ADVANCE AUTO PARTS INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
July 13, 2013
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission file number 001-16797
________________________
ADVANCE AUTO PARTS, INC.
(Exact name of registrant as specified in its charter)
________________________
|
Delaware
(State or other jurisdiction of
incorporation or organization)
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54-2049910
(I.R.S. Employer
Identification No.)
|
5008 Airport Road, Roanoke, Virginia 24012
(Address of Principal Executive Offices)
(Zip Code)
(540) 362-4911
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report).
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
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 definition of “large accelerated filer,” "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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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
August 15, 2013
, the registrant had outstanding
72,837,141
sh
ares of Common Stock, par value $0.0001 per share (the only class of common stock of the registrant outstanding).
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i
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ITEM 1.
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CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
|
ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES
Advance Auto Parts, Inc. and Subsidiaries
July 13, 2013
,
December 29, 2012
and
July 14, 2012
(in thousands, except per share data)
(unaudited)
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July 13,
2013 |
December 29,
2012 |
July 14,
2012 |
||||||||
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Assets
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|||||||||||
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Current assets:
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||||||||
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Cash and cash equivalents
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$
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520,969
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$
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598,111
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$
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448,594
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||
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Receivables, net
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281,714
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229,866
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159,349
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|||||
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Inventories, net
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2,407,041
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2,308,609
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2,096,341
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|||||
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Other current assets
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66,555
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47,614
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60,883
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|||||
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Total current assets
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3,276,279
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3,184,200
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2,765,167
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Property and equipment, net of accumulated depreciation of $1,189,931, $1,102,147 and $1,045,202
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1,285,029
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1,291,759
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1,263,680
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Assets held for sale
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2,237
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|
788
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788
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|||||
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Goodwill
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199,791
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76,389
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76,389
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Intangible assets, net
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56,155
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28,845
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29,468
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Other assets, net
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32,797
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31,833
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33,654
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$
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4,852,288
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$
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4,613,814
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$
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4,169,146
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Liabilities and Stockholders' Equity
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Current liabilities:
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Current portion of long-term debt
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$
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878
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$
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627
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$
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760
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Accounts payable
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2,048,202
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2,029,814
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1,738,101
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Accrued expenses
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450,253
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379,639
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417,663
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Other current liabilities
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140,332
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149,558
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135,517
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Total current liabilities
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2,639,665
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2,559,638
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2,292,041
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Long-term debt
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604,117
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604,461
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599,696
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Other long-term liabilities
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239,527
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239,021
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218,308
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Commitments and contingencies
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Stockholders' equity:
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Preferred stock, nonvoting, $0.0001 par value
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—
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—
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—
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|||||
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Common stock, voting, $0.0001 par value
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7
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7
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7
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Additional paid-in capital
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522,342
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520,215
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512,202
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Treasury stock, at cost
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(102,883
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)
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(27,095
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)
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(25,042
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)
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Accumulated other comprehensive income
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4,749
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2,667
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2,796
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Retained earnings
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944,764
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714,900
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569,138
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Total stockholders' equity
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1,368,979
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1,210,694
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1,059,101
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$
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4,852,288
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$
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4,613,814
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$
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4,169,146
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||
The accompanying notes to the condensed consolidated financial statements
are an integral part of these statements.
1
Advance Auto Parts, Inc. and Subsidiaries
For the
Twelve and Twenty-Eight Week Periods Ended
July 13, 2013
and
July 14, 2012
(in thousands, except per share data)
(unaudited)
|
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Twelve Week Periods Ended
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Twenty-Eight Week Periods Ended
|
|||||||||||||
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July 13,
2013 |
July 14,
2012 |
July 13,
2013 |
July 14,
2012 |
||||||||||||
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Net sales
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$
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1,549,553
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$
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1,460,983
|
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$
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3,564,857
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$
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3,418,275
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Cost of sales,
including purchasing and warehousing costs
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770,330
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732,125
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1,777,428
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1,708,744
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|||||||
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Gross profit
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779,223
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728,858
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1,787,429
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1,709,531
|
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|||||||
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Selling, general and administrative expenses
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584,541
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559,663
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1,388,679
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1,315,772
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|||||||
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Operating income
|
194,682
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169,195
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398,750
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393,759
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Other, net:
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|||||||||||
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Interest expense
|
(8,024
|
)
|
(7,947
|
)
|
(18,684
|
)
|
(17,801
|
)
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|||||||
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Other income (expense), net
|
365
|
|
(55
|
)
|
1,323
|
|
447
|
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Total other, net
|
(7,659
|
)
|
(8,002
|
)
|
(17,361
|
)
|
(17,354
|
)
|
|||||||
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Income before provision for income taxes
|
187,023
|
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161,193
|
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381,389
|
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376,405
|
|
|||||||
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Provision for income taxes
|
70,152
|
|
61,587
|
|
142,728
|
|
143,293
|
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|||||||
|
Net income
|
$
|
116,871
|
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$
|
99,606
|
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$
|
238,661
|
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$
|
233,112
|
|
|||
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Basic earnings per share
|
$
|
1.60
|
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$
|
1.36
|
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$
|
3.26
|
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$
|
3.19
|
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|||
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Diluted earnings per share
|
$
|
1.59
|
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$
|
1.34
|
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$
|
3.23
|
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$
|
3.14
|
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|||
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Dividends declared per common share
|
$
|
0.06
|
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$
|
0.06
|
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$
|
0.12
|
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$
|
0.12
|
|
|||
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Average common shares outstanding
|
72,930
|
|
73,150
|
|
73,081
|
|
73,003
|
|
|||||||
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Average common shares outstanding - assuming dilution
|
73,343
|
|
74,084
|
|
73,607
|
|
74,157
|
|
|||||||
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
For the
Twelve and Twenty-Eight Week Periods Ended
July 13, 2013
and
July 14, 2012
(in thousands)
(unaudited)
|
|
Twelve Week Periods Ended
|
Twenty-Eight Week Periods Ended
|
|||||||||||||
|
July 13,
2013 |
July 14,
2012 |
July 13,
2013 |
July 14,
2012 |
||||||||||||
|
Net income
|
$
|
116,871
|
|
$
|
99,606
|
|
$
|
238,661
|
|
$
|
233,112
|
|
|||
|
Other comprehensive income (loss), net of tax:
|
|||||||||||||||
|
Changes in net unrecognized other postretirement benefit costs, net of $91, $72, $157 and $169 tax
|
(142
|
)
|
(113
|
)
|
(245
|
)
|
(262
|
)
|
|||||||
|
Postretirement benefit plan amendment
|
—
|
|
—
|
|
2,327
|
|
—
|
|
|||||||
|
Unrealized gain on hedge arrangements, net of $0, $0, $0 and $163 tax
|
—
|
|
—
|
|
—
|
|
254
|
|
|||||||
|
Total other comprehensive income (loss)
|
(142
|
)
|
(113
|
)
|
2,082
|
|
(8
|
)
|
|||||||
|
Comprehensive income
|
$
|
116,729
|
|
$
|
99,493
|
|
$
|
240,743
|
|
$
|
233,104
|
|
|||
The accompanying notes to the condensed consolidated financial statements
are an integral part of these statements.
2
|
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity
For the Twenty-Eight Week Periods Ended
July 13, 2013 and July 14, 2012
(in thousands)
(unaudited)
|
||||||||||||||||||||||||||||||||||||
|
|
Preferred Stock
|
Common Stock
|
Additional
Paid-in
Capital
|
Treasury Stock,
at cost
|
Accumulated
Other
Comprehensive
Income
|
Retained
Earnings
|
Total
Stockholders'
Equity
|
|||||||||||||||||||||||||||||
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|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
||||||||||||||||||||||||||||||
|
Balance, December 29, 2012
|
—
|
|
$
|
—
|
|
73,731
|
|
$
|
7
|
|
$
|
520,215
|
|
348
|
|
$
|
(27,095
|
)
|
$
|
2,667
|
|
$
|
714,900
|
|
$
|
1,210,694
|
|
|||||||||
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238,661
|
|
238,661
|
|
||||||||||||||||
|
Total other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,082
|
|
|
|
2,082
|
|
||||||||||||||||
|
Issuance of shares upon the exercise of stock options and stock appreciation rights
|
|
|
|
|
424
|
|
|
|
1,903
|
|
|
|
|
|
|
|
|
|
1,903
|
|
||||||||||||||||
|
Tax withholdings related to the exercise of stock appreciation rights
|
(19,891
|
)
|
(19,891
|
)
|
||||||||||||||||||||||||||||||||
|
Tax benefit from share-based compensation, net
|
|
|
|
|
|
|
|
|
14,396
|
|
|
|
|
|
|
|
|
|
14,396
|
|
||||||||||||||||
|
Issuance of restricted stock, net of forfeitures
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
||||||||||||||||
|
Amortization of restricted stock balance
|
|
|
|
|
|
|
|
|
2,122
|
|
|
|
|
|
|
|
|
|
2,122
|
|
||||||||||||||||
|
Share-based compensation
|
|
|
|
|
|
|
|
|
2,471
|
|
|
|
|
|
|
|
|
|
2,471
|
|
||||||||||||||||
|
Stock issued under employee stock purchase plan
|
|
|
|
|
15
|
|
|
|
1,105
|
|
|
|
|
|
|
|
|
|
1,105
|
|
||||||||||||||||
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
979
|
|
(75,788
|
)
|
|
|
|
|
(75,788
|
)
|
||||||||||||||||
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,797
|
)
|
(8,797
|
)
|
||||||||||||||||
|
Other
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
21
|
|
||||||||||||||||
|
Balance, July 13, 2013
|
—
|
|
$
|
—
|
|
74,162
|
|
$
|
7
|
|
$
|
522,342
|
|
1,327
|
|
$
|
(102,883
|
)
|
$
|
4,749
|
|
$
|
944,764
|
|
$
|
1,368,979
|
|
|||||||||
|
Balance, December 31, 2011
|
—
|
|
$
|
—
|
|
106,537
|
|
$
|
11
|
|
$
|
500,237
|
|
33,738
|
|
$
|
(1,644,767
|
)
|
$
|
2,804
|
|
$
|
1,989,629
|
|
$
|
847,914
|
|
|||||||||
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233,112
|
|
233,112
|
|
||||||||||||||||
|
Total other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
||||||||||||||||
|
Issuance of shares upon the exercise of stock options and stock appreciation rights
|
|
|
|
|
824
|
|
|
5,160
|
|
|
|
|
|
|
|
|
|
5,160
|
|
|||||||||||||||||
|
Tax withholdings related to the exercise of stock appreciation rights
|
(24,214
|
)
|
(24,214
|
)
|
||||||||||||||||||||||||||||||||
|
Tax benefit from share-based compensation, net
|
|
|
|
|
|
|
|
|
20,639
|
|
|
|
|
|
|
|
|
|
20,639
|
|
||||||||||||||||
|
Issuance of restricted stock, net of forfeitures
|
8
|
|
—
|
|
||||||||||||||||||||||||||||||||
|
Amortization of restricted stock balance
|
|
|
|
|
|
|
|
|
3,798
|
|
|
|
|
|
|
|
|
|
3,798
|
|
||||||||||||||||
|
Share-based compensation
|
|
|
|
|
|
|
|
|
5,482
|
|
|
|
|
|
|
|
|
|
5,482
|
|
||||||||||||||||
|
Stock issued under employee stock purchase plan
|
|
|
|
|
15
|
|
|
|
1,072
|
|
|
|
|
|
|
|
|
|
1,072
|
|
||||||||||||||||
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
321
|
|
(25,042
|
)
|
|
|
|
|
(25,042
|
)
|
||||||||||||||||
|
Retirement of treasury stock
|
(33,738
|
)
|
(4
|
)
|
(33,738
|
)
|
1,644,767
|
|
(1,644,763
|
)
|
—
|
|
||||||||||||||||||||||||
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,840
|
)
|
(8,840
|
)
|
||||||||||||||||
|
Other
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
28
|
|
||||||||||||||||
|
Balance, July 14, 2012
|
—
|
|
$
|
—
|
|
73,646
|
|
$
|
7
|
|
$
|
512,202
|
|
321
|
|
$
|
(25,042
|
)
|
$
|
2,796
|
|
$
|
569,138
|
|
$
|
1,059,101
|
|
|||||||||
The accompanying notes to the condensed consolidated financial statements
are an integral part of these statements.
