
236.04
|
|
S&P
500 Index
|
100
|
128.93
|
143.41
|
150.45
|
174.21
|
185.06
|
|
S&P
500 Specialty Retail Index
|
100
|
145.06
|
166.28
|
171.04
|
182.39
|
144.80
|
The
following table sets forth our selected historical consolidated statement of
operations, balance sheet and other operating data. The selected historical
consolidated financial and other data at December 29, 2007 and December 30, 2006
and for the three years ended December 29, 2007 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 31, 2005, January 1, 2005 and January 3, 2004 and for the years
ended January 1, 2005 and January 3, 2004 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)
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(in
thousands, except per share data)
|
||||||||||||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||||||
|
Net
sales
|
$ | 4,844,404 | $ | 4,616,503 | $ | 4,264,971 | $ | 3,770,297 | $ | 3,493,696 | ||||||||||
|
Cost
of sales
|
2,523,435 | 2,415,339 | 2,250,493 | 2,016,926 | 1,889,178 | |||||||||||||||
|
Gross
profit
|
2,320,969 | 2,201,164 | 2,014,478 | 1,753,371 | 1,604,518 | |||||||||||||||
|
Selling,
general and administrative expenses (3)
|
1,904,540 | 1,797,814 | 1,605,986 | 1,424,613 | 1,305,867 | |||||||||||||||
|
Expenses
associated with merger and integration (4)
|
- | - | - | - | 10,417 | |||||||||||||||
|
Operating
income
|
416,429 | 403,350 | 408,492 | 328,758 | 288,234 | |||||||||||||||
|
Interest
expense
|
(34,809 | ) | (35,992 | ) | (32,384 | ) | (20,069 | ) | (37,576 | ) | ||||||||||
|
Gain
(loss) on extinguishment of debt
|
- | 986 | - | (3,230 | ) | (47,288 | ) | |||||||||||||
|
Other
income, net
|
1,014 | 1,571 | 2,815 | 289 | 341 | |||||||||||||||
|
Income
from continiuing operations before income taxes and loss
on discontinued operations
|
382,634 | 369,915 | 378,923 | 305,748 | 203,711 | |||||||||||||||
|
Income
tax expense
|
144,317 | 138,597 | 144,198 | 117,721 | 78,424 | |||||||||||||||
|
Income
from continuing operations before loss on discontinued
operations
|
238,317 | 231,318 | 234,725 | 188,027 | 125,287 | |||||||||||||||
|
Discontinued
operations:
|
||||||||||||||||||||
|
Loss
from operations of discontinued Wholesale Distribution Network (including
loss on disposal of $2,693 in 2003)
|
- | - | - | (63 | ) | (572 | ) | |||||||||||||
|
Benefit
for income taxes
|
- | - | - | (24 | ) | (220 | ) | |||||||||||||
|
Loss
on discontinued operations
|
- | - | - | (39 | ) | (352 | ) | |||||||||||||
|
Net
income
|
$ | 238,317 | $ | 231,318 | $ | 234,725 | $ | 187,988 | $ | 124,935 | ||||||||||
|
Per
Share Data (5):
|
||||||||||||||||||||
|
Income
from continuing operations before loss on discontinued operations per
basic share
|
$ | 2.30 | $ | 2.18 | $ | 2.17 | $ | 1.70 | $ | 1.15 | ||||||||||
|
Income
from continuing operations before loss on discontinued operations per
diluted share
|
$ | 2.28 | $ | 2.16 | $ | 2.13 | $ | 1.66 | $ | 1.12 | ||||||||||
|
Net
income per basic share
|
$ | 2.30 | $ | 2.18 | $ | 2.17 | $ | 1.70 | $ | 1.14 | ||||||||||
|
Net
income per diluted share
|
$ | 2.28 | $ | 2.16 | $ | 2.13 | $ | 1.66 | $ | 1.11 | ||||||||||
|
Cash
dividends declared per basic share
|
$ | 0.24 | $ | 0.24 | $ | - | $ | - | $ | - | ||||||||||
|
Weighted
average basic shares outstanding
|
103,826 | 106,129 | 108,318 | 110,846 | 109,499 | |||||||||||||||
|
Weighted
average diluted shares outstanding
|
104,654 | 107,124 | 109,987 | 113,222 | 112,115 | |||||||||||||||
|
Cash
flows provided by (used in):
|
||||||||||||||||||||
|
Operating
activities
|
$ | 410,542 | $ | 333,604 | $ | 321,632 | $ | 260,397 | $ | 355,921 | ||||||||||
|
Investing
activities
|
(202,143 | ) | (258,642 | ) | (302,780 | ) | (166,822 | ) | (85,474 | ) | ||||||||||