3
|
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows For the Twenty-Eight Week Periods Ended July 13, 2013 and July 14, 2012
(in thousands)
(unaudited)
|
|||||||
|
|
Twenty-Eight Week Periods Ended
|
||||||
|
July 13,
2013 |
July 14,
2012 |
||||||
|
Cash flows from operating activities:
|
|
|
|||||
|
Net income
|
$
|
238,661
|
|
$
|
233,112
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|||||||
|
Depreciation and amortization
|
112,072
|
|
98,527
|
|
|||
|
Share-based compensation
|
4,593
|
|
9,280
|
|
|||
|
Loss on property and equipment, net
|
423
|
|
1,385
|
|
|||
|
Other
|
858
|
|
847
|
|
|||
|
(Benefit) provision for deferred income taxes
|
(5,893
|
)
|
1,526
|
|
|||
|
Excess tax benefit from share-based compensation
|
(14,570
|
)
|
(20,685
|
)
|
|||
|
Net increase in:
|
|||||||
|
Receivables, net
|
(33,266
|
)
|
(19,342
|
)
|
|||
|
Inventories, net
|
(53,997
|
)
|
(53,183
|
)
|
|||
|
Other assets
|
(13,965
|
)
|
(7,483
|
)
|
|||
|
Net (decrease) increase in:
|
|||||||
|
Accounts payable
|
(18,915
|
)
|
84,918
|
|
|||
|
Accrued expenses
|
93,683
|
|
75,037
|
|
|||
|
Other liabilities
|
406
|
|
7,444
|
|
|||
|
Net cash provided by operating activities
|
310,090
|
|
411,383
|
|
|||
|
Cash flows from investing activities:
|
|
|
|
|
|||
|
Purchases of property and equipment
|
(111,904
|
)
|
(146,281
|
)
|
|||
|
Business acquisition, net of cash acquired
|
(187,211
|
)
|
—
|
|
|||
|
Sale of certain assets of acquired business
|
16,798
|
|
—
|
|
|||
|
Proceeds from sales of property and equipment
|
148
|
|
268
|
|
|||
|
Net cash used in investing activities
|
(282,169
|
)
|
(146,013
|
)
|
|||
|
Cash flows from financing activities:
|
|
|
|
|
|||
|
Decrease in bank overdrafts
|
(8,724
|
)
|
(16,181
|
)
|
|||
|
Issuance of senior unsecured notes
|
—
|
|
299,904
|
|
|||
|
Payment of debt related costs
|
—
|
|
(2,648
|
)
|
|||
|
Borrowings under credit facilities
|
—
|
|
58,500
|
|
|||
|
Payments on credit facilities
|
—
|
|
(173,500
|
)
|
|||
|
Dividends paid
|
(13,193
|
)
|
(13,196
|
)
|
|||
|
Proceeds from the issuance of common stock, primarily exercise of stock options
|
3,029
|
|
6,260
|
|
|||
|
Tax withholdings related to the exercise of stock appreciation rights
|
(19,891
|
)
|
(24,214
|
)
|
|||
|
Excess tax benefit from share-based compensation
|
14,570
|
|
20,685
|
|
|||
|
Repurchase of common stock
|
(75,788
|
)
|
(25,042
|
)
|
|||
|
Contingent consideration related to previous business acquisition
|
(4,726
|
)
|
(4,755
|
)
|
|||
|
Other
|
(340
|
)
|
(490
|
)
|
|||
|
Net cash (used in) provided by financing activities
|
(105,063
|
)
|
125,323
|
|
|||
|
Net (decrease) increase in cash and cash equivalents
|
(77,142
|
)
|
390,693
|
|
|||
|
Cash and cash equivalents
, beginning of period
|
598,111
|
|
57,901
|
|
|||
|
Cash and cash equivalents
, end of period
|
$
|
520,969
|
|
$
|
448,594
|
|
|
4
|
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows For the Twenty-Eight Week Periods Ended July 13, 2013 and July 14, 2012
(in thousands)
(unaudited)
|
|||||||
|
|
Twenty-Eight Week Periods Ended
|
||||||
|
July 13,
2013 |
July 14,
2012 |
||||||
|
Supplemental cash flow information:
|
|||||||
|
Interest paid
|
$
|
17,879
|
|
$
|
11,065
|
|
|
|
Income tax payments
|
89,750
|
|
72,310
|
|
|||
|
Non-cash transactions:
|
|||||||
|
Accrued purchases of property and equipment
|
12,894
|
|
29,012
|
|
|||
|
Retirement of common stock
|
—
|
|
1,644,767
|
|
|||
|
Net receivable related to purchase price of business acquisition
|
1,224
|
|
—
|
|
|||
|
Changes in other comprehensive income
|
2,082
|
|
(8
|
)
|
|||
The accompanying notes to the condensed consolidated financial statements
are an integral part of these statements
5
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 13, 2013 and July 14, 2012
(in thousands, except per share data)
(unaudited)
|
1.
|
Basis of Presentation:
|
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company and include the accounts of Advance Auto Parts, Inc., its wholly owned subsidiary, Advance Stores Company, Incorporated ("Stores"), and its subsidiaries (collectively, the "Company"). All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position of the Company, the results of its operations and cash flows have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s consolidated financial statements for the fiscal year ended
December 29, 2012
, or
Fiscal 2012
.
The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. These policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for
Fiscal 2012
(filed with the Securities and Exchange Commission, or SEC, on
February 25, 2013
).
The results of operations for the interim periods are not necessarily indicative of the operating results to be expected for the full fiscal year. The first quarter of each of the Company's fiscal years contains 16 weeks while the remaining three quarters contain 12 weeks each.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
New Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board, or FASB, issued ASU No. 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” Under ASU 2013-11 an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance affects presentation only and, therefore, it is not expected to have a material impact on the Company's consolidated financial condition, results of operations or cash flows.
In February 2013, the FASB issued ASU No. 2013-02 “Comprehensive Income - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 is an amendment adding new disclosure requirements for items reclassified out of accumulated other comprehensive income (“AOCI”). The amendment requires presentation of changes in AOCI balances by component and significant items reclassified out of AOCI by component either (1) on the face of the statement of operations or (2) as a separate disclosure in the notes to the financial statements. ASU 2013-02 is effective for fiscal years beginning after December 15, 2012. The adoption of ASU 2013-02 had no impact on the Company's consolidated financial condition, results of operations or cash flows.
In July 2012, the FASB issued ASU No. 2012-02 “Intangible-Goodwill and Other – Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 modifies the requirement to test intangible assets that are not subject to amortization based on events or changes in circumstances that might indicate that the asset is impaired now requiring the test only if it is more likely than not that the asset is impaired. Furthermore, ASU 2012-02 provides entities the option of performing a
6
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 13, 2013 and July 14, 2012
(in thousands, except per share data)
(unaudited)
qualitative assessment to determine if it is more likely than not that the fair value of an intangible asset is less than the carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test. ASU 2012-02 is effective for fiscal years beginning after September 15, 2012 and early adoption is permitted. The adoption of ASU 2012-02 had no impact on the Company’s consolidated financial condition, results of operations or cash flows.
|
2.
|
Inventories, net:
|
Inventories are stated at the lower of cost or market. The Company used the LIFO method of accounting for approximately
95%
of inventories at
July 13, 2013
,
December 29, 2012
and
July 14, 2012
. Under LIFO, the Company’s cost of sales reflects the costs of the most recently purchased inventories, while the inventory carrying balance represents the costs for inventories purchased in
Fiscal 2013
and prior years. As a result of utilizing LIFO, the Company recorded an increase to cost of sales of
$4,702
for the
twenty-eight
weeks ended
July 13, 2013
. The Company recorded a reduction to cost of sales of
$9,294
for the
twenty-eight
weeks ended
July 14, 2012
. The Company's overall costs to acquire inventory for the same or similar products have generally decreased historically as the Company has been able to leverage its continued growth, execution of merchandising strategies and realization of supply chain efficiencies.
An actual valuation of inventory under the LIFO method is performed by the Company at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected fiscal year-end inventory levels and costs.
Inventory balances at
July 13, 2013
,
December 29, 2012
and
July 14, 2012
were as follows:
|
July 13,
2013 |
December 29,
2012 |
July 14,
2012 |
|||||||||
|
Inventories at FIFO, net
|
$
|
2,285,553
|
|
$
|
2,182,419
|
|
$
|
1,984,944
|
|
||
|
Adjustments to state inventories at LIFO
|
121,488
|
|
126,190
|
|
111,397
|
|
|||||
|
Inventories at LIFO, net
|
$
|
2,407,041
|
|
$
|
2,308,609
|
|
$
|
2,096,341
|
|
||
|
3.
|
Acquisition of B.W.P. Distributors:
|
On December 31, 2012, the Company acquired B.W.P. Distributors, Inc. ("BWP") in an all-cash transaction. BWP, formerly a privately held company, supplied, marketed and distributed automotive aftermarket parts and products principally to commercial customers. Prior to the acquisition, BWP operated or supplied
216
locations in the Northeastern United States. The Company believes this acquisition will enable the Company to continue its expansion in the competitive Northeast, which is a strategic growth area for the Company due to the large population and overall size of the market, and to gain valuable information to apply to its existing operations as a result of BWP's expertise in Commercial. The amount of acquired goodwill reflects this strategic importance to the Company.
Concurrent with the closing of the acquisition, the Company transferred one distribution center and BWP's rights to distribute to
92
independently owned locations to an affiliate of General Parts International, Inc. ("GPI"), a privately held auto supply company. As a result, the Company began operating the
124
BWP company-owned stores and two remaining BWP distribution centers as of the closing date. The Company has included the financial results of BWP in its consolidated financial statements commencing December 31, 2012 (Fiscal 2013). Pro forma results of operations related to the acquisition of BWP are not presented as BWP's results are not material to the Company's condensed consolidated statements of operations.
Under the terms of the agreement, the Company acquired the net assets in exchange for a purchase price of
$186,959
, of which
$1,224
was not settled as of July 13, 2013. The purchase price reflects a change in the Company's estimate of certain post-closing adjustments made subsequent to the Company's filing of its first quarter Report on Form 10-Q. Following the closing of the acquisition, the Company sold certain of the acquired assets for
$16,798
related to the transfer of operations to GPI.
7
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 13, 2013 and July 14, 2012
(in thousands, except per share data)
(unaudited)
The following table summarizes the consideration paid for BWP and the amounts of the assets acquired and liabilities assumed that were recognized at the acquisition date:
|
Total Consideration
|
$
|
186,959
|
|
|
|
Recognized amounts of identifiable assets
|
||||
|
acquired and liabilities assumed
|
||||
|
Cash and cash equivalents
|
$
|
972
|
|
|
|
Receivables
|
22,615
|
|
||
|
Inventory
|
52,229
|
|
||
|
Other current assets
|
9,741
|
|
||
|
Property, plant and equipment
|
5,329
|
|
||
|
Intangible assets
|
31,600
|
|
||
|
Other assets
|
2,147
|
|
||
|
Accounts payable
|
(37,303
|
)
|
||
|
Accrued and other current liabilities
|
(11,843
|
)
|
||
|
Long-term liabilities
|
(11,930
|
)
|
||
|
Total identifiable net assets
|
63,557
|
|
||
|
Goodwill
|
123,402
|
|
||
|
Total acquired net assets
|
$
|
186,959
|
|
|
Due to the nature of BWP's business, the assets acquired and liabilities assumed as part of this acquisition are similar in nature to those of Advance. For additional information regarding intangible assets acquired, see Note
4
,
Goodwill and Intangible Assets
. All of the goodwill is expected to be deductible for income tax purposes.
|
4.
|
Goodwill and Intangible Assets:
|
Goodwill
The Company has goodwill recorded in both the Advance Auto Parts ("AAP") and Autopart International ("AI") segments. The following table reflects the carrying amount of goodwill pertaining to the Company's two segments and the changes in goodwill carrying amounts.
|
AAP Segment
|
AI Segment
|
Total
|
||||||||||
|
Balance at December 29, 2012
|
$
|
58,095
|
|
$
|
18,294
|
|
$
|
76,389
|
|
|||
|
Fiscal 2013 activity
|
123,402
|
|
—
|
|
123,402
|
|
||||||
|
Balance at July 13, 2013
|
$
|
181,497
|
|
$
|
18,294
|
|
$
|
199,791
|
|
|||
|
Balance at December 31, 2011
|
$
|
58,095
|
|
$
|
18,294
|
|
$
|
76,389
|
|
|||
|
Fiscal 2012 activity
|
—
|
|
—
|
|
—
|
|
||||||
|
Balance at July 14, 2012
|
$
|
58,095
|
|
$
|
18,294
|
|
$
|
76,389
|
|
|||
As discussed in Note
3
, on December 31, 2012, the Company acquired BWP in an all-cash transaction which resulted in the addition of
$123,402
of goodwill in the AAP Segment.
8
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 13, 2013 and July 14, 2012
(in thousands, except per share data)
(unaudited)
Intangible Assets Other Than Goodwill
In addition to goodwill, the Company also recorded an increase to intangible assets of
$31,600
. The increase included Customer Relationships of
$26,400
which will be amortized over 12 years and other intangible assets totaling
$5,200
which will be amortized over a weighted average of 3.4 years. The gross and net carrying amounts of acquired intangible assets as of
July 13, 2013
,
December 29, 2012
and
July 14, 2012
are comprised of the following:
|
|
Acquired intangible assets
|
|
|||||||||||||||||
|
|
Subject to Amortization
|
Not Subject to Amortization
|
Total Intangible Assets
(excluding goodwill)
|
||||||||||||||||
|
|
Customer
Relationships
|
Acquired Technology
|
Other
|
Trademark and
Tradenames
|
|||||||||||||||
|
Gross:
|
|
|
|
|
|||||||||||||||
|
Gross carrying amount at December 29, 2012
|
$
|
9,800
|
|
$
|
8,850
|
|
$
|
885
|
|
$
|
20,550
|
|
$
|
40,085
|
|
||||
|
Additions
|
26,400
|
|
—
|
|
5,200
|
|
—
|
|
31,600
|
|
|||||||||
|
Gross carrying amount at July 13, 2013
|
$
|
36,200
|
|
$
|
8,850
|
|
$
|
6,085
|
|
$
|
20,550
|
|
$
|
71,685
|
|
||||
|
Gross carrying amount at December 31, 2011
|
$
|
9,800
|
|
$
|
7,750
|
|
$
|
885
|
|
$
|
20,550
|
|
$
|
38,985
|
|
||||
|
Additions
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Gross carrying amount at July 14, 2012
|
$
|
9,800
|
|
$
|
7,750
|
|
$
|
885
|
|
$
|
20,550
|
|
$
|
38,985
|
|
||||
|
Net:
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net book value at December 29, 2012
|
$
|
2,658
|
|
$
|
5,419
|
|
$
|
218
|
|
$
|
20,550
|
|
$
|
28,845
|
|
||||
|
Additions
|
26,400
|
|
—
|
|
5,200
|
|
—
|
|
31,600
|
|
|||||||||
|
2013 amortization
|
(1,702
|
)
|
(1,588
|
)
|
(1,000
|
)
|
—
|
|
(4,290
|
)
|
|||||||||
|
Net carrying amount at July 13, 2013
|
$
|
27,356
|
|
$
|
3,831
|
|
$
|
4,418
|
|
$
|
20,550
|
|
$
|
56,155
|
|
||||
|
Net book value at December 31, 2011
|
$
|
3,618
|
|
$
|
6,987
|
|
$
|
225
|
|
$
|
20,550
|
|
$
|
31,380
|
|
||||
|
Additions
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
2012 amortization
|
(517
|
)
|
(1,391
|
)
|
(4
|
)
|
—
|
|
(1,912
|
)
|
|||||||||
|
Net carrying amount at July 14, 2012
|
$
|
3,101
|
|
$
|
5,596
|
|
$
|
221
|
|
$
|
20,550
|
|
$
|
29,468
|
|
||||
9
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 13, 2013 and July 14, 2012
(in thousands, except per share data)
(unaudited)
Future Amortization Expense
The table below shows expected amortization expense for the next five years for acquired intangible assets recorded as of
July 13, 2013
:
|
Fiscal Year
|
Amount
|
|||
|
Remainder of 2013
|
$
|
3,677
|
|
|
|
2014
|
7,205
|
|
||
|
2015
|
3,732
|
|
||
|
2016
|
2,707
|
|
||
|
2017
|
2,707
|
|
||
|
Thereafter
|
15,577
|
|
||
|
5.
|
Receivables, net:
|
Receivables consist of the following:
|
July 13,
2013 |
December 29,
2012 |
July 14,
2012 |
|||||||||||
|
Trade
|
$
|
163,978
|
|
$
|
110,153
|
|
$
|
38,464
|
|
||||
|
Vendor
|
118,293
|
|
119,770
|
|
117,922
|
|
|||||||
|
Other
|
10,541
|
|
5,862
|
|
6,950
|
|
|||||||
|
Total receivables
|
292,812
|
|
235,785
|
|
163,336
|
|
|||||||
|
Less: Allowance for doubtful accounts
|
(11,098
|
)
|
(5,919
|
)
|
(3,987
|
)
|
|||||||
|
Receivables, net
|
$
|
281,714
|
|
$
|
229,866
|
|
$
|
159,349
|
|
||||
During Fiscal 2012, the Company began the in-sourcing of its commercial credit function. This initiative consists of the transition from using a third party financial institution to settle credit transactions with the Company's Commercial customers to processing those transactions internally, thus increasing the trade receivable balance when compared to the same period in the prior year.
10
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 13, 2013 and July 14, 2012
(in thousands, except per share data)
(unaudited)
|
6.
|
|
Long-term debt consists of the following:
|
|
July 13,
2013 |
December 29,
2012 |
July 14,
2012 |
||||||||
|
Revolving facility at variable interest rates (1.69%, 1.74% and 1.75% at July 13, 2013, December 29, 2012 and July 14, 2012, respectively) due May 27, 2016
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||
|
5.75% Senior Unsecured Notes (net of unamortized discount of $916, $975 and $1,023 at July 13, 2013, December 29, 2012 and July 14, 2012, respectively) due May 1, 2020
|
299,084
|
|
299,025
|
|
298,977
|
|
|||||
|
4.50% Senior Unsecured Notes (net of unamortized discount of $84, $88 and $92 at July 13, 2013, December 29, 2012 and July 14, 2012, respectively) due January 15, 2022
|
299,916
|
|
299,912
|
|
299,908
|
|
|||||
|
Other
|
5,995
|
|
6,151
|
|
1,571
|
|
|||||
|
|
604,995
|
|
605,088
|
|
600,456
|
|
|||||
|
Less: Current portion of long-term debt
|
(878
|
)
|
(627
|
)
|
(760
|
)
|
|||||
|
Long-term debt, excluding current portion
|
$
|
604,117
|
|
$
|
604,461
|
|
$
|
599,696
|
|
||
Bank Debt
The Company has a
$750,000
unsecured five-year revolving credit facility (the "Facility") with Stores serving as the borrower. The Facility also provides for the issuance of letters of credit with a sub-limit of
$300,000
, and swingline loans in an amount not to exceed
$50,000
. The Company may request, subject to agreement by one or more lenders, that the total revolving commitment be increased by an amount not exceeding
$250,000
(up to a total commitment of
$1,000,000
) during the term of the credit agreement. Voluntary prepayments and voluntary reductions of the revolving balance are permitted in whole or in part, at the Company’s option, in minimum principal amounts as specified in the revolving credit facility. The Facility matures on May 27, 2016.
As of
July 13, 2013
, the Company had
no
borrowings outstanding under the Facility, and had letters of credit outstanding of
$87,660
, which reduced the availability under the Facility to
$662,340
. The letters of credit generally have a term of one year or less and primarily serve as collateral for the Company's self-insurance policies.
The interest rate on borrowings under the Facility is based, at the Company’s option, on an adjusted LIBOR rate, plus a margin, or an alternate base rate, plus a margin. The current margin is
1.5%
per annum for each of the adjusted LIBOR and alternate base rate borrowings. A facility fee is charged on the total amount of the Facility, payable in arrears. The current facility fee rate is
0.25%
per annum. Under the terms of the Facility, the interest rate and facility fee are based on the Company’s credit rating.
The Facility contains covenants restricting the Company's ability to, among other things: (1) permit the subsidiaries of Advance Stores to create, incur or assume additional debt; (2) incur liens or engage in sale-leaseback transactions; (3) make loans and investments (including acquisitions); (4) guarantee obligations; (5) engage in certain mergers and liquidations; (6) change the nature of the Company’s business and the business conducted by its subsidiaries; (7) enter into certain hedging transactions; and (8) change Advance’s status as a holding company. The Company is also required to comply with financial covenants with respect to a maximum leverage ratio and a minimum consolidated coverage ratio. The Company was in compliance with its covenants at
July 13, 2013
and
December 29, 2012
, respectively. The Facility also provides for customary events of default, covenant defaults and cross-defaults to the Company's other material indebtedness.
Senior Unsecured Notes
The Company’s
5.75%
senior unsecured notes were issued in April 2010 at
99.587%
of the principal amount of
$300,000
and are due May 1, 2020 (the "2020 Notes"). The 2020 Notes bear interest at a rate of
5.75%
per year payable semi-annually in
11
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 13, 2013 and July 14, 2012
(in thousands, except per share data)
(unaudited)
arrears on May 1 and November 1 of each year. The Company’s
4.50%
senior unsecured notes were issued in January 2012 at
99.968%
of the principal amount of
$300,000
and are due January 15, 2022 (the "2022 Notes" or collectively with 2020 Notes, "the Notes"). The 2022 Notes bear interest at a rate of
4.50%
per year payable semi-annually in arrears on January 15 and July 15 of each year. Advance served as the issuer of the Notes with certain of Advance’s domestic subsidiaries currently serving as subsidiary guarantors. The terms of the Notes are governed by an indenture and supplemental indentures (collectively the “Indenture”) among the Company, the subsidiary guarantors and Wells Fargo Bank, National Association, as Trustee.
The Company may redeem some or all of the Notes at any time or from time to time, at the redemption price described in the Indenture. In addition, in the event of a Change of Control Triggering Event (as defined in the Indenture for each of the Notes), the Company will be required to offer to repurchase the Notes at a price equal to
101%
of the principal amount thereof, plus accrued and unpaid interest to the repurchase date. The Notes are currently fully and unconditionally guaranteed, jointly and severally, on an unsubordinated and unsecured basis by each of the subsidiary guarantors. The Company will be permitted to release guarantees without the consent of holders of the Notes under the circumstances described in the Indenture: (i) upon the release of the guarantee of the Company's other debt that resulted in the affected subsidiary becoming a guarantor of this debt; (ii) upon the sale or other disposition of all or substantially all of the stock or assets of the subsidiary guarantor; or (iii) upon the Company's exercise of its legal or covenant defeasance option.
The Indenture contains customary provisions for events of default including for (i) failure to pay principal or interest when due and payable, (ii) failure to comply with covenants or agreements in the Indenture or the Notes and failure to cure or obtain a waiver of such default upon notice, (iii) a default under any debt for money borrowed by the Company or any of its subsidiaries that results in acceleration of the maturity of such debt, or failure to pay any such debt within any applicable grace period after final stated maturity, in an aggregate amount greater than
$25,000
without such debt having been discharged or acceleration having been rescinded or annulled within 10 days after receipt by the Company of notice of the default by the Trustee or holders of not less than
25%
in aggregate principal amount of the Notes then outstanding, and (iv) events of bankruptcy, insolvency or reorganization affecting the Company and certain of its subsidiaries. In the case of an event of default, the principal amount of the Notes plus accrued and unpaid interest may be accelerated. The Indenture also contains covenants limiting the ability of the Company and its subsidiaries to incur debt secured by liens and to enter into sale and lease-back transactions.