|
Financing
activities
|
(204,873 | ) | (104,617 | ) | (34,390 | ) | (48,741 | ) | (272,845 | ) | ||||||||||
|
Fiscal
Year (1)(2)
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(in
thousands, except per share data and ratios)
|
||||||||||||||||||||
|
Balance
Sheet and Other Financial Data:
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 14,654 | $ | 11,128 | $ | 40,783 | $ | 56,321 | $ | 11,487 | ||||||||||
|
Inventory
|
$ | 1,529,469 | $ | 1,463,340 | $ | 1,367,099 | $ | 1,201,450 | $ | 1,113,781 | ||||||||||
|
Inventory
turnover (6)
|
1.69 | 1.71 | 1.75 | 1.74 | 1.72 | |||||||||||||||
|
Inventory
per store (7)
|
$ | 469 | $ | 475 | $ | 476 | $ | 453 | $ | 439 | ||||||||||
|
Accounts
payable to inventory ratio (8)
|
55.1 | % | 53.2 | % | 54.8 | % | 53.7 | % | 51.0 | % | ||||||||||
|
Net
working capital (9)
|
$ | 456,897 | $ | 498,553 | $ | 406,476 | $ | 416,302 | $ | 372,509 | ||||||||||
|
Capital
expenditures
|
$ | 210,600 | $ | 258,586 | $ | 216,214 | $ | 179,766 | $ | 101,177 | ||||||||||
|
Total
assets
|
$ | 2,805,566 | $ | 2,682,681 | $ | 2,542,149 | $ | 2,201,962 | $ | 1,983,071 | ||||||||||
|
Total
debt
|
$ | 505,672 | $ | 477,240 | $ | 438,800 | $ | 470,000 | $ | 445,000 | ||||||||||
|
Total
net debt (10)
|
$ | 521,018 | $ | 500,318 | $ | 448,187 | $ | 433,863 | $ | 464,598 | ||||||||||
|
Total
stockholders' equity
|
$ | 1,023,795 | $ | 1,030,854 | $ | 919,771 | $ | 722,315 | $ | 631,244 | ||||||||||
|
Selected
Store Data:
|
||||||||||||||||||||
|
Comparable
store sales growth (11)
|
0.8 | % | 2.1 | % | 8.7 | % | 6.1 | % | 3.1 | % | ||||||||||
|
Number
of stores at beginning of year
|
3,082 | 2,872 | 2,652 | 2,539 | 2,435 | |||||||||||||||
|
New
stores
|
196 | 215 | 231 | 125 | 125 | |||||||||||||||
|
Closed
stores
|
(17 | ) | (5 | ) | (11 | ) | (12 | ) | (21 | ) | ||||||||||
|
Number
of stores, end of period
|
3,261 | 3,082 | 2,872 | 2,652 | 2,539 | |||||||||||||||
|
Relocated
stores
|
29 | 47 | 54 | 34 | 32 | |||||||||||||||
|
Stores
with commercial delivery program, end of period
|
2,712 | 2,526 | 2,254 | 1,945 | 1,625 | |||||||||||||||
|
Total
commercial sales, as a percentage of total sales
|
26.6 | % | 25.0 | % | 21.8 | % | 18.4 | % | 15.8 | % | ||||||||||
|
SG&A
expenses per store (in
thousands) (12)(13)
|
$ | 601 | $ | 604 | $ | 586 | $ | 549 | $ | 525 | ||||||||||
|
Total
store square footage, end of period
|
23,982 | 22,753 | 21,246 | 19,734 | 18,875 | |||||||||||||||
|
Average
net sales per store (in
thousands) (13)(14)
|
$ | 1,527 | $ | 1,551 | $ | 1,555 | $ | 1,453 | $ | 1,379 | ||||||||||
|
Average
net sales per square foot (13)(15)
|
$ | 207 | $ | 210 | $ | 209 | $ | 195 | $ | 186 | ||||||||||
|
(1)
|
Our
fiscal year consists of 52 or 53 weeks ending on the Saturday nearest to
December 31. All fiscal years presented are 52 weeks, with the
exception of fiscal 2003, which consists 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)
|
Selling,
general and administrative expenses exclude certain charges disclosed
separately and discussed in note (4)
below.
|
|
(4)
|
Represents
certain expenses related to, among other things, overlapping
administrative functions and store conversions as a result of the Discount
acquisition.
|
|
(5)
|
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 and a 2-for-1 stock split
effectuated by us in the form of a 100% stock dividend distributed on
January 2, 2004.
|
|
(6)
|
Inventory
turnover is calculated as cost of sales divided by the average of
beginning and ending inventories. The fiscal 2003 cost of sales
excludes the effect of the 53rd
week in the amount of $34.3
million.
|
|
(7)
|
Inventory
per store is calculated as ending inventory divided by ending store count.