Debt Guarantees
Certain 100% wholly-owned domestic subsidiaries of Stores, including its Material Subsidiaries (as defined in the Facility) serve as guarantors of the Notes and Facility with Advance also serving as a guarantor of the Facility. The subsidiary guarantees related to the Company’s Notes and Facility are full and unconditional and joint and several, and there are no restrictions on the ability of Advance to obtain funds from its subsidiaries. Also, Advance has no independent assets or operations, and the subsidiaries not guaranteeing the Notes and Facility are minor as defined by SEC regulations.
|
7.
|
Fair Value Measurements:
|
The Company’s financial assets and liabilities measured at fair value are grouped in three levels. The levels prioritize the inputs used to measure the fair value of these assets or liabilities. These levels are:
|
•
|
Level 1 – Unadjusted quoted prices that are available in active markets for identical assets or liabilities at the measurement date.
|
|
•
|
Level 2 – Inputs other than quoted prices that are observable for assets and liabilities at the measurement date, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are less active, and inputs other than quoted prices that are observable for the asset or liability or corroborated by other observable market data.
|
|
•
|
Level 3 – Unobservable inputs for assets or liabilities that are not able to be corroborated by observable market data and reflect the use of a reporting entity’s own assumptions. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
|
12
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 13, 2013 and July 14, 2012
(in thousands, except per share data)
(unaudited)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The fair value hierarchy requires the use of observable market data when available. In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
The following table sets forth the Company’s financial liabilities that were measured at fair value on a recurring basis as of
July 13, 2013
,
December 29, 2012
and
July 14, 2012
:
|
|
|
Fair Value Measurements at Reporting Date Using
|
|||||||||||||
|
|
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||
|
Fair Value
|
Quoted Prices in
Active Markets for
Identical Assets
|
Significant Other
Observable Inputs
|
Significant
Unobservable
Inputs
|
||||||||||||
|
As of July 13, 2013
|
|
|
|
|
|||||||||||
|
Contingent consideration related to business acquisitions
|
$
|
12,842
|
|
$
|
—
|
|
$
|
—
|
|
$
|
12,842
|
|
|||
|
As of December 29, 2012
|
|
|
|
|
|
|
|
|
|||||||
|
Contingent consideration related to business acquisitions
|
16,999
|
|
—
|
|
—
|
|
16,999
|
|
|||||||
|
As of July 14, 2012
|
|
|
|
|
|
|
|
|
|||||||
|
Contingent consideration related to business acquisitions
|
$
|
23,021
|
|
$
|
—
|
|
$
|
—
|
|
$
|
23,021
|
|
|||
The fair value of the contingent consideration, which is recorded in Accrued expenses and Other long-term liabilities, is based on various estimates including the Company's estimate of the probability of achieving the targets and the time value of money. During the
twenty-eight
weeks ended
July 13, 2013
, contingent consideration decreased primarily due to a payment of
$4,726
resulting from the achievement of performance conditions, partially offset by amortization of the net present value discount.
The carrying amount of the Company’s cash and cash equivalents, accounts receivable, bank overdrafts, accounts payable, accrued expenses and current portion of long term debt approximate their fair values due to the relatively short term nature of these instruments. The fair value of the Company’s senior unsecured notes was determined using Level 2 inputs based on quoted market prices. The Company believes that the carrying value of its other long-term debt and certain long-term liabilities approximate fair value.
The carrying value and fair value of the Company's long-term debt as of
July 13, 2013
,
December 29, 2012
and
July 14, 2012
, respectively, are as follows:
|
July 13,
2013 |
December 29,
2012 |
July 14,
2012 |
|||||||||
|
Carrying Value
|
$
|
604,117
|
|
$
|
604,461
|
|
$
|
599,696
|
|
||
|
Fair Value
|
$
|
630,000
|
|
$
|
655,000
|
|
$
|
660,000
|
|
||
13
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 13, 2013 and July 14, 2012
(in thousands, except per share data)
(unaudited)
Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). At
July 13, 2013
, the Company had no significant non-financial assets or liabilities that had been adjusted to fair value subsequent to initial recognition.
|
8.
|
Stock Repurchase Program:
|
The Company’s stock repurchase program allows it to repurchase its common stock on the open market or in privately negotiated transactions from time to time in accordance with the requirements of the SEC. The Company's
$500,000
stock repurchase program in place as of
July 13, 2013
was authorized by its Board of Directors on May 14, 2012.
During the
twelve
weeks ended
July 13, 2013
, the Company repurchased
196
shares of its common stock at an aggregate cost of
$15,666
, or an average price of
$79.97
per share under its stock repurchase program. During the
twenty-eight
weeks ended
July 13, 2013
, the Company repurchased
963
shares of its common stock at an aggregate cost of
$74,512
, or an average price of
$77.38
per share under its stock repurchase program. The Company had
$417,873
remaining under its stock repurchase program as of
July 13, 2013
. The Company repurchased
2
shares of its common stock at an aggregate cost of
$204
, or an average price of
$83.86
per share, in connection with the net settlement of shares issued as a result of the vesting of restricted stock during the
twelve
weeks ended
July 13, 2013
. The Company repurchased
16
shares of its common stock at an aggregate cost of
$1,276
, or an average price of
$77.60
per share, in connection with the net settlement of shares issued as a result of the vesting of restricted stock during the
twenty-eight
weeks ended
July 13, 2013
.
During the
twelve
and
twenty-eight
and weeks ended
July 14, 2012
, the Company repurchased
257
shares of its common stock at an aggregate cost of
$19,589
, or an average price of
$76.18
per share under its
$300,000
stock repurchase program authorized by its Board of Directors on August 9, 2011. The Company repurchased
4
shares of its common stock at an aggregate cost of
$279
, or an average price of
$73.33
per share, in connection with the net settlement of shares issued as a result of the vesting of restricted stock during the
twelve
weeks ended
July 14, 2012
. The Company repurchased
64
shares of its common stock at an aggregate cost of
$5,453
, or an average price of
$84.99
per share, in connection with the net settlement of shares issued as a result of the vesting of restricted stock during the
twenty-eight
weeks ended
July 14, 2012
. Also during the
twenty-eight
weeks ended
July 14, 2012
, the Company retired
33,738
shares of treasury stock.
|
9.
|
Earnings per Share:
|
Certain of the Company’s shares granted to employees in the form of restricted stock are considered participating securities which require the use of the two-class method for the computation of basic and diluted earnings per share. For the
twelve
week periods ended
July 13, 2013
and
July 14, 2012
, earnings of
$275
and
$237
, respectively, were allocated to the participating securities. For the
twenty-eight
week periods ended
July 13, 2013
and
July 14, 2012
, earnings of
$558
and
$557
, respectively, were allocated to the participating securities.
Diluted earnings per share are calculated by including the effect of dilutive securities. Share-based awards to purchase approximately
64
and
211
shares of common stock that had an exercise price in excess of the average market price of the common stock during the
twelve
week periods ended
July 13, 2013
and
July 14, 2012
, respectively, were not included in the calculation of diluted earnings per share because they were anti-dilutive. Share-based awards to purchase approximately
60
and
224
shares of common stock that had an exercise price in excess of the average market price of the common stock during the
twenty-eight
week periods ended
July 13, 2013
and
July 14, 2012
, respectively, were not included in the calculation of diluted earnings per share because they were anti-dilutive.
14
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 13, 2013 and July 14, 2012
(in thousands, except per share data)
(unaudited)
The following table illustrates the computation of basic and diluted earnings per share for the
twelve
and
twenty-eight
week periods ended
July 13, 2013
and
July 14, 2012
, respectively:
|
|
Twelve Weeks Ended
|
Twenty-Eight Weeks Ended
|
|||||||||||||
|
July 13,
2013 |
July 14,
2012 |
July 13,
2013 |
July 14,
2012 |
||||||||||||
|
Numerator
|
|
|
|||||||||||||
|
Net income applicable to common shares
|
$
|
116,871
|
|
$
|
99,606
|
|
$
|
238,661
|
|
$
|
233,112
|
|
|||
|
Participating securities' share in earnings
|
(275
|
)
|
(237
|
)
|
(558
|
)
|
(557
|
)
|
|||||||
|
Net income applicable to common shares
|
$
|
116,596
|
|
$
|
99,369
|
|
$
|
238,103
|
|
$
|
232,555
|
|
|||
|
Denominator
|
|
|
|||||||||||||
|
Basic weighted average common shares
|
72,930
|
|
73,150
|
|
73,081
|
|
73,003
|
|
|||||||
|
Dilutive impact of share-based awards
|
413
|
|
934
|
|
526
|
|
1,154
|
|
|||||||
|
Diluted weighted average common shares
|
73,343
|
|
74,084
|
|
73,607
|
|
74,157
|
|
|||||||
|
Basic earnings per common share
|
|
|
|
|
|||||||||||
|
Net income applicable to common stockholders
|
$
|
1.60
|
|
$
|
1.36
|
|
$
|
3.26
|
|
$
|
3.19
|
|
|||
|
Diluted earnings per common share
|
|
|
|
|
|||||||||||
|
Net income applicable to common stockholders
|
$
|
1.59
|
|
$
|
1.34
|
|
$
|
3.23
|
|
$
|
3.14
|
|
|||
|
10.
|
Warranty Liabilities:
|
The following table presents changes in the Company’s warranty reserves:
|
|
July 13,
2013 |
December 29,
2012 |
July 14,
2012 |
||||||||
|
(28 weeks ended)
|
(52 weeks ended)
|
(28 weeks ended)
|
|||||||||
|
Warranty reserve, beginning of period
|
$
|
38,425
|
|
$
|
38,847
|
|
$
|
38,847
|
|
||
|
Additions to warranty reserves
|
20,666
|
|
40,766
|
|
19,337
|
|
|||||
|
Reserves utilized
|
(20,971
|
)
|
(41,188
|
)
|
(20,770
|
)
|
|||||
|
Warranty reserve, end of period
|
$
|
38,120
|
|
$
|
38,425
|
|
$
|
37,414
|
|
||
The Company’s warranty liabilities are included in Accrued expenses in its condensed consolidated balance sheets.
|
11.
|
Segment and Related Information:
|
The Company has the following two reportable segments: AAP and AI. The AAP segment is comprised of
3,763
stores, as of
July 13, 2013
, which operate primarily in the United States, Puerto Rico and the Virgin Islands under the trade names “Advance Auto Parts” and “Advance Discount Auto Parts.” These stores offer a broad selection of brand name and proprietary automotive replacement parts, accessories and maintenance items for domestic and imported cars and light trucks. The Company aggregates the financial results of AAP's geographic areas, which are individually considered operating segments, due to the economic similarities of those areas.
Included in the Company's geographic areas are sales generated from its e-commerce platforms. The Company's e-commerce platforms primarily consist of its B2C online website and Commercial ordering platforms as part of its integrated operating approach of serving its DIY and Commercial customers. The Company's online website allows its DIY customers to pick up merchandise at a conveniently located store location or have their purchases shipped directly to them. The majority of
15
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 13, 2013 and July 14, 2012
(in thousands, except per share data)
(unaudited)
the Company's online sales are picked up at store locations. Through the Company's online ordering platform, Commercial customers can conveniently place orders with a designated store location for delivery to their place of business.
The AI segment consists solely of the operations of Autopart International and operates stores under the “Autopart International” trade name. AI mainly serves the Commercial market from its
227
stores, as of
July 13, 2013
, primarily located in the Northeastern, Mid-Atlantic and Southeastern regions of the United States.
The Company evaluates each segment’s financial performance based on net sales and operating profit for purposes of allocating resources and assessing performance. The accounting policies of the reportable segments are generally the same as those described in the Annual Report on Form 10-K for the year ended
December 29, 2012
.
The following table summarizes financial information for each of the Company's business segments for the
twelve and twenty-eight
weeks ended
July 13, 2013
and
July 14, 2012
, respectively.
|
|
Twelve Week Periods Ended
|
Twenty-Eight Week Periods Ended
|
|||||||||||||
|
July 13,
2013 |
July 14,
2012 |
July 13,
2013 |
July 14,
2012 |
||||||||||||
|
Net sales
|
|
|
|||||||||||||
|
AAP
|
$
|
1,470,505
|
|
$
|
1,391,467
|
|
$
|
3,388,598
|
|
$
|
3,259,897
|
|
|||
|
AI
|
82,429
|
|
73,013
|
|
184,661
|
|
166,608
|
|
|||||||
|
Eliminations
(1)
|
(3,381
|
)
|
(3,497
|
)
|
(8,402
|
)
|
(8,230
|
)
|
|||||||
|
Total net sales
|
$
|
1,549,553
|
|
$
|
1,460,983
|
|
$
|
3,564,857
|
|
$
|
3,418,275
|
|
|||
|
Income before provision for income taxes
|
|
|
|||||||||||||
|
AAP
|
$
|
181,590
|
|
$
|
156,647
|
|
$
|
373,678
|
|
$
|
367,996
|
|
|||
|
AI
|
5,433
|
|
4,546
|
|
7,711
|
|
8,409
|
|
|||||||
|
Total income before provision for income taxes
|
$
|
187,023
|
|
$
|
161,193
|
|
$
|
381,389
|
|
$
|
376,405
|
|
|||
|
Provision for income taxes
|
|
|
|||||||||||||
|
AAP
|
$
|
68,631
|
|
$
|
59,779
|
|
$
|
139,866
|
|
$
|
139,914
|
|
|||
|
AI
|
1,521
|
|
1,808
|
|
2,862
|
|
3,379
|
|
|||||||
|
Total provision for income taxes
|
$
|
70,152
|
|
$
|
61,587
|
|
$
|
142,728
|
|
$
|
143,293
|
|
|||
|
July 13,
2013 |
December 29,
2012 |
July 14,
2012 |
|||||||||
|
Segment assets
|
|||||||||||
|
AAP
|
$
|
4,568,990
|
|
$
|
4,352,686
|
|
$
|
3,906,331
|
|
||
|
AI
|
283,298
|
|
261,128
|
|
262,815
|
|
|||||
|
Total segment assets
|
$
|
4,852,288
|
|
$
|
4,613,814
|
|
$
|
4,169,146
|
|
||
|
(1)
|
For the
twelve
weeks ended
July 13, 2013
, eliminations represented net sales of
$2,295
from AAP to AI and
$1,086
from AI to AAP. For the
twelve
weeks ended
July 14, 2012
, eliminations represented net sales of
$2,294
from AAP to AI and
$1,203
from AI to AAP. For the
twenty-eight
weeks ended
July 13, 2013
, eliminations represented net sales of
$6,008
from AAP to AI and
$2,394
from AI to AAP. For the
twenty-eight
weeks ended
July 14, 2012
, eliminations represented net sales of
$5,191
from AAP to AI and
$3,039
from AI to AAP.
|
16
|
ITEM 2.
|
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 our unaudited condensed consolidated financial statements and the notes to those statements that appear elsewhere in this report. Our first quarter consists of 16 weeks divided into four equal periods. Our remaining three quarters consist of 12 weeks with each quarter divided into three equal periods.
Certain statements in this report are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are usually identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "likely," "may," "plan," "position," "possible," "potential," "probable," "project," "projection," "should," "strategy," "will," or similar expressions. We intend for any forward-looking statements to be covered by, and we claim the protection under, the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based upon assessments and assumptions of management in light of historical results and trends, current conditions and potential future developments that often involve judgments, estimates, assumptions and projections. Forward-looking statements reflect current views about our plans, strategies and prospects, which are based on information currently available.
Although we believe that our plans, intentions and expectations as reflected in or suggested by any forward-looking statements are reasonable, we do not guarantee or give assurance that such plans, intentions or expectations will be achieved. Actual results may differ materially from our anticipated results described or implied in our forward-looking statements, and such differences may be due to a variety of factors. Our business could also be affected by additional factors that are presently unknown to us or that we currently believe to be immaterial to our business.
Listed below and discussed in our Annual Report on Form 10-K for the year ended
December 29, 2012
(filed with the Securities and Exchange Commission, or SEC, on
February 25, 2013
), which we refer to as our
2012
Form 10-K, are some important risks, uncertainties and contingencies which could cause our actual results, performance or achievements to be materially different from any forward-looking statements made or implied in this report. These include, but are not limited to, the following:
|
•
|
a decrease in demand for our products;
|
|
•
|
competitive pricing and other competitive pressures;
|
|
•
|
our ability to implement our business strategy;
|
|
•
|
our ability to expand our business, including the location of available and suitable real estate for new store locations, the integration of any acquired businesses and the continued increase in supply chain capacity and efficiency;
|
|
•
|
our dependence on our suppliers to provide us with products that comply with safety and quality standards;
|
|
•
|
our ability to attract and retain qualified employees, or Team Members;
|
|
•
|
the potential for fluctuations in the market price of our common stock and the resulting exposure to securities class action litigations;
|
|
•
|
deterioration in general macro-economic conditions, including unemployment, inflation or deflation, consumer debt levels, high fuel and energy costs, higher tax rates or uncertain credit markets;
|
|
•
|
regulatory and legal risks, such as environmental or OSHA risks, including being named as a defendant in administrative investigations or litigation, and the incurrence of legal fees and costs, the payment of fines or the payment of sums to settle litigation cases or administrative investigations or proceedings;
|
|
•
|
a security breach or other cyber security incident;
|
|
•
|
business interruptions due to the occurrence of natural disasters, extended periods of unfavorable weather, computer system malfunction, wars or acts of terrorism; and
|
|
•
|
the impact of global climate change or legal and regulatory responses to such change.
|
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 SEC and you should not place undue reliance on those statements.
17
Introduction
We are a leading specialty retailer of automotive aftermarket parts, accessories, batteries and maintenance items primarily operating within the United States. Our stores carry an extensive product line for cars, vans, sport utility vehicles and light trucks. We serve both "do-it-yourself," or DIY, and “do-it-for-me,” or Commercial, customers. Our Commercial customers consist primarily of delivery customers for whom we deliver products from our store locations to our Commercial customers’ places of business, including independent garages, service stations and auto dealers. At
July 13, 2013
, we operated a total of
3,990
stores.
We operate in two reportable segments: Advance Auto Parts, or AAP, and Autopart International, Inc., or AI. The AAP segment is comprised of our store operations within the Northeastern, Southeastern and Midwestern (inclusive of South Central) regions of the United States, Puerto Rico and the Virgin Islands which primarily operate under the trade names “Advance Auto Parts” and “Advance Discount Auto Parts.” At
July 13, 2013
, we operated
3,763
stores in the AAP segment. Our AAP stores offer a broad selection of brand name and private label automotive replacement parts, accessories, batteries and maintenance items for domestic and imported cars and light trucks. Through our integrated operating approach, we serve our DIY and Commercial customers from our store locations and online at www.AdvanceAutoParts.com. Our online website allows our DIY customers to pick up merchandise at a conveniently located store or have their purchases shipped directly to their homes or businesses. Our Commercial customers can conveniently place their orders online.
At
July 13, 2013
, we operated
227
stores in the AI segment under the “Autopart International” trade name. AI’s business primarily serves the Commercial market from its store locations in the Northeastern, Mid-Atlantic and Southeastern regions of the United States. For additional information regarding our segments, see Note
11
,
Segment and Related Information
, of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Management Overview
We generated earnings per diluted share, or diluted EPS, of
$1.59
during our
twelve
weeks ended
July 13, 2013
(or the
second
quarter of
Fiscal 2013
) compared to
$1.34
for the comparable period of Fiscal
2012
. The increase in our diluted EPS was primarily due to an increase in our operating income. Our second quarter sales improved from first quarter when compared on a year-over-year basis but remained constrained in many of our Eastern markets where record-setting rainfall amounts negatively impacted the sale of our seasonal products. The current economic conditions also continue to negatively affect our sales as consumers have experienced payroll tax increases, relatively high levels of unemployment and overall financial stress throughout much of our first and second quarters. Despite the
0.3%
comparable sales decline, we increased operating income over the comparable period of last year by improving our gross profit rate and disciplined expense control. We continue to generate a significant amount of cash on-hand to invest in capital improvements and initiatives to support our two key strategies, Superior Availability and Service Leadership, which are discussed later in "
Business and Industry Update.
"
On December 31, 2012, we acquired B.W.P. Distributors, Inc. ("BWP"), a privately held company that supplied, marketed and distributed automotive aftermarket parts and products principally to Commercial customers. Prior to the acquisition, BWP operated or supplied
216
locations in the Northeastern United States. Concurrent with the closing of the acquisition, we transferred one distribution center and BWP's rights to distribute to
92
independently owned locations to an affiliate of General Parts International, Inc. ("GPI"), a privately held auto supply company. We believe this acquisition will enable us to continue our expansion in the competitive Northeast, which is a strategic growth area for us due to the large population and overall size of the market, and to gain valuable information to apply to our existing operations as a result of BWP's expertise in Commercial.
During the second quarter, we began integrating the
124
BWP company-owned stores and two distribution centers into our Advance Auto Parts operations and plan to finish the integration by mid-2014. The integration of BWP stores will consist of converting or consolidating those locations into Advance Auto Parts locations.
18
Summary of
Second
Quarter Financial Results
A high-level summary of our financial results for the
second
quarter of
Fiscal 2013
is included below:
|
•
|
Net sales during the
second
quarter of
Fiscal 2013
were
$1,549.6 million
, an increase of
6.1%
as compared to the
second
quarter of Fiscal
2012
. This increase was primarily driven by the addition of the acquired BWP stores and
175
net new stores over the past 12 months partially offset by a
0.3%
decrease in comparable store sales.
|
|
•
|
Our operating income for the
second
quarter of
Fiscal 2013
was
$194.7 million
, an increase of
$25.5 million
from the comparable period of Fiscal
2012
. As a percentage of total sales, operating income was
12.6%
, an increase of
98
basis points, due to a lower SG&A rate combined with a higher gross profit rate.
|
|
•
|
Our inventory balance as of
July 13, 2013
increased
$310.7 million
, or
14.8%
, over our inventory balance as of
July 14, 2012
to support our inventory availability initiatives and as a result of the BWP acquisition and new store openings.
|
|
•
|
We generated operating cash flow of
$310.1 million
during the
twenty-eight
weeks ended
July 13, 2013
, a decrease of
24.6%
from the comparable period in Fiscal
2012
, primarily due to the timing of payments to vendors.
|
Refer to the
"Results of Operations"
and "
Liquidity and Capital Resources"
sections for further details of our income statement and cash flow results, respectively.
Business and Industry Update
Our two key strategies are Superior Availability and Service Leadership. Superior Availability is aimed at product availability and maximizing the speed, reliability and efficiency of our supply chain. Service Leadership leverages our product availability in addition to more consistent execution of customer-facing initiatives to strengthen our integrated operating approach of serving our DIY and Commercial customers in our stores and on-line. Through these two key strategies, we believe we can continue to build on the initiatives discussed below to produce favorable financial results over the long term. Sales to Commercial customers remain the biggest opportunity for us to increase our overall market share in the automotive aftermarket industry. Our Commercial sales, as a percentage of total sales, increased to
40%
for the
second
quarter of
Fiscal 2013
compared to
38%
for the same period in Fiscal
2012
. This increase has been more pronounced during each of our first two quarters of Fiscal 2013 due to the contribution of the acquired BWP stores which are more weighted in Commercial than our Advance stores.
Our strategic priorities include:
|
•
|
Growing our Commercial business through improved delivery speed and reliability, increased customer retention, increased volume with national and regional accounts and the acquisition and integration of BWP;
|
|
•
|
Improving localized parts availability through the continued increase in the number of our larger HUB stores, strengthened focus on in-store availability and leveraging the advancement of our supply chain infrastructure, which includes the continued ramp-up of our new Remington distribution center;
|
|
•
|
Accelerating our new store growth rate; and
|
|
•
|
Continuing our focus on store execution through more effective scheduling, increased productivity and simplification, improved product on-hand accuracy, expanded sales training and and continued measurement of customer engagement.
|
The automotive aftermarket industry is influenced by a number of general macroeconomic factors similar to those affecting the overall retail industry. These factors include, but are not limited to, fuel costs, unemployment rates, consumer confidence and spending habits, and competition. While we believe the difficult conditions affecting the macroeconomic environment continue to constrain consumer spending in the automotive aftermarket, we remain confident that the long-term dynamics of the industry are positive.
Favorable industry dynamics include:
|
•
|
an increase in the number and average age of vehicles;
|
|
•
|
a long-term expectation that miles driven will continue to increase based on historical trends; and
|
|
•
|
a fragmented commercial market.
|
Conversely, the factors negatively affecting the automotive aftermarket industry include:
|
•
|
higher and more volatile gas prices;
|
|
•
|
longer maintenance and part failure intervals on newer cars due to improved quality; and
|
19
|
•
|
deferral of elective automotive maintenance in the near term as more consumers contemplate new automobile purchases.
|
Despite our sales performance during the
second
quarter, we remain encouraged by (i) the long-term fundamentals of the automotive aftermarket industry, (ii) initiatives that are underway in support of our key strategies and (iii) the higher comparable sales performance we experienced during the first six weeks of the second quarter. While we believe our lower comparable sales will not be a long-term trend given the overall positive long-term industry dynamics, we do anticipate constrained comparable sales for the remainder of
Fiscal 2013
based on the current trend of lower customer demand. Despite the lower sales, we are committed to achieving our long-term sales growth and profitability goals by remaining focused on our Commercial sales growth while balancing support and discretionary expenses with the additional cost of investments in our key strategies.