For fiscal 2003, ending inventory used in this calculation excludes
certain inventory related to the wholesale distribution segment. The
wholesales distribution segment, which was discontinued in fiscal 2003,
consisted of independently owned and operated dealer locations, for which
the Company supplied merchandise
inventory.
|
|
(8)
|
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.
|
|
(9)
|
Net
working capital is calculated by subtracting current liabilities from
current assets.
|
|
(10)
|
Net
debt includes total debt and bank overdrafts, less cash and cash
equivalents.
|
|
(11)
|
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. We do not include net sales
from the Offshore and AI stores in our comparable store calculation. In
2003, the comparable store sales calculation included sales from our
53rd
week compared to our first week of operation in 2003 (the comparable
calendar week). In 2004, as a result of the 53rd
week in 2003, the comparable store sales calculation excluded week one of
sales from 2003.
|
|
(12)
|
Selling,
general and administrative, or SG&A, per store is calculated as total
SG&A expenses divided by the average of beginning and ending store
count.
|
|
(13)
|
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.
|
|
(14)
|
Average
net sales per store is calculated as net sales divided by the average of
beginning and ending number of stores for the respective period. The
fiscal 2003 net sales exclude the effect of the 53rd
week in the amount of $63.0
million.
|
|
(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. The fiscal 2003 net sales exclude the effect of the
53rd
week in the amount of $63.0
million.
|
|
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 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 31 of each year, which results
in an extra week every several years (our next 53-week fiscal year is 2008). Our
first quarter consists of 16 weeks, and the other three quarters consist of 12
weeks.
Introduction
We
primarily operate 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 DIFM, customers in the
United States, based on store count and sales. At December 29, 2007, we operated
3,261 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 December 29, 2007, we operated 3,153 stores in the
AAP segment, of which 3,123 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 30 stores under the “Western Auto”
and “Advance Auto Parts” trade names, located in Puerto Rico and the Virgin
Islands, or Offshore.
At
December 29, 2007, we operated 108 stores in the AI segment under the “Autopart
International” trade name. We acquired AI in September 2005, and 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.
The
following table sets forth the total number of new, closed and relocated stores
and stores with commercial delivery programs during fiscal 2007, 2006 and 2005.
We lease approximately 81% of our stores.
|
AAP
|
||||||||||||
|
Fiscal
Year
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Number
of stores at beginning of year
|
2,995 | 2,810 | 2,652 | |||||||||
|
New
stores
|
175 | 190 | 169 | |||||||||
|
Closed
stores
|
(17 | ) | (5 | ) | (11 | ) | ||||||
|
Number
of stores, end of period(a)
|
3,153 | 2,995 | 2,810 | |||||||||
|
Relocated
stores
|
29 | 47 | 54 | |||||||||
|
Stores
with commercial delivery programs
|
2,604 | 2,439 | 2,192 | |||||||||
|
AI
|
||||||||||||
|
Fiscal
Year
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Number
of stores at beginning of year
|
87 | 62 | - | |||||||||
|
New
stores(b)
|
21 | 25 | 62 | |||||||||
|
Closed
stores
|
- | - | - | |||||||||
|
Number
of stores, end of period
|
108 | 87 | 62 | |||||||||
|
Relocated
stores
|
- | - | - | |||||||||
|
Stores
with commercial delivery programs
|
108 | 87 | 62 | |||||||||
|
(a)
|
Includes
2 and 7 stores not operating at December 30, 2006 and December 31, 2005,
respectively, primarily due to hurricane
damage.
|
|
(b)
|
Of
the 62 new stores in 2005, 61 stores were acquired in September 2005 as a
result of our AI acquisition.
|
We
anticipate adding approximately 100 AAP and 15 AI stores during
2008.
Key
Financial Metrics
The
following table highlights certain consolidated operating results and key
financial metrics for 2007, 2006 and 2005:
|
Fiscal
Year
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Total net sales (in
thousands)
|
$ | 4,844,404 | $ | 4,616,503 | $ | 4,264,971 | ||||||
|
Total commercial net sales
(in
thousands)
|
$ | 1,290,602 | $ | 1,155,953 | $ | 931,320 | ||||||
|
Comparable
store net sales growth
|
0.8 | % | 2.1 | % | 8.7 | % | ||||||
|
DIY
comparable store net sales growth
|
(1.0 | %) | (0.3 | %) | 4.8 | % | ||||||
|
DIFM
comparable store net sales growth
|
6.7 | % | 10.8 | % | 25.2 | % | ||||||
|
Average net sales per store
(in
thousands)
|
$ | 1,527 | $ | 1,551 | $ | 1,555 | ||||||
|
Average
net sales per square foot
|
$ | 207 | $ | 210 | $ | 209 | ||||||
|
Inventory per
store (in
thousands)
|
$ | 469 | $ | 475 | $ | 476 | ||||||
|
SG&A expenses per
store (in
thousands)
|
$ | 601 | $ | 604 | $ | 586 | ||||||
|
Gross
margin
|
47.9 | % | 47.7 | % | 47.2 | % | ||||||
|
Operating
margin
|
8.6 | % | 8.7 | % | 9.6 | % | ||||||
|
|
Note:
These metrics should be reviewed along with the footnotes to the table
setting forth our selected store data in Item 6 “Selected Financial
Data” located elsewhere in this report. The footnotes contain
descriptions regarding the calculation of these
metrics.