Consolidated Operating Results and Key Statistics and Metrics
The following table highlights certain consolidated operating results and key statistics and metrics for the
twelve and twenty-eight
weeks ended
July 13, 2013
and
July 14, 2012
, respectively, and the fiscal years ended
December 29, 2012
and
December 31, 2011
. We use these key statistics and metrics to measure the financial progress of our key strategies.
|
|
Twelve Weeks Ended
|
Twenty-Eight Weeks Ended
|
|
|
|||||||||||||||||||
|
July 13, 2013
|
July 14, 2012
|
July 13,
2013 |
July 14,
2012 |
FY 2012
|
FY 2011
|
||||||||||||||||||
|
Operating Results:
|
|
|
|
|
|||||||||||||||||||
|
Total net sales (in 000s)
|
$
|
1,549,553
|
|
$
|
1,460,983
|
|
$
|
3,564,857
|
|
$
|
3,418,275
|
|
$
|
6,205,003
|
|
$
|
6,170,462
|
|
|||||
|
Comparable store sales growth
(1)
|
(0.3
|
%)
|
(2.7
|
)%
|
(2.0
|
)%
|
0.0
|
%
|
(0.8
|
)%
|
2.2
|
%
|
|||||||||||
|
Gross profit
|
50.3
|
%
|
49.9
|
%
|
50.1
|
%
|
50.0
|
%
|
49.9
|
%
|
49.7
|
%
|
|||||||||||
|
SG&A
|
37.7
|
%
|
38.3
|
%
|
39.0
|
%
|
38.5
|
%
|
39.3
|
%
|
39.0
|
%
|
|||||||||||
|
Operating profit
|
12.6
|
%
|
11.6
|
%
|
11.2
|
%
|
11.5
|
%
|
10.6
|
%
|
10.8
|
%
|
|||||||||||
|
Diluted earnings per share
|
$
|
1.59
|
|
$
|
1.34
|
|
$
|
3.23
|
|
$
|
3.14
|
|
$
|
5.22
|
|
$
|
5.11
|
|
|||||
|
Key Statistics and Metrics:
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Number of stores, end of period
|
3,990
|
|
3,692
|
|
3,990
|
|
3,692
|
|
3,794
|
|
3,662
|
|
|||||||||||
|
Total store square footage, end of period (in 000s)
|
29,204
|
|
26,927
|
|
29,204
|
|
26,927
|
|
27,806
|
|
26,663
|
|
|||||||||||
|
Total Team Members, end of period
|
54,250
|
|
53,464
|
|
54,250
|
|
53,464
|
|
53,473
|
|
52,002
|
|
|||||||||||
|
Sales per store (in 000s)
(2)(3)
|
$
|
1,654
|
|
$
|
1,697
|
|
$
|
1,654
|
|
$
|
1,697
|
|
$
|
1,664
|
|
$
|
1,708
|
|
|||||
|
Operating income per store (in 000s)
(2)(4)
|
$
|
172
|
|
$
|
187
|
|
$
|
172
|
|
$
|
187
|
|
$
|
176
|
|
$
|
184
|
|
|||||
|
Gross margin return on inventory
(2)(5)
|
8.9
|
|
7.0
|
|
8.9
|
|
7.0
|
|
9.3
|
|
6.6
|
|
|||||||||||
|
(1)
|
Comparable store sales include net sales from our stores and e-commerce website. The change in 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.
|
|
(2)
|
These financial metrics presented for each quarter are calculated on an annualized basis and accordingly reflect the last four fiscal quarters completed.
|
|
(3)
|
Sales per store is calculated as net sales divided by the average of the beginning and ending store count for the respective period.
|
|
(4)
|
Operating income per store is calculated as operating income divided by the average of beginning and ending total store count for the respective period.
|
|
(5)
|
Gross margin return on inventory is calculated as gross profit divided by an average of beginning and ending inventory, net of accounts payable and financed vendor accounts payable.
|
20
Store Development by Segment
The following table sets forth the total number of new, closed and relocated stores and stores with Commercial delivery programs during the
twelve and twenty-eight
weeks ended
July 13, 2013
and
July 14, 2012
by segment. We lease approximately
79%
of our AAP stores. We lease
100%
of our AI stores.
|
AAP
|
|||||||||||
|
|
Twelve Weeks Ended
|
Twenty-Eight Weeks Ended
|
|||||||||
|
|
July 13,
2013 |
July 14,
2012 |
July 13,
2013 |
July 14,
2012 |
|||||||
|
Number of stores at beginning of period
|
3,746
|
|
3,482
|
|
3,576
|
|
3,460
|
|
|||
|
New stores
|
21
|
|
7
|
|
70
|
|
29
|
|
|||
|
Acquired BWP stores
|
—
|
|
—
|
|
124
|
|
—
|
|
|||
|
Closed stores
|
(4
|
)
|
—
|
|
(7
|
)
|
—
|
|
|||
|
Number of stores, end of period
|
3,763
|
|
3,489
|
|
3,763
|
|
3,489
|
|
|||
|
Relocated stores
|
—
|
|
3
|
|
2
|
|
7
|
|
|||
|
Stores with Commercial delivery programs
|
3,461
|
|
3,160
|
|
3,461
|
|
3,160
|
|
|||
|
AI
|
|||||||||||
|
|
Twelve Weeks Ended
|
Twenty-Eight Weeks Ended
|
|||||||||
|
|
July 13,
2013 |
July 14,
2012 |
July 13,
2013 |
July 14,
2012 |
|||||||
|
Number of stores at beginning of period
|
223
|
|
200
|
|
218
|
|
202
|
|
|||
|
New stores
|
5
|
|
3
|
|
12
|
|
6
|
|
|||
|
Closed stores
|
(1
|
)
|
—
|
|
(3
|
)
|
(5
|
)
|
|||
|
Number of stores, end of period
|
227
|
|
203
|
|
227
|
|
203
|
|
|||
|
Relocated stores
|
3
|
|
2
|
|
9
|
|
4
|
|
|||
|
Stores with Commercial delivery programs
|
227
|
|
203
|
|
227
|
|
203
|
|
|||
Included in our store closures during the
twelve and twenty-eight
weeks ended
July 13, 2013
is one BWP store that was consolidated into an existing Advance Auto Parts store. During
Fiscal 2013
, we anticipate adding approximately
155 to 165
AAP stores (excluding the
124
BWP stores acquired on December 31, 2012) and
10 to 15
AI stores.
Critical Accounting Policies
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Our discussion and analysis of the financial condition and results of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain estimates and judgments by our management. Our estimates and judgments are based on currently available information, historical results and other assumptions we believe are reasonable. Actual results could differ materially from these estimates. During the
twelve and twenty-eight
weeks ended
July 13, 2013
, we consistently applied the critical accounting policies discussed in our
2012
Form 10-K. For a complete discussion regarding these critical accounting policies, refer to the
2012
Form 10-K.
Components of Statement of Operations
Net Sales
Net sales consist primarily of merchandise sales from our retail store locations to both our DIY and Commercial customers and sales from our e-commerce website. Our total sales growth is comprised of both comparable store sales and new store sales. We calculate comparable store sales based on the change in store sales starting once a store has been opened for 13 complete accounting periods (approximately one year) and by including e-commerce sales. We include sales from relocated stores in comparable store sales from the original date of opening.
21
Cost of Sales
Our cost of sales consists of merchandise costs, net of incentives under vendor programs; inventory shrinkage, defective merchandise and warranty costs; and warehouse and distribution expenses. Gross profit as a percentage of net sales may be affected by (i) variations in our product mix, (ii) price changes in response to competitive factors and fluctuations in merchandise costs, (iii) vendor programs, (iv) inventory shrinkage, (v) defective merchandise and warranty costs and (vi) warehouse and distribution costs. We seek to minimize fluctuations in merchandise costs and instability of supply by entering into long-term purchasing agreements, without minimum purchase volume requirements, when we believe it is advantageous. Our gross profit may not be comparable to that of our competitors due to differences in industry practice regarding the classification of certain costs.
Selling, General and Administrative Expenses
SG&A expenses consist of store payroll and benefits, store occupancy (including rent and depreciation), advertising expenses, Commercial delivery expenses, other store expenses and general and administrative expenses, including salaries and related benefits of store support center Team Members, share-based compensation expense, store support center administrative office expenses, data processing, professional expenses, self-insurance costs, closed store expense, impairment charges, if any, and other related expenses.
Results of Operations
The following table sets forth certain of our operating data expressed as a percentage of net sales for the periods indicated.
|
Twelve Week Periods Ended
|
Twenty-Eight Week Periods Ended
|
||||||||||
|
July 13,
2013 |
July 14,
2012 |
July 13, 2013
|
July 14, 2012
|
||||||||
|
Net sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
|||
|
Cost of sales, including purchasing and warehousing costs
|
49.7
|
|
50.1
|
|
49.9
|
|
50.0
|
|
|||
|
Gross profit
|
50.3
|
|
49.9
|
|
50.1
|
|
50.0
|
|
|||
|
Selling, general and administrative expenses
|
37.7
|
|
38.3
|
|
39.0
|
|
38.5
|
|
|||
|
Operating income
|
12.6
|
|
11.6
|
|
11.2
|
|
11.5
|
|
|||
|
Interest expense
|
(0.5
|
)
|
(0.5
|
)
|
(0.5
|
)
|
(0.5
|
)
|
|||
|
Other expense, net
|
0.0
|
|
0.0
|
|
0.0
|
|
0.0
|
|
|||
|
Provision for income taxes
|
4.5
|
|
4.2
|
|
4.0
|
|
4.2
|
|
|||
|
Net income
|
7.5
|
%
|
6.8
|
%
|
6.7
|
%
|
6.8
|
%
|
|||
Twelve and Twenty-Eight Week Periods Ended
July 13, 2013
Compared to
Twelve and Twenty-Eight Week Periods Ended
July 14, 2012
Net Sales
Net sales for the
twelve
weeks ended
July 13, 2013
were
$1,549.6 million
, an increase of
$88.6 million
, or
6.1%
, as compared to net sales for the
twelve
weeks ended
July 14, 2012
. The sales increase was primarily due to sales from the acquired BWP stores and sales from the new AAP and AI stores opened during the last twelve months partially offset by a
0.3%
decrease in comparable store sales.
For the
twelve
weeks ended
July 13, 2013
, AAP produced net sales of
$1,470.5 million
, an increase of
$79.0 million
, or
5.7%
, as compared to net sales for the
twelve
weeks ended
July 14, 2012
. This growth was primarily a result of sales from the
123
acquired BWP stores and sales from the net addition of
151
new stores over the past year partially offset by a comparable store sales decrease of
0.4%
. The comparable store sales decrease was driven by a decrease in transaction count partially offset by an increase in transaction value. Our decrease in comparable transaction count was more pronounced in our DIY customers in part due to the prolonged rainy weather experienced throughout many of our Eastern markets. For the
twelve
weeks ended
July 13, 2013
, AI produced net sales of
$82.4 million
, an increase of
$9.4 million
, or
12.9%
, as compared to net sales for the
twelve
weeks ended
July 14, 2012
.
22
|
|
Twelve Weeks Ended
|
||||||||||||||||
|
|
July 13, 2013
|
July 14, 2012
|
|||||||||||||||
|
|
AAP
|
AI
|
Total
|
AAP
|
AI
|
Total
|
|||||||||||
|
Comparable store sales %
|
(0.4
|
%)
|
2.6
|
%
|
(0.3
|
%)
|
(2.8
|
%)
|
(1.4
|
)%
|
(2.7
|
)%
|
|||||
|
Net stores opened in last twelve months
|
151
|
|
24
|
|
175
|
|
65
|
|
—
|
|
65
|
|
|||||
|
Current number of BWP stores
|
123
|
|
—
|
|
123
|
|
—
|
|
—
|
|
—
|
|
|||||
Net sales for the
twenty-eight
weeks ended
July 13, 2013
were
$3,564.9 million
, an increase of
$146.6 million
, or
4.3%
, as compared to net sales for the
twenty-eight
weeks ended
July 14, 2012
. The sales increase was primarily due to sales from the acquired BWP stores and sales from the new AAP and AI stores opened during the last twelve months partially offset by a
2.0%
decrease in comparable store sales.
For the
twenty-eight
weeks ended
July 13, 2013
, AAP produced net sales of
$3,388.6 million
, an increase of
$128.7 million
, or
3.9%
, as compared to net sales for the
twenty-eight
weeks ended
July 14, 2012
. This growth was primarily a result of sales from the
123
acquired BWP stores and sales from the net addition of
151
new stores over the past year partially offset by a comparable store sales decrease of
2.1%
. The comparable store sales decrease was driven by a decrease in transaction count partially offset by an increase in transaction value, which was primarily due to price optimization and increase in mix of higher priced products sold. For the
twenty-eight
weeks ended
July 13, 2013
, AI produced net sales of
$184.7 million
, an increase of
$18.1 million
, or
10.8%
, as compared to net sales for the
twenty-eight
weeks ended
July 14, 2012
.
|
|
Twenty-Eight Weeks Ended
|
||||||||||||||||
|
|
July 13, 2013
|
July 14, 2012
|
|||||||||||||||
|
|
AAP
|
AI
|
Total
|
AAP
|
AI
|
Total
|
|||||||||||
|
Comparable store sales %
|
(2.1
|
%)
|
(0.1
|
%)
|
(2.0
|
%)
|
(0.1
|
%)
|
2.7
|
%
|
0.0
|
%
|
|||||
|
Net stores opened in last twelve months
|
151
|
|
24
|
|
175
|
|
65
|
|
—
|
|
65
|
|
|||||
|
Current number of BWP stores
|
123
|
|
—
|
|
123
|
|
—
|
|
—
|
|
—
|
|
|||||
Gross Profit
Gross profit for the
twelve
weeks ended
July 13, 2013
was
$779.2 million
, or
50.3%
of net sales, as compared to
$728.9 million
, or
49.9%
of net sales, for the comparable period of last year, representing an increase of
40
basis points. The
40
basis-point increase in gross profit rate was driven by increased merchandise margins due to lower acquisition costs and a favorable product mix partially offset by planned inefficiencies in supply chain costs associated with the ramp-up in shipments of inventory from our new distribution center and the impact from a higher mix of Commercial sales which have a lower gross profit rate. The increase in our Commercial mix of sales was primarily due to the sales from the acquired BWP stores.
Gross profit for the
twenty-eight
weeks ended
July 13, 2013
was
$1,787.4 million
, or
50.1%
of net sales, as compared to
$1,709.5 million
, or
50.0%
of net sales, for the comparable period of last year, representing an increase of
13
basis points. The
13
basis-point increase in gross profit rate was driven by increased merchandise margins, due to lower acquisition costs and a favorable product mix, and improvement in shrink partially offset by planned inefficiencies in supply chain costs associated with the ramp-up in shipments of inventory from our new distribution center and the impact from a higher mix of Commercial sales which have a lower gross profit rate. The increase in our Commercial mix of sales was primarily due to the sales from the acquired BWP stores.
SG&A
SG&A expenses for the
twelve
weeks ended
July 13, 2013
were
$584.5 million
, or
37.7%
of net sales, as compared to
$559.7 million
, or
38.3%
of net sales, for the comparable period of last year, representing a decrease of
58
basis points. This decrease as a percentage of net sales was primarily due to the timing of last year's Company-wide leadership meeting, lower marketing expense, increased labor productivity and lower credit card fees as a result of the insourcing of the Company's commercial credit program. These were partially offset by higher incentive compensation, which was driven by individual store team member performance and operating income growth, and expense deleverage as a result of the 0.3% comparable store sales decline and increased new store openings.
23
SG&A expenses for the
twenty-eight
weeks ended
July 13, 2013
were
$1,388.7 million
, or
39.0%
of net sales, as compared to
$1,315.8 million
, or
38.5%
of net sales, for the comparable period of last year, representing an increase of
46
basis points. This increase as a percentage of net sales was primarily due to expense deleverage as a result of the Company's
2.0%
comparable store sales decline and increased new store openings, partially offset by lower marketing expense and a decrease in credit card fees as a result of the insourcing of our Commercial credit program in Fiscal 2012.
Operating Income
Operating income for the
twelve
weeks ended
July 13, 2013
was
$194.7 million
, or
12.6%
of net sales, as compared to
$169.2 million
, or
11.6%
of net sales, for the comparable period of last year, representing an increase of
98
basis points. This increase was reflective of a decrease in our SG&A rate coupled with an increase in our gross profit rate.
AAP produced operating income of
$189.2 million
, or
12.9%
of net sales, for the
twelve
weeks ended
July 13, 2013
as compared to
$164.7 million
, or
11.8%
of net sales, for the comparable period of last year. This increase on a rate basis was due to the gross profit and SG&A drivers previously discussed. AI generated operating income for the
twelve
weeks ended
July 13, 2013
of
$5.5 million
as compared to
$4.5 million
for the comparable period of last year. AI’s operating income increased during the
second
quarter primarily due to increased sales from new store openings coupled with an increase in gross profit rate, driven mainly by supply chain efficiencies, and improvements in store labor, as a percentage of sales, partially offset by the deleverage of fixed expenses related primarily to the new store openings.
Operating income for the
twenty-eight
weeks ended
July 13, 2013
was
$398.8 million
, or
11.2%
of net sales, as compared to
$393.8 million
, or
11.5%
of net sales, for the comparable period of last year, representing a decrease of
33
basis points. This decrease was reflective of an increase in our SG&A rate partially offset by a slight increase in our gross profit rate.
AAP produced operating income of
$391.0 million
, or
11.5%
of net sales, for the
twenty-eight
weeks ended
July 13, 2013
as compared to
$385.4 million
, or
11.8%
of net sales, for the comparable period of last year. This decrease on a rate basis was due to the gross profit and SG&A drivers previously discussed. AI generated operating income for the
twenty-eight
weeks ended
July 13, 2013
of
$7.8 million
as compared to
$8.4 million
for the comparable period of last year. AI’s operating income decreased during the
twenty-eight
weeks ended
July 13, 2013
primarily due to a lower gross profit rate earlier in the year, driven mainly by increased promotional activity and an increased percentage of newer stores outside of the Northeastern market which operate at a lower gross profit rate, and deleverage of fixed expenses as a result of new store openings, partially offset by improvements in store labor, as a percentage of sales, and lower incentive compensation driven by the lower comparable store sale growth.
Interest Expense
Interest expense for the
twelve
weeks ended
July 13, 2013
was
$8.0 million
, or
0.5%
of net sales, as compared to
$7.9 million
, or
0.5%
of net sales, for the comparable period in Fiscal
2012
.
Interest expense for the
twenty-eight
weeks ended
July 13, 2013
was
$18.7 million
, or
0.5%
of net sales, as compared to
$17.8 million
, or
0.5%
of net sales, for the comparable period in Fiscal
2012
.
Income Taxes
Income tax expense for the
twelve
weeks ended
July 13, 2013
was
$70.2 million
, as compared to
$61.6 million
for the comparable period of Fiscal
2012
. Our effective income tax rate was
37.5%
and
38.2%
for the
twelve
weeks ended
July 13, 2013
and
July 14, 2012
, respectively.
Income tax expense for the
twenty-eight
weeks ended
July 13, 2013
was
$142.7 million
, as compared to
$143.3 million
for the comparable period of Fiscal
2012
. Our effective income tax rate was
37.4%
and
38.1%
for the
twenty-eight
weeks ended
July 13, 2013
and
July 14, 2012
, respectively.
Net Income
Net income for the
twelve
weeks ended
July 13, 2013
was
$116.9 million
, or
$1.59
per diluted share, as compared to
$99.6 million
, or
$1.34
per diluted share, for the comparable period of Fiscal
2012
. As a percentage of net sales, net income for the
twelve
weeks ended
July 13, 2013
was
7.5%
, as compared to
6.8%
for the comparable period of Fiscal
2012
. The increase in diluted EPS was driven primarily by the increase in net income.
24
Net income for the
twenty-eight
weeks ended
July 13, 2013
was
$238.7 million
, or
$3.23
per diluted share, as compared to
$233.1 million
, or
$3.14
per diluted share, for the comparable period of Fiscal
2012
. As a percentage of net sales, net income for the
twenty-eight
weeks ended
July 13, 2013
was
6.7%
, as compared to
6.8%
for the comparable period of Fiscal
2012
. The increase in diluted EPS was driven primarily by the increase in net income.
Liquidity and Capital Resources
Overview
Our primary cash requirements to maintain our current operations include payroll and benefits, the purchase of inventory, contractual obligations, capital expenditures and the payment of income taxes. In addition, we have used available funds for acquisitions, to repay borrowings under our revolving credit facility, to periodically repurchase shares of our common stock under our stock repurchase program and for the payment of quarterly cash dividends. We have funded these requirements primarily through cash generated from operations, supplemented by borrowings under our credit facilities and notes offerings as needed. We believe funds generated from our expected results of operations, available cash and cash equivalents, and available borrowings under our revolving credit facility will be sufficient to fund our primary obligations for the next fiscal year.
At
July 13, 2013
, our cash and cash equivalents balance was
$521.0 million
, a decrease of
$77.1 million
compared to
December 29, 2012
(the end of Fiscal
2012
). This decrease in cash during the
twenty-eight
weeks ended
July 13, 2013
was primarily a result of cash used in the acquisition of BWP, investment in property and equipment and repurchases of common stock partially offset by cash generated from operations. Additional discussion of our cash flow results, including the comparison of the activity for the
twenty-eight
weeks ended
July 13, 2013
to the comparable period of Fiscal
2012
, is set forth in the
Analysis of Cash Flows
section.
At
July 13, 2013
, our outstanding indebtedness was
$605.0 million
, or
$0.1 million
lower when compared to
December 29, 2012
, and consisted of borrowings of
$599.0 million
under our senior unsecured notes and
$6.0 million
outstanding on economic development notes. Additionally, we had
$87.7 million
in letters of credit outstanding, which reduced our total availability under the revolving credit facility to
$662.3 million
.
Capital Expenditures
Our primary capital requirements have been the funding of our continued new store openings, maintenance of existing stores, the construction and upgrading of distribution centers, and the development of both proprietary and purchased information systems. Our capital expenditures were
$111.9 million
for the
twenty-eight
weeks ended
July 13, 2013
, or
$34.4 million
less than the
twenty-eight
weeks ended
July 14, 2012
.
Our future capital requirements will depend in large part on the number of and timing for new stores we open within a given year and the investments we make in our existing stores, information technology and our supply chain network. In
Fiscal 2013
, we anticipate that our capital expenditures will be approximately
$250.0 million to $275.0 million
. These investments will be primarily driven by new store development (leased and owned locations), investments in our existing stores and investments under our Superior Availability and Service Leadership strategies, including supply chain and new systems. During the
twenty-eight
weeks ended
July 13, 2013
, we opened
70
AAP stores and
12
AI stores compared to
29
AAP and
6
AI stores during the comparable period of last year. We remain on pace to open
155 to 165
AAP stores (excluding the
124
BWP stores acquired on December 31, 2012) and
10 to 15
AI stores, respectively, during
Fiscal 2013
.
Stock Repurchase Program
Our stock repurchase 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 SEC. Our
$500 million
stock repurchase program in place as of
July 13, 2013
was authorized by our Board of Directors on May 14, 2012.
During the
twelve
weeks ended
July 13, 2013
, we repurchased
0.2 million
shares of our common stock at an aggregate cost of
$15.7 million
, or an average price of
$79.97
per share. Additionally, we repurchased
2,000
shares of our common stock at an aggregate cost of
$0.2 million
, or an average price of
$83.86
per share, in connection with the net settlement of shares issued as a result of the vesting of restricted stock during the
twelve
weeks ended
July 13, 2013
. During the
twenty-eight
weeks ended
July 13, 2013
, we repurchased
1.0 million
shares of our common stock at an aggregate cost of
$74.5 million
, or an average price of
$77.38
per share. At
July 13, 2013
, we had
$417.9 million
remaining under our
$500 million
stock repurchase program authorized by our Board of Directors on May 14, 2012. Additionally, we repurchased
16,000
shares of our common stock at an
25
aggregate cost of
$1.3 million
, or an average price of
$77.60
per share, in connection with the net settlement of shares issued as a result of the vesting of restricted stock during the
twenty-eight
weeks ended
July 13, 2013
.
Dividend
Since Fiscal 2006, our Board of Directors has declared quarterly dividends of
$0.06
per share to stockholders of record. On
August 6, 2013
, our Board of Directors declared a quarterly dividend of
$0.06
per share to be paid on
October 4, 2013
to all common stockholders of record as of
September 20, 2013
.
Analysis of Cash Flows
A summary and analysis of our cash flows for the
twenty-eight
week period ended
July 13, 2013
as compared to the
twenty-eight
week period ended
July 14, 2012
is included below.
|
|
Twenty-Eight Week Periods Ended
|
||||||
|
|
July 13, 2013
|
July 14, 2012
|
|||||
|
|
(in millions)
|
||||||
|
Cash flows from operating activities
|
$
|
310.1
|
|
$
|
411.4
|
|
|
|
Cash flows from investing activities
|
(282.2
|
)
|
(146.0
|
)
|
|||
|
Cash flows from financing activities
|
(105.1
|
)
|
125.3
|
|
|||
|
Net (decrease) increase in cash and cash equivalents
|
$
|
(77.1
|
)
|
$
|
390.7
|
|
|
Operating Activities
For the
twenty-eight
weeks ended
July 13, 2013
, net cash provided by operating activities decreased
$101.3 million
to
$310.1 million
. This net decrease in operating cash flow was primarily driven by:
|
•
|
a $103.8 million decrease in accounts payable primarily due to the timing of payments to vendors; and
|
|
•
|
a $13.9 million increase in receivables resulting from the seasonal increase in Commercial credit sales.
|
Partially offsetting these decreases in operating cash flow was an increase in accrued liabilities of $18.6 million primarily related to the favorable timing of payment of certain operating expenses.