|
Management
Overview
We
recorded earnings per diluted share of $2.28 in fiscal 2007 compared to $2.16
for fiscal 2006. We continue to generate significant operating cash flow to
allow us to invest in business initiatives and return capital to shareholders
through cash dividends and share repurchases. We remain focused on
increasing our sales, operating margins and return on invested capital and
believe certain strategic initiatives introduced during 2007 are beginning to
propel us toward achieving these goals. Specific updates on these initiatives,
among other recent developments, during 2007 are discussed below:
New CEO –
We announced in November 2007 the appointment of a new CEO and President, Darren
Jackson, which became effective in January 2008. Mr. Jackson, who previously
served on our Audit Committee, Finance Committee and Board of Directors, had
already been involved with management on the completion of certain strategic
studies during 2007 and the formulation of certain initiatives discussed
below.
Sales
Initiatives – We
believe our biggest opportunity is increasing our top line sales growth as we
develop initiatives around a more customer-focused strategy and increased parts
availability and related knowledge by the team members in our stores. Our sales
per square foot and sales per employee are currently in the bottom half of the
automotive aftermarket industry. In 2007, we began implementing our plan to
increase DIY and DIFM sales through improving parts availability with an
emphasis on late model and foreign vehicles. Our enhanced parts availability
will be funded partially from available working capital as we transition from
other less productive inventory.
We
believe our DIFM business has started to improve as indicated by an 8.2%
comparable store sales increase during the fourth quarter, although we continue
to face a challenging macroeconomic environment, including higher fuel and
credit costs faced by our customers, higher unemployment and lower consumer
confidence. In order to structure our DIFM business for further growth, we
continue to examine store staffing and training, compensation policies and truck
utilization. Commercial sales represented approximately 27% of our total sales
for fiscal 2007 as compared to approximately 25% for fiscal 2006. At December
29, 2007, we operated commercial programs in 83% of our total AAP stores
compared to 81% for the prior fiscal year. Lastly, we began improving the
productivity and efficiency of our sales floor in our stores by aligning
functions performed by our sales associates with our increased parts focus,
including the transition of less productive inventory.
SG&A
Structure – We took significant steps towards reducing and reallocating
our selling, general and administrative expense structure during the second half
of 2007. We eliminated 250 positions at our store support center and
other field support areas and terminated our Advance TV network, which together
resulted in $6.3 million of expense recognized in our 2007 operating
results. Additionally, we reduced our real estate development by
opening fewer new stores, relocating fewer stores and halting the 2010 store
remodel program. During the fourth quarter of 2007, we introduced a 6,000 square
foot prototype store. We believe this smaller model can support an adequate
level of parts availability for both our DIY and DIFM customers while reducing
our occupancy costs as a percentage of sales.
Lastly,
we completed the further reduction and reallocation of certain advertising
expenditures into a more focused effort in electronic media. We have recently
introduced a new brand, “Keep the Wheels Turning.” This campaign was developed
as part of our overall strategic review of the business as well as extensive
research conducted with our customers and team members. We believe this
campaign, which targets both DIY and DIFM customers, differentiates Advance Auto
Parts in our industry by positioning us as the source for brand name parts and
products and as 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. Due to the reallocation of our advertising
expenditures, we expect 2008 advertising expense to remain generally consistent
with 2007 levels.
Return on
Invested Capital Improvements – We eliminated certain
information technology, logistics and other investments that did not demonstrate
acceptable returns. During the second half of 2007, we halted our store remodel
program while we more closely examine the sales results and overall return from
these remodels. Additionally, we have
delayed the opening of our ninth distribution center to the beginning of 2010 as
a result of fewer new store openings planned throughout 2008.
Stock Repurchase
Program – During 2007, our Board
of Directors authorized a new stock repurchase program of up to $500 million of
our common stock plus related expenses. The program, which became
effective August 8, 2007, replaced the remaining portion of a $300 million stock
repurchase program. During 2007, we repurchased 8.3 million shares of common
stock for $286 million. Refer to further discussion of this program in the Liquidity section of this
management’s discussion and analysis.
Critical
Accounting Policies
Our
financial statements have been prepared in accordance with accounting policies
generally accepted in the United States of America. Our discussion and analysis
of the financial condition and results of operations are based on these
financial statements. The preparation of these financial statements requires the
application of accounting policies in addition to certain estimates and
judgments by our management. Our estimates and judgments are based on currently
available information, historical results and other assumptions we believe are
reasonable. Actual results could differ from these estimates.
The
preparation of our financial statements included the following significant
estimates.
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 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 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.
Inventory
Reserves
We
establish reserves for inventory shrink, as an increase to our cost of sales,
for our stores and distribution centers based on our extensive and frequent
cycle counting program. Our estimates of these shrink reserves depend on the
accuracy of the program, which is dependent on compliance rates of our
facilities and the execution of the required procedures. We evaluate the
accuracy of this program on an ongoing basis and believe it provides reasonable
assurance for the established reserves. If estimates regarding our
cycle counting program are inaccurate, we may be exposed to losses or gains that
could be material.
We have
recorded reserves for potentially excess and obsolete inventories based on
current inventory levels and historical analysis of product sales and current
market conditions. The nature of our inventory is such that the risk
of obsolescence is minimal and excess inventory has historically been returned
to our vendors for credit. 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 develop 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 recorded
cost, if
any, required by market conditions. Our total inventory reserves
increased by $4.2 million in fiscal 2007 compared to fiscal 2006 primarily as
the result of an increase in our total shrinkage, as a percentage of
sales.
Future
changes by vendors in their policies or willingness to accept returns of excess
inventory could require us to revise our estimates of required reserves for
excess and obsolete inventory and result in a negative impact on our
consolidated statement of operations. A 10% difference in actual inventory
reserves at December 29, 2007 would have affected net income by approximately
$2.2 million.
Warranty
Reserves
Our
vendors are primarily responsible for warranty claims. We are responsible for
merchandise sold under warranty which is not covered by vendor warranties
(primarily batteries). We record a reserve for future warranty claims as an
increase in our cost of sales based on current sales of the warranted products
and historical claim experience. 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 $4.7 million in fiscal 2007 compared to fiscal 2006. This increase
was primarily due to an increase in our defective return rate as well as an
increase in the sale of premium batteries. A 10% change in the warranty reserves
at December 29, 2007 would have affected net income by approximately $1.1
million for the fiscal year ended December 29, 2007.
Self-Insured
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 and claims incurred but not yet reported 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 $14.0
million in fiscal 2007 compared to fiscal 2006. 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. The
increase in the number of claims is 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 December 29, 2007 would have affected net
income by approximately $5.3 million for the fiscal year ended December 29,
2007.
Tax
Reserves
The
determination of our income tax liabilities is based upon the tax code,
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.
The
accounting for our tax reserves changed with the adoption of FIN 48, “Accounting
for Uncertainty in Income Taxes,” or FIN 48, on December 31, 2006. Refer to Note
12 for further discussion of the impact of adopting FIN 48 and change in
reserves during fiscal 2007.
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, and the evolution of tax
code and
regulations, along with
varying application 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 December 29, 2007 would have affected net income by
approximately $1.4 million for the fiscal year ended December 29,
2007.
Components
of Statement of Operations
Net
Sales
Net sales
consist primarily of comparable store sales and new store net sales. We
calculate comparable store sales based on the change in net sales starting once
a store has been opened for 13 complete accounting periods. We include
relocations in comparable store sales from the original date of opening. We
exclude from comparable store sales the net sales from the Offshore and AI
stores.
Cost
of Sales
Our cost
of sales consists of merchandise costs, net of incentives under vendor programs;
inventory shrinkage, defective and warranty costs; and warehouse and
distribution expenses. Gross profit as a percentage of net sales may be affected
by variations in our product mix, price changes in response to competitive
factors and fluctuations in merchandise costs, vendor programs, inventory
shrinkage, defective and warranty costs and 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, with vendors 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 in our
consolidated financial statements for additional discussion of these
costs.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses consist of store payroll, store occupancy
(including rent), advertising expenses, other store expenses and general and
administrative expenses, including salaries and related benefits of store
support center team members, share-based compensation expense, store support
center administrative office expenses, data processing, professional expenses
and other related expenses.
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
|
||||||||||||
|
December
29,
|
December
30,
|
December
31,
|
||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost
of sales
|
52.1 | 52.3 | 52.8 | |||||||||
|
Gross
profit
|
47.9 | 47.7 | 47.2 | |||||||||
|
Selling,
general and administrative expenses
|
39.3 | 39.0 | 37.6 | |||||||||
|
Operating
income
|
8.6 | 8.7 | 9.6 | |||||||||
|
Interest
expense
|
(0.7 | ) | (0.8 | ) | (0.7 | ) | ||||||
|
Loss
on extinguishment of debt
|
- | 0.0 | - | |||||||||
|
Other
income, net
|
0.0 | 0.1 | 0.0 | |||||||||
|
Income
tax expense
|
3.0 | 3.0 | 3.4 | |||||||||
|
Net
income
|
4.9 | 5.0 | 5.5 | |||||||||
Fiscal 2007 Compared to Fiscal 2006
Net sales
for 2007 were $4,844.4 million, an increase of $227.9 million, or 4.9%, over net
sales for 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 last year. The comparable store sales increase was driven by an
increase in average ticket sales and customer traffic in our DIFM business and
an increase in average ticket sales by our DIY customers offset by a decrease in
DIY customer count. We expect to experience similar trends into 2008 as we start
to experience benefits from our sales and advertising initiatives combined with
the continuation of a challenging macroeconomic environment. AI produced sales
of $135.0 million in 2007, an increase $23.9 million or 21.6%, compared to 2006.
AI’s sales increase was driven primarily by our acceleration of new-store growth
through 2006 and 2007.
Gross
profit for 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 2006. The increase in gross profit
as a percentage of net sales improved procurement costs and a positive shift in
sales mix, lower logistics expense partially offset by strategic price changes
associated with our focused effort on remaining competitive in the parts
category.
Selling, general and administrative
expenses were $1,904.5 million, or 39.3% of net sales, for 2007, as compared to
$1,797.8 million, or 39.0% of net sales, for 2006. Selling, general and
administrative expenses increased as a percentage of sales primarily as a result
of an increase in certain fixed occupancy costs, as a result of lower than
anticipated sales growth, partially offset by reduced advertising
expense.
Operating
income for 2007 was $416.4 million, or 8.6% of net sales, as compared to $403.4
million, or 8.7% of net sales, in 2006. This decrease in operating income, as a
percentage of net sales, was reflective of higher selling, general and
administrative expenses as previously discussed partially offset by an increase
in gross profit. AAP produced operating income of $417.2 million, or 8.9% of net
sales, for 2007 as compared to $402.3 million, or 8.9% of net sales, in 2006. AI
generated an operating loss for 2007 of $0.8 million as compared to operating
income of $1.1 million in 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 2007 and the reinvestment of
resources to accelerate AI’s store growth and roll out of certain AI branded
product.
Interest
expense for 2007 was $34.8 million, or 0.7% of net sales, as compared to $36.0
million, or 0.8% of net sales, in 2006. The decrease in interest expense is a
result of lower average outstanding borrowings and lower average borrowing rates
as compared to fiscal 2006.
Income
tax expense for 2007 was $144.3 million, as compared to $138.6 million for
2006. Our effective income tax rate was 37.7% and 37.5% for 2007 and 2006,
respectively.
We
generated net income of $238.3 million, or $2.28 per diluted share, for 2007, as
compared to $231.3 million, or $2.16 per diluted share, for 2006. As a
percentage of sales, net income for 2007 was 4.9%, as compared to 5.0% for
2006.
Fiscal
2006 Compared to Fiscal 2005
Net sales
for 2006 were $4,616.5 million, an increase of $351.5 million, or 8.2%, over net
sales for 2005. The net sales increase was due to an increase in
comparable store sales of 2.1%, contributions from the 190 AAP stores opened
within the last year and sales from AI. AI, which was acquired in September
2005, produced sales of $111.1 million in 2006 compared to $30.3 million for the
partial period in 2005. The comparable store sales increase was driven by an
increase in average ticket sales and customer traffic in our DIFM business and
an increase in average ticket sales by our DIY customers offset by a decrease in
DIY customer count.
Gross
profit for 2006 was $2,201.2 million, or 47.7% of net sales, as compared to
$2,014.5 million, or 47.2% of net sales, in 2005. The increase
in gross profit as a percentage of sales reflects the positive impact of our
ongoing category management initiatives, including improved procurement costs
and a positive shift in sales mix, and logistics
efficiencies.
Selling,
general and administrative expenses were $1,797.8 million, or 39.0% of net
sales, for 2006, as compared to $1,606.0 million, or 37.6% of net sales, for
2005. Selling, general and administrative expenses increased as a percentage of
sales as a result of:
|
·
|
recording
share-based compensation expense of approximately 0.4% of net sales upon
the implementation of SFAS 123R on January 1,
2006;
|
| · |
a
0.5% increase in certain fixed costs as a percentage of sales during the
year, including rent and depreciation, as a result of low comparable sales
growth; and
|
| · |
a
0.3% increase in expenses associated with higher costs for insurance
programs, including workers’ compensation, auto liability and general
liability.
|
Additionally,
AI contributed approximately 0.2% of selling, general and administrative
expenses as a result of the reinvestment of working capital to accelerate their
new store growth.
Interest
expense for 2006 was $36.0 million, or 0.8% of net sales, as compared to $32.4
million, or 0.7% of net sales, in 2005. The increase in interest expense is a
result of both higher average outstanding debt levels and borrowing rates as
compared to fiscal 2005. In addition, other income for fiscal 2006 decreased as
a result of less interest income associated with lower cash balances throughout
the year.
Income
tax expense for 2006 was $138.6 million, as compared to $144.2 million for
2005. Our effective income tax rate was 37.5% and 38.1% for 2006 and
2005, respectively.
We
generated net income of $231.3 million, or $2.16 per diluted share, for 2006, as
compared to $234.7 million, or $2.13 per diluted share, for 2005. As
a percentage of sales, net income for 2006 was 5.0%, as compared to 5.5% for
2005. Our earnings per diluted share results reflect the impact on both earnings
and the diluted share count of implementing FAS 123R as further explained in
this management’s discussion and analysis and in the notes to our financial
statements contained elsewhere in this Form 10-K.
Quarterly
Consolidated Financial Results (in thousands, except per share
data)
|
16-Weeks
|
12-Weeks
|
12-Weeks
|
12-Weeks
|
16-Weeks
|
12-Weeks
|
12-Weeks
|
12-Weeks
|
|||||||||||||||||||||||||
|
Ended
|
Ended
|
Ended
|
Ended
|
Ended
|
Ended
|
Ended
|
Ended
|
|||||||||||||||||||||||||
|
4/22/2006
|
7/15/2006
|
10/7/2006
|
12/30/2006
|
4/21/2007
|
7/14/2007
|
10/6/2007
|
12/29/2007
|
|||||||||||||||||||||||||
|
Net
sales
|
$ | 1,393,010 | $ | 1,107,857 | $ | 1,099,486 | $ | 1,016,150 | $ | 1,468,120 | $ | 1,169,859 | $ | 1,158,043 | $ | 1,048,382 | ||||||||||||||||
|
Gross
profit
|
665,168 | 527,359 | 530,206 | 478,431 | 709,403 | 562,861 | 555,113 | 493,592 | ||||||||||||||||||||||||
|
Net
income
|
$ | 74,081 | $ | 62,936 | $ | 58,947 | $ | 35,354 | $ | 76,101 | $ | 68,424 | $ | 59,040 | $ | 34,752 | ||||||||||||||||
|
Net
income per share:
|
||||||||||||||||||||||||||||||||
|
Basic
|
$ | 0.69 | $ | 0.60 | $ | 0.56 | $ | 0.34 | $ | 0.72 | $ | 0.64 | $ | 0.58 | $ | 0.35 | ||||||||||||||||
|
Diluted
|
$ | 0.68 | $ | 0.59 | $ | 0.56 | $ | 0.33 | $ | 0.71 | $ | 0.64 | $ | 0.57 | $ | 0.35 | ||||||||||||||||
Liquidity and Capital Resources
Overview
of Liquidity
Our
primary cash requirements include the purchase of inventory, capital
expenditures, payment of quarterly cash dividends and contractual obligations.
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 term loan
and revolving credit facilities will be sufficient to fund our primary
obligations for the next fiscal year.
At
December 29, 2007, our cash and cash equivalents balance was $14.7 million, an
increase of $3.5 million compared to fiscal year-end 2006. This increase
resulted from an increase in cash flow from operations and proceeds from the
exercise of stock options partially offset by the continued investment in
property and equipment, reduction in our revolving credit facility balance and
return of capital to our shareholders through the payment of dividends and
repurchase of common stock during 2007. At December 29, 2007, our
outstanding indebtedness was $28.4 million higher when compared to 2006 and
consisted of borrowings of $451.0 million under our revolving credit facility,
$50.0 million under our term loan, and $4.7 million outstanding on an economic
development note. Additionally, we had $74.7 million in letters of credit
outstanding, which reduced our cash availability under the revolving credit
facility to $224.3 million.
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 quarters during 2006 and 2007. Subsequent
to December 29, 2007, our Board of Directors declared a quarterly dividend of
$0.06 per share to be paid on April 4, 2008 to all common stockholders of record
as of March 21, 2008.
Capital
Expenditures
Our
primary capital requirements have been the funding of our continued store
expansion program, including new store openings and store acquisitions, store
relocations and remodels, maintenance of existing stores, the construction and
upgrading of distribution centers, the development of proprietary information
systems, implementation of proprietary and purchased information systems and our
acquisitions. Our capital expenditures were $210.6 million in 2007. During
fiscal 2007, we opened 175 AAP and 21 AI stores, remodeled 77 AAP stores and
relocated 29 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 number of
stores we relocate or remodel. During 2008, we anticipate adding 100 new
AAP and 15 AI stores and relocating 10 to 20 AAP stores. We do not plan to
remodel any stores in 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 certain initiatives, including our parts
availability initiative. In 2008, we anticipate that our capital expenditures
will be approximately $170.0 million to $190.0 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 reduce further our working
capital invested in current inventory levels and finance future inventory
growth. Our revolving and term loan facilities do not restrict availability
under this program. At December 29, 2007, $153.5 million was payable to the bank
by us under this program.
Stock
Repurchase Program
During
the third quarter of fiscal 2007, our Board of Directors authorized a new stock
repurchase program of up to $500 million of our common stock plus related
expenses. The new program cancelled and replaced the remaining portion of the
previous $300 million stock repurchase program. The program allows us to
repurchase our common stock on the open market or in privately negotiated
transactions from time to time in accordance with the requirements of the
Securities and Exchange Commission.
During
fiscal 2007, we repurchased 8.3 million shares of common stock at an aggregate
cost of $285.9 million, or an average price of $34.27 per share, of which 1.3
million shares of common stock were repurchased under the previous $300 million
stock repurchase program. As of December 29, 2007, $3.0 million of shares have
been repurchased
and remained unsettled. Subsequent to December 29, 2007, we repurchased 4.6
million shares of common stock at an aggregate cost of $155.4 million, or an
average price of $34.04 per share. Reflective of the subsequent repurchases, we
have remaining $105.2 million under our current stock repurchase
program.
Analysis
of Cash Flows
An
analysis of our cash flows for fiscal 2007, 2006 and 2005 is included
below.
|
Fiscal
Year
|
||||||||||||
|
(in
millions)
|
2007
|
2006
|
2005
|
|||||||||
|
Cash
flows from operating activities
|
$ | 410.5 | $ | 333.6 | $ | 321.6 | ||||||
|
Cash
flows from investing activities
|
(202.1 | ) | (258.6 | ) | (302.8 | ) | ||||||
|
Cash
flows from financing activities
|
(204.9 | ) | (104.6 | ) | (34.3 | ) | ||||||
|
Net
increase (decrease) in cash and
|
||||||||||||
|
cash
equivalents
|
$ | 3.5 | $ | (29.6 | ) | $ | (15.5 | ) | ||||
Operating
Activities
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 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.
|
For
fiscal 2006, net cash provided by operating activities increased $12.0 million
to $333.6 million. Significant components of this increase consisted
of:
|
·
|
$15.2
million increase in earnings exclusive of $18.7 million of incremental,
non-cash, share-based compensation expense compared to the same period in
fiscal 2005;
|
| · |
$19.5
million increase in depreciation and
amortization;
|
| · |
$24.1
million decrease in cash inflows primarily related to the sale of our
private label credit card portfolio in fiscal
2005;
|
| · |
$24.9
million reduction in cash outflows, net of accounts payable, as a result
of reducing inventory growth rates in line with our current sales
trend;
|
| · |
$33.4
million increase in cash flows from other assets related to the timing of
payments for normal operating expenses, primarily our monthly
rent;
|
| · |
$17.5
million decrease in cash inflows relating to the timing of accrued
operating expenses; and
|
| · |
$30.3
million decrease in cash flows from tax benefits related to exercise of
stock options.
|
Investing
Activities
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.
|
For
fiscal 2006, net cash used in investing activities decreased by $44.2 million to
$258.6 million. Significant components of this decrease consisted
of:
|
·
|
$111.8
million related to acquisitions in fiscal 2005, of which $12.5 million was
paid in fiscal
2006;
|
| · |
an
increase in capital expenditures of $42.4 million used primarily to
accelerate our square footage growth through adding new stores (including
ownership of selected new stores) and remodeling existing
stores.
|
Financing
Activities
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;
|
| · |
$17.8
million increase in financed vendor accounts payable, which reflected the
growth in our vendor financing
program;
|
| · |
an
increase of $25.3 million 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 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 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.
|
For
fiscal 2006, net cash used in financing activities increased by $70.3 million to
$104.6 million. Significant components of this increase consisted
of:
|
·
|
$46.0
million cash outflow resulting from the timing of bank
overdrafts;
|
| · |
$54.3
million decrease in financed vendor accounts
payable;
|
| · |
$504.0
million cash inflow resulting from an increase in net
borrowings;
|
| · |
$433.8
million used for early extinguishment of debt in fiscal
2006;
|
| · |
$19.2
million paid in dividends in fiscal 2006;
|
| · |
$36.0
million increase in cash used to repurchase shares of our common stock
under our stock repurchase program;
|
| · |
$15.1
million decrease in proceeds from the exercise of stock options;
and
|
| · |
$26.3
million increase resulting from the repayment of secured borrowings in
fiscal 2005.
|
Off-Balance-Sheet Arrangements
As of
December 29, 2007, we had outstanding $74.7 million in letters of credit and
$2.5 million of surety bonds. These items are considered off-balance-sheet
arrangements as defined in Item 303 of Regulation S-K promulgated by the
Securities and Exchange Commission.
Contractual
Obligations
In
addition to our revolving credit facility, we also 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 December 29, 2007 were as follows:
|
Contractual
Obligations
|
Total
|
Fiscal
2008
|
Fiscal
2009
|
Fical
2010
|
Fiscal
2011
|
Fiscal
2012
|
Thereafter
|
|||||||||||||||||||||
|
(in
thousands)
|
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