Investing Activities
For the
twenty-eight
weeks ended
July 13, 2013
, net cash used in investing activities increased
$136.2 million
to
$282.2 million
. The increase in cash used in investing activities was primarily driven by cash used in the acquisition of BWP partially offset by a reduction in investments in property and equipment as a result of less spending on existing stores, information technology and investments in supply chain.
Financing Activities
For the
twenty-eight
weeks ended
July 13, 2013
, net cash used in financing activities was
$105.1 million
, as compared to net cash provided by financing activities of
$125.3 million
, a decrease of
$230.4 million
. This was primarily as a result of $299.9 million provided by the issuance of senior unsecured notes in Fiscal 2012 and a $50.7 million increase in the repurchase of common stock under our stock repurchase program, partially offset by a $115.0 million decrease in net borrowings on credit facilities in Fiscal 2012.
26
Long-Term Debt
Bank Debt
We have a
$750.0 million
unsecured five-year revolving credit facility with our wholly-owned subsidiary, Advance Stores Company, Incorporated, or Stores, serving as the borrower. The revolving credit facility also provides for the issuance of letters of credit with a sub-limit of
$300.0 million
, and swingline loans in an amount not to exceed
$50.0 million
. We may request, subject to agreement by one or more lenders, that the total revolving commitment be increased by an amount not exceeding
$250.0 million
(up to a total commitment of
$1 billion
) during the term of the revolving credit facility. Voluntary prepayments and voluntary reductions of the revolving balance are permitted in whole or in part, at our option, in minimum principal amounts as specified in the revolving credit facility. The revolving credit facility matures on May 27, 2016.
As of
July 13, 2013
, we had
no
borrowings outstanding under our revolving credit facility, but had letters of credit outstanding of
$87.7 million
, which reduced the availability under the revolving credit facility to
$662.3 million
. The letters of credit generally have a term of one year or less and serve as collateral for our self-insurance policies.
The interest rate on borrowings under the revolving credit facility is based, at our option, on an adjusted LIBOR rate, plus a margin, or an alternate base rate, plus a margin. The current margin is
1.5%
per annum for each of the adjusted LIBOR and alternate base rate borrowings. A facility fee is charged on the total amount of the revolving credit facility, payable in arrears. The current facility fee rate is
0.25%
per annum. Under the terms of the revolving credit facility, the interest rate and facility fee are based on our credit rating.
Our revolving credit facility contains covenants restricting our ability to, among other things: (1) permit the subsidiaries of Advance Stores to create, incur or assume additional debt; (2) incur liens or engage in sale-leaseback transactions; (3) make loans and investments (including acquisitions); (4) guarantee obligations; (5) engage in certain mergers and liquidations; (6) change the nature of our business and the business conducted by our subsidiaries; (7) enter into certain hedging transactions, and (8) change our status as a holding company. We are also required to comply with financial covenants with respect to a maximum leverage ratio and a minimum consolidated coverage ratio. We were in compliance with our covenants in place at
July 13, 2013
and
July 14, 2012
, respectively. Our revolving credit facility also provides for customary events of default, covenant defaults and cross-defaults to other material indebtedness.
Senior Unsecured Notes
Our
5.75%
senior unsecured notes were issued in April 2010 at
99.587%
of the principal amount of
$300.0 million
and are due May 1, 2020 (the "2020 Notes"). The 2020 Notes bear interest at a rate of
5.75%
per year payable semi-annually in arrears on May 1 and November 1 of each year. Our
4.50%
senior unsecured notes were issued in January 2012 at
99.968%
of the principal amount of
$300.0 million
and are due January 15, 2022 (the "2022 Notes" or collectively with 2020 Notes, "the Notes"). The 2022 Notes bear interest at a rate of
4.50%
per year payable semi-annually in arrears on January 15 and July 15 of each year. We served as the issuer of the Notes with certain of our domestic subsidiaries currently serving as subsidiary guarantors. The terms of the Notes are governed by an indenture and supplemental indentures (collectively the “Indenture”) among us, the subsidiary guarantors and Wells Fargo Bank, National Association, as Trustee.
We may redeem some or all of the Notes at any time or from time to time, at the redemption price described in the Indenture. In addition, in the event of a Change of Control Triggering Event (as defined in the Indenture for each of the Notes), we will be required to offer to repurchase the notes at a price equal to
101%
of the principal amount thereof, plus accrued and unpaid interest to the repurchase date. The Notes are currently fully and unconditionally guaranteed, jointly and severally, on an unsubordinated and unsecured basis by each of the subsidiary guarantors. We will be permitted to release guarantees without the consent of holders of the Notes under the circumstances described in the Indenture: (i) upon the release of the guarantee of our other debt that resulted in the affected subsidiary becoming a guarantor of this debt; (ii) upon the sale or other disposition of all or substantially all of the stock or assets of the subsidiary guarantor; or (iii) upon our exercise of its legal or covenant defeasance option.
As of
July 13, 2013
, we had a credit rating from Standard & Poor’s of BBB- and from Moody’s Investor Service of Baa3. The current outlooks by Standard & Poor’s and Moody’s are both stable. The current pricing grid used to determine our borrowing rate under our revolving credit facility is based on our credit ratings. If these credit ratings decline, our interest rate on outstanding balances may increase and our access to additional financing on favorable terms may become more limited. In addition, it could reduce the attractiveness of our vendor payment program, where certain of our vendors finance payment obligations from us with designated third party financial institutions, which could result in increased working capital requirements. Conversely, if these credit ratings improve, our interest rate may decrease.
27
Off-Balance-Sheet Arrangements
As of
July 13, 2013
, we had no off-balance-sheet arrangements as defined in Regulation S-K Item 303 of the SEC regulations. We include other off-balance-sheet arrangements in our contractual obligations table in our
2012
Form 10-K, including operating lease payments, interest payments on our notes and revolving credit facility and letters of credit outstanding.
Contractual Obligations
As of
July 13, 2013
, there were no material changes to our outstanding contractual obligations as compared to our contractual obligations outstanding as of
December 29, 2012
. For information regarding our contractual obligations see “Contractual Obligations” in our
2012
Form 10-K.
Seasonality
Our business is somewhat seasonal in nature, with the highest sales usually occurring in the spring and summer months. In addition, our business can be affected by weather conditions. While unusually heavy precipitation tends to soften sales as elective maintenance is deferred during such periods, extremely hot or cold weather tends to enhance sales by causing automotive parts to fail at an accelerated rate.
New Accounting Pronouncements
For a description of recently announced accounting standards, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated financial statements, see
New Accounting Pronouncements
in Note 1 of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest Rate Risk
Our primary financial market risk is due to changes in interest rates. Historically, we have reduced our exposure to changes in interest rates by entering into various interest rate hedge instruments such as interest rate swap contracts and treasury lock agreements. We have historically utilized interest rate swaps to convert variable rate debt to fixed rate debt and to lock in fixed rates on future debt issuances. Our interest rate hedge instruments have been designated as cash flow hedges. At
July 13, 2013
we had no interest rate swaps or other derivative instruments outstanding.
The interest rate on borrowings under the revolving credit facility is based, at the Company’s option, on an adjusted LIBOR rate, plus a margin, or an alternate base rate, plus a margin. At
July 13, 2013
we had
no
borrowings outstanding under our revolving credit facility. However, if we elect to borrow on our revolving credit facility, we may be exposed to interest rate risk due to changes in LIBOR or an alternate base rate. There is no interest rate risk associated with our 2020 Notes or 2022 Notes, as the interest rates are fixed at
5.75%
and
4.50%
, respectively, per annum.
Credit Risk
Our financial assets that are exposed to credit risk consist primarily of trade accounts receivable and vendor receivables. We are exposed to normal credit risk from Commercial customers. Our concentration of credit risk is limited because our Commercial customer base consists of a large number of customers with relatively small balances, which allows the credit risk to be spread across a broad base. We strive to maintain a close working relationship with our vendors and frequently monitor their financial strength. We have not historically had significant credit losses.
28
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report in accordance with Rule 13a-15(b) under the Exchange Act. Based on this evaluation, our principal executive officer and our principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended
July 13, 2013
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
29
6B
PART II. OTHER INFORMATION
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
The following table sets forth the information with respect to repurchases of our common stock for the quarter ended
July 13, 2013
(amounts in thousands, except per share amounts):
|
Period
|
Total Number
of Shares
Purchased
(1)
|
Average
Price Paid
per Share
(1)
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
(2)
|
Maximum Dollar
Value of Shares that May Yet
Be Purchased
Under the Plans or
Programs
(2)
|
||||||||||
|
April 21, 2013 to May 18, 2013
|
—
|
|
$
|
—
|
|
—
|
|
$
|
433,539
|
|
||||
|
May 19, 2013 to June 15, 2013
|
2
|
|
83.91
|
|
—
|
|
433,539
|
|
||||||
|
June 16, 2013 to July 13, 2013
|
196
|
|
79.97
|
|
196
|
|
417,873
|
|
||||||
|
Total
|
198
|
|
$
|
80.02
|
|
196
|
|
$
|
417,873
|
|
||||
|
(1)
|
We repurchased
2,000
shares of our common stock, at an aggregate cost of
$0.2 million
, or an average purchase price of
$83.86
per share, in connection with the net settlement of shares issued as a result of the vesting of restricted stock during the
twelve
weeks ended
July 13, 2013
.
|
|
(2)
|
Our
$500 million
stock repurchase program was authorized by our Board of Directors and publicly announced on May 14, 2012.
|
30
|
ITEM 6.
|
EXHIBITS
|
|
|
|
Incorporated by Reference
|
Filed
|
|||
|
Exhibit No.
|
Exhibit Description
|
Form
|
Exhibit
|
Filing Date
|
Herewith
|
|
|
3.1
|
Restated Certificate of Incorporation of Advance Auto Parts, Inc. (“Advance Auto”) (as amended effective as of June 7, 2013).
|
10-Q
|
3.1
|
|
X
|
|
|
3.2
|
Amended and Restated Bylaws of Advance Auto (effective June 7, 2013).
|
8-K
|
3.2
|
|
6/13/2013
|
|
|
10.40
|
Third Amendment to Employment Agreement between Advance Auto Parts, Inc. and Michael A. Norona, effective June 4, 2013.
|
8-K
|
10.40
|
|
6/6/2013
|
|
|
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
X
|
|
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
X
|
|
32.1
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
X
|
|
101.INS
|
XBRL Instance Document
|
|
||||
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
||||
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
||||
|
101.LAB
|
XBRL Taxonomy Extension Labels Linkbase Document
|
|
||||
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
||||
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
||||
31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
ADVANCE AUTO PARTS, INC.
|
|
|
August 19, 2013
|
By:
|
/s/ Michael A. Norona
|
|
|
Michael A. Norona
Executive Vice President and Chief Financial Officer
|
|
S-1
EXHIBIT INDEX
|
|
|
Incorporated by Reference
|
Filed
|
|||
|
Exhibit No.
|
Exhibit Description
|
Form
|
Exhibit
|
Filing Date
|
Herewith
|
|
|
3.1
|
Restated Certificate of Incorporation of Advance Auto Parts, Inc. (“Advance Auto”) (as amended effective as of June 7, 2013).
|
10-Q
|
3.1
|
|
X
|
|
|
3.2
|
Amended and Restated Bylaws of Advance Auto (effective June 7, 2013).
|
8-K
|
3.2
|
|
6/13/2013
|
|
|
10.40
|
Third Amendment to Employment Agreement between Advance Auto Parts, Inc. and Michael A. Norona, effective June 4, 2013.
|
8-K
|
10.40
|
|
6/6/2013
|
|
|
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
X
|
|
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
X
|
|
32.1
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
X
|
|
101.INS
|
XBRL Instance Document
|
|
||||
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
||||
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
||||
|
101.LAB
|
XBRL Taxonomy Extension Labels Linkbase Document
|
|
||||
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
||||
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
||||
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Condensed Consolidated Financial Statements OfItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits