UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
(Mark One)
|
x
|
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the fiscal year ended January 2,
2010
OR
|
o
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period from
________ to ________.
Commission file number
001-16797
ADVANCE AUTO PARTS,
INC.
(Exact name of registrant as
specified in its charter)
|
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
54-2049910
(I.R.S.
Employer
Identification No.)
|
|
5008 Airport
Road
Roanoke,
Virginia
(Address
of Principal Executive Offices)
|
24012
(Zip
Code)
|
(540) 362-4911
(Registrant’s
telephone number, including area code)
Securities Registered Pursuant to
Section 12(b) of the Act:
|
Title of each
class
Common Stock
($0.0001 par value)
|
Name of each exchange on which
registered
New York
Stock Exchange
|
Securities Registered Pursuant to
Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes x No
o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
o
Indicate
by check mark 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 Regulation 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 ¨ No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer x | Accelerated filer o | |
| Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
As of
July 17, 2009, the last business day of the registrant’s most recently completed
second fiscal quarter, the aggregate market value of the 95,058,600 shares of
Common Stock held by non-affiliates of the registrant was $4,289,994,618, based
on the last sales price of the Common Stock on July 17, 2009, as reported by the
New York Stock Exchange.
As of
February 26, 2010, the registrant had outstanding 92,261,371 shares of Common
Stock, par value $0.0001 per share (the only class of common equity of the
registrant outstanding).
Documents Incorporated by
Reference:
Portions
of the definitive proxy statement of the registrant to be filed within 120 days
of January 2, 2010, pursuant to Regulation 14A under the Securities Exchange Act
of 1934, for the 2010 Annual Meeting of Stockholders to be held on May 19, 2010,
are incorporated by reference into Part III.
FORWARD-LOOKING
STATEMENTS
Certain
statements in this report are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements are usually identified by the
use of words such as "anticipate," "believe," "could," "estimate," "expect,"
"forecast," "intend," "likely," "may," "plan," "position," "possible,"
"potential," "probable," "project," "projection," "should," "strategy," "will,"
or similar expressions. We intend for any forward-looking
statements to be covered by, and we claim the protection under, the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
These
forward-looking statements are based upon assessments and assumptions of
management in light of historical results and trends, current conditions and
potential future developments that often involve judgment, estimates,
assumptions and projections. Forward-looking statements reflect current views
about our plans, strategies and prospects, which are based on information
currently available.
Although
we believe that our plans, intentions and expectations as reflected in or
suggested by any forward-looking statements are reasonable, we do not guarantee
or give assurance that such plans, intentions or expectations will be
achieved. Actual results may differ materially from our anticipated
results described or implied in our forward-looking statements, and 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 elsewhere in further detail in this report are some
important risks, uncertainties and contingencies which could cause our actual
results, performance or achievements to be materially different from any
forward-looking statements made or implied in this report. These include, but
are not limited to, the following:
|
·
|
deterioration
in general economic conditions, including unemployment, inflation or
deflation, consumer debt levels, high energy and fuel costs, uncertain
credit markets and bankruptcies or other recessionary type conditions that
could have a negative impact on our business, customers and
suppliers;
|
|
·
|
a
decrease in demand for our
products;
|
|
·
|
our
ability to develop and implement business strategies and achieve desired
goals;
|
|
·
|
our
ability to expand our business, including locating available and suitable
real estate for new store locations and the integration of any acquired
businesses;
|
|
·
|
competitive
pricing and other competitive
pressures;
|
|
·
|
our
relationships with our vendors;
|
|
·
|
our
ability to attract and retain qualified employees , or Team
Members;
|
|
·
|
the
occurrence of natural disasters and/or extended periods of unfavorable
weather;
|
|
·
|
our
ability to obtain affordable insurance against the financial impacts of
natural disasters and other losses;
|
|
·
|
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;
|
|
·
|
the
impact of global climate change or legal and regulatory responses to such
change;
|
|
·
|
acts
of terrorism; and
|
|
·
|
other
statements that are not of historical fact made throughout this report,
including the sections entitled “Business,” "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Risk
Factors."
|
We assume
no obligations to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise. In evaluating
forward-looking statements, you should consider these risks and uncertainties,
together with the other risks described from time to time in our other reports
and documents filed with the Securities and Exchange Commission, or SEC, and you
should not place undue reliance on those statements.
Item
1.
Business.
Unless
the context otherwise requires, “Advance,” “we,” “us,” “our,” and similar terms
refer to Advance Auto Parts, Inc., its predecessor, its subsidiaries and their
respective operations. Our fiscal year consists of 52 or 53 weeks ending on the
Saturday closest to December 31st of each year. Fiscal 2008 included 53 weeks of
operations. All other fiscal years presented include 52 weeks of
operations.
Overview
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.
We were
founded in 1929 as Advance Stores Company, Incorporated and operated as a
retailer of general merchandise until the 1980s. During the 1980s, we sharpened
our focus to target sales of automotive parts and accessories to DIY customers.
From the 1980s to the present, we have grown significantly as a result of
comparable store sales growth, new store openings and strategic acquisitions.
Since 1996, we have aggressively expanded our sales to Commercial customers
through our commercial delivery program. Our parent company, Advance Auto Parts,
Inc., a Delaware corporation, was incorporated in 2001 in conjunction with the
acquisition of Discount Auto Parts, Inc., or Discount. At January 2, 2010, our
2009 fiscal year-end, we operated 3,420 total stores.
Our
Internet address is www.AdvanceAutoParts.com.
We make available free of charge through our Internet website our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to the Securities
Exchange Act of 1934 as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC. The SEC maintains a website
that contains reports, proxy statements and other information regarding issuers
that file electronically with the SEC. These materials may be obtained
electronically by accessing the SEC's website at www.sec.gov.
Operating
Segments
We
operate in two reportable segments: Advance Auto Parts, or AAP, and Autopart
International, or AI. The AAP segment is comprised of our store operations
within the United States, Puerto Rico and the Virgin Islands which operate under
the trade names “Advance Auto Parts,” “Advance Discount Auto Parts” and “Western
Auto.” The AI segment consists solely of the operations of Autopart
International, Inc., or Autopart International, which operates as an
independent, wholly-owned subsidiary and primarily serves the Commercial market.
We acquired Autopart International in September 2005.
Financial
information on our segments is included in Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations, of this Annual Report
on Form 10-K. In addition, selected financial data for our segments is
available in Note 21, Segment
and Related Information, of the Notes to Consolidated Financial
Statements, included in Item 15. Exhibits, Financial Statement
Schedules, of this Annual Report on Form 10-K.
AAP
Segment
At
January 2, 2010, we operated 3,264 AAP stores within the United States, Puerto
Rico and the Virgin Islands. We operated 3,238 stores throughout 39 states in
the Northeastern, Southeastern and Midwestern regions of the United States.
These stores operated under the “Advance Auto Parts” trade name except for
certain stores in the state of Florida, which operated under the “Advance
Discount Auto Parts” trade name. These stores offer a broad selection of brand
name and proprietary automotive replacement parts, accessories, batteries and
maintenance items for domestic and imported cars and light trucks. In addition,
we operated 26 stores under the “Western Auto” and “Advance Auto Parts” trade
names, located in Puerto Rico and the Virgin Islands, or Offshore.
We also
provide our customers online shopping at www.AdvanceAutoParts.com
and access to over 100,000 parts and accessories. Our new website was launched
in October 2009 and is operated by our dedicated e-commerce team. Our online
website allows our customers to pick up merchandise at a conveniently located
store or have their purchases shipped directly to their home or
business.
AAP
Stores
Store
Overview. Our stores generally are located in
freestanding buildings in areas with high vehicle traffic counts, good
visibility and easy access to major roadways and to our Commercial customers. We
believe that our stores exhibit a customer-friendly format with the majority of
our stores featuring an updated exterior and interior, bright lighting, and a
well-designed and easily navigated floor plan. The average size of our stores is
7,400 square feet with the size of our typical new stores approximating 6,000 to
7,000 square feet. Our stores generally are open from 7:30 a.m. to 9:00 p.m. six
days a week and 9:00 a.m. to 9:00 p.m. on Sundays and most holidays to meet the
needs of our DIY and Commercial customers. We offer extended hours in a limited
number of our stores, including 24 hours per day in certain stores.
Our
stores carry a standard product offering of approximately 16,000 stock keeping
units, or SKUs. Certain stores carry slightly more SKUs within centralized
market locations where there is demand for a more customized assortment of
merchandise. Additionally, some of our stores carry an additional customized
assortment of 11,000 SKUs for same-day or next-day delivery to other select
stores within the respective service area. We refer to these stores as HUB
stores. The standard SKU offering within each of our stores is replenished from
one of our eight distribution centers once per week on average.
We also
utilize a network of Parts Delivered Quickly, or PDQ®,
facilities and one Master PDQ®
facility to ensure our stores have the right product at the right time to meet
our customers’ needs. Our PDQ® and
Master PDQ®
network of facilities provide our customers with an additional assortment of
approximately 87,000 less common SKUs on a same-day or overnight basis. Lastly,
our customers have access to over 340,000 SKUs by ordering directly from one of
our vendors for delivery to a particular store or other destination as chosen by
the customer.
Store
Team Members utilize our proprietary point-of-sale, or POS, system, including a
fully integrated electronic parts catalog to identify and suggest the
appropriate quality and price options for the SKUs we carry, as well as the
related products, tools or additional information that is required by our
customers to complete their automotive repair projects properly and
safely. We strive to be the leader in the automotive aftermarket
industry in serving our customers by providing quality products at the right
price and backed by a solid warranty and outstanding customer service. We offer
many of the products in our stores at a good, better or best recommendation
differentiated by price and quality.
The
primary categories of product we offer in our stores include:
|
·
|
Parts, including
alternators, batteries, chassis parts, clutches, engines and engine parts,
radiators, starters, transmissions and water
pumps;
|
|
·
|
Accessories, including
floor mats, mirrors, vent shades, MP3 and cell phone accessories, and seat
and steering wheel covers;
|
|
·
|
Chemicals, including
antifreeze, freon, fuel additives and car washes and
waxes;
|
|
·
|
Oil and other automotive
petroleum products; and
|
|
·
|
Other
miscellaneous offerings.
|
The product in our stores is generally
arranged in a uniform and consistent manner based on standard store formats and
merchandise presentation. The parts inventory is generally located on
shelves behind the customer service counter with the remaining product, or front
room merchandise, arranged on the sales floor to provide easy customer access,
maximum selling space and to prominently display high-turnover products and
accessories to customers. We utilize aisle displays to feature high-demand or
seasonal merchandise, new items and advertised specials, including bilingual
signage based on the demographics in each store’s geographic area.
We also
provide a variety of services free of charge to our customers
including:
|
·
|
Battery
& wiper installation
|
|
·
|
Battery
charging
|
|
·
|
Check
engine light reading where allowed by
law
|
|
·
|
Electrical
system testing, including batteries, starters, alternators and
sensors
|
|
·
|
“How-To”
Video Clinics & Project
Brochures
|
|
·
|
Oil
and battery recycling
|
Our
stores are 100% company operated and are divided into three geographic areas.
Each geographic area is managed by a senior vice president, who is supported by
regional and district management. District managers have direct responsibility
for store operations in a specific district, which typically consists on average
of 15 stores. Depending on store size and sales volume, each store is staffed by
8 to 16 Team Members, under the leadership of a general manager. Store Team
Members are comprised of full and part-time Team Members. Each store include a
parts professional, or parts pro, who has an extensive technical knowledge of
automotive replacement parts and other related applications to better
serve our commercial and DIY customers. Many of our stores include bilingual
Team Members to better serve our diverse customer base. We offer training to all
of our Team Members which includes formal classroom workshops, online seminars
and certification by the National Institute for Automotive Service Excellence,
or ASE. ASE is broadly recognized for training certification in the automotive
industry.
Commercial
Sales. Our
commercial sales consist of sales to both our walk-in and delivery Commercial
customers, which represented approximately 29% of our AAP sales in Fiscal 2009.
Since 1996, we have aggressively expanded our sales to Commercial customers
through our Commercial delivery program. For delivered sales, we utilize our
Commercial delivery fleet to deliver product from our store locations to our
Commercial customers’ place of business, including independent garages, service
stations and auto dealers. Our stores are supported by a Commercial sales team
who are dedicated to the development of our national, regional and local
Commercial customers.
Under our
Commercial Acceleration strategy, we are focused on increasing our Commercial
sales at a faster rate in light of the favorable market
dynamics. During 2009, we increased the size of our sales force by
approximately 45% for a greater emphasis on acquiring new Commercial customers
and increasing our share of existing commercial customers’ purchases. We have
added key product brands in our stores that are well recognized by our
Commercial customers, as well as increased the parts knowledge of our store Team
Members. We believe these initiatives will enable us to gain more Commercial
customers as well as increase our sales from existing customers who will use us
as their “first call” supplier. At January 2, 2010, 2,868 AAP stores, or 88% of
total AAP stores, had Commercial delivery programs, which was up slightly from
85% at January 3, 2009.
Store
Development. Our store development
program has historically focused on adding new stores within existing markets
where we can achieve a larger presence, remodeling or relocating existing stores
and entering new markets. The addition of new stores, along with strategic
acquisitions, has played a significant role in our growth and success. We
believe the opening of new stores, and their strategic location in relation to
our DIY and Commercial customers, will continue to play a significant role in
our future growth and success.
We open
and operate stores profitably in both large, densely populated markets and
small, less densely populated areas that would not otherwise support a national
chain selling primarily to the retail automotive aftermarket. We complete
substantial research prior to entering a new market. Key factors in selecting
new site and market locations include population, demographics, vehicle profile,
number and strength of competitors’ stores and the cost of real
estate.
Our 3,264
AAP stores were located in the following states and territories at January 2,
2010:
|
Location
|
Number
of
Stores
|
Location
|
Number
of
Stores
|
Location
|
Number
of
Stores
|
|||||
|
Alabama
|
119
|
Maryland
|
74
|
Pennsylvania
|
163
|
|||||
|
Arkansas
|
29
|
Massachusetts
|
61
|
Puerto
Rico
|
25
|
|||||
|
Colorado
|
44
|
Michigan
|
95
|
Rhode
Island
|
9
|
|||||
|
Connecticut
|
37
|
Minnesota
|
14
|
South
Carolina
|
126
|
|||||
|
Delaware
|
7
|
Mississippi
|
56
|
South
Dakota
|
7
|
|||||
|
Florida
|
457
|
Missouri
|
43
|
Tennessee
|
139
|
|||||
|
Georgia
|
227
|
Nebraska
|
21
|
Texas
|
168
|
|||||
|
Illinois
|
82
|
New
Hampshire
|
12
|
Vermont
|
7
|
|||||
|
Iowa
|
26
|
New
Mexico
|
1
|
Virgin
Islands
|
1
|
|||||
|
Indiana
|
101
|
New
Jersey
|
55
|
Virginia
|
166
|
|||||
|
Kansas
|
24
|
New
York
|
123
|
West
Virginia
|
66
|
|||||
|
Kentucky
|
94
|
North
Carolina
|
238
|
Wisconsin
|
46
|
|||||
|
Louisiana
|
62
|
Ohio
|
192
|
Wyoming
|
3
|
|||||
|
Maine
|
13
|
Oklahoma
|
31
|
The
following table sets forth information concerning increases in the total number
of our AAP stores during the past five years:
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
Beginning
Stores
|
3,243 | 3,153 | 2,995 | 2,810 | 2,652 | |||||||||||||||
|
New
Stores
(1)
|
75 | 109 | 175 | 190 | 169 | |||||||||||||||
|
Stores
Closed
|
(54 | ) | (19 | ) | (17 | ) | (5 | ) | (11 | ) | ||||||||||
|
Ending
Stores (2)
|
3,264 | 3,243 | 3,153 | 2,995 | 2,810 | |||||||||||||||
|
(1)
|
Does
not include stores that opened as relocations of previously existing
stores within the same general market area or substantial renovations of
stores.
|
|
(2)
|
Includes
2 and 7 stores not operating at December 30, 2006 and December 31, 2005,
respectively, primarily due to hurricane
damage.
|
Store Technology.
Our
store-based information systems, which are designed to improve the efficiency of
our operations and enhance customer service, are comprised of a proprietary POS
system and electronic parts catalog, or EPC, system. Information
maintained by our POS system is used to formulate pricing, marketing and
merchandising strategies and to replenish inventory accurately and rapidly. Our
POS system is fully integrated with our EPC system and enables our store Team
Members to assist our customers in their parts selection and ordering based on
year, make, model and engine type of their vehicles. Our centrally-based EPC
data management system enables us to reduce the time needed to (i) exchange data
with our vendors and (ii) catalog and deliver updated, accurate parts
information.
Our EPC
system also contains enhanced search engines and user-friendly navigation tools
that enhance our Team Members’ ability to look up any needed parts as well as
additional products the customer needs to complete their automotive repair
project. If a hard-to-find part or accessory is not available at one of our
stores, the EPC system can determine whether the part is carried and in-stock
through our PDQÒ
system. Available parts and accessories are then ordered electronically from
another store, PDQÒ
or Master PDQÒ
with immediate confirmation of price, availability and estimated delivery
time.
We also
support our store operations with additional proprietary systems. Our
store-level inventory management system provides real-time inventory tracking at
the store level. With the store-level system, store Team Members can check the
quantity of on-hand inventory for any SKU, adjust stock levels for select items
for store
specific events, automatically
process returns and defective merchandise, designate SKUs for cycle counts and
track merchandise transfers. Our stores use radio frequency hand-held devices to
help ensure the accuracy of our inventory. Our standard operating procedure, or
SOP, system is a web-based, electronic data management system that provides our
Team Members with instant and quick access to any of our standard operating
procedures through a comprehensive on-line search
function. Additionally, we utilize a labor scheduling system known as
management planning and training, or MPT. All of these systems are tightly
integrated and provide real-time, comprehensive information to store personnel,
resulting in improved customer service levels, Team Member productivity and
in-stock availability.
Store
Support Center
Merchandising.
Purchasing
for virtually all of the merchandise for our stores is handled by our
merchandise teams located in three primary locations:
|
·
|
Store
support center in Roanoke,
Virginia,
|
|
·
|
Regional
office in Minneapolis, Minnesota;
and
|
|
·
|
Global
sourcing office in Taipei, Taiwan beginning in
2009.
|
Our
Roanoke team is primarily responsible for the parts categories and our Minnesota
team is primarily responsible for accessories, oil and chemicals. Our global
sourcing team works closely with both teams.
In Fiscal 2009, we purchased
merchandise from approximately 400 vendors, with no single vendor accounting for
more than 9% of purchases. Our purchasing strategy involves negotiating
agreements with most of our vendors to purchase merchandise over a specified
period of time along with other terms, including pricing, payment terms and
volume.
The
merchandising team has developed strong vendor relationships in the industry
and, in a collaborative effort with our vendor partners, utilizes a category
management process. The merchandising team continues to refine its category
management process and has recently implemented the first phase of a category
management system which consists of a multi-phase implementation of an Oracle
system solution. We believe this process, which develops a customer-focused
business plan for each merchandise category, and our global sourcing operation
are critical to improving comparable store sales, gross margin and inventory
turns.
Our
merchandising strategy, which generates DIY customer traffic and also appeals to
Commercial customers, is to carry a broad selection of high quality brand name
automotive parts and accessories such as Bosch®,
Castrol®,
Sylvania®,
Prestone®,
Monroe®,
Wagner®,
Purolator®,
Dayco®, Trico® and
Federal-Mogul Moog®, or
Moog®. In
addition to these branded products, we stock a wide selection of high quality
proprietary products that appeal to value conscious customers. These lines of
merchandise include everything from chemical and wash-and-wax products to tools,
batteries, parts and interior automotive accessories under various private label
names such as Wearever® and
Autocraft®.
Supply
Chain. Our
supply chain consists of centralized inventory management and transportation
functions which support a supply chain network of distribution centers, PDQ®
warehouses and stores. Our inventory management team utilizes a replenishment
system to monitor the distribution center, PDQ®
warehouse and store inventory levels and orders additional product when
appropriate while streamlining handling costs. Our replenishment system utilizes
the most up-to-date information from our POS system as well as inventory
movement forecasting based upon sales history, sales trends by SKU, seasonality
(and weather patterns) and demographic shifts in demand. Our replenishment
system combines these factors with service level goals, vendor lead times and
cost of inventory assumptions to determine the timing and size of purchase
orders. A significant portion of our purchase orders are sent via electronic
data interchange, with the remainder being sent by computer generated e-mail or
facsimile.
Our
transportation team utilizes a transportation management system to efficiently
manage incoming shipments to our distribution centers and from our distribution
centers to our stores. Benefits from this system include (i) reduced vendor to
distribution center freight costs, (ii) visibility of purchase orders and
shipments for the entire
supply chain, (iii) a reduction in
distribution center inventory, or safety stock, due to consistent transit times,
(iv) decreased third party freight and billing service costs, (v) decreased
distribution center to store freight costs and (vi) higher store in-stock
position. We utilize two reputable dedicated carriers to ship product from our
distribution centers to our stores.
We
currently operate eight distribution centers. All of these distribution centers
are equipped with our distribution center management system, or DCMS. Our DCMS
provides real-time inventory tracking through the processes of receiving,
picking, shipping and replenishing inventory at our distribution centers. The
DCMS, integrated with technologically advanced material handling equipment,
significantly reduces warehouse and distribution costs, while improving
efficiency. This equipment includes carousels, “pick-to-light” systems, radio
frequency technology, voice technology and automated sorting systems. Through
the continued implementation of our supply chain initiatives such as engineered
standards in our distribution centers, we expect to further increase the
efficient utilization of our distribution capacity. We believe our current
supply chain network, including a new distribution projected to open in Indiana
in 2011, provides ample capacity for our projected growth in the foreseeable
future.
We
currently offer approximately 56,000 SKUs to support all of our retail stores
via our 20 stand-alone PDQ®
warehouses and/or our eight distribution centers (all of which stock PDQ®
items). Stores have system visibility to inventory in their respective PDQÒ
warehouses and distribution centers and can place orders to these facilities, or
as an alternative, through an online ordering system to virtually any of the
other facilities. Ordered parts are delivered to substantially all stores on a
same day or next day basis through our dedicated PDQ®
trucking fleet and third party carriers. Store inventories are replenished from
our eight distribution centers. In addition, we operate a Master PDQ®
warehouse that stocks approximately 31,000 incremental SKUs of harder-to-find
automotive parts and accessories and utilizes our existing PDQ®
distribution infrastructure and/or third party arrangements to provide next day
service to substantially all of our stores.
Marketing &
Advertising. We have an extensive
marketing and advertising program designed to communicate our ability to meet
consumers’ needs through our merchandise offerings, parts assortment and
availability, competitive prices, free services and commitment to customer
service. Our marketing and advertising program is focused on establishing
Advance Auto Parts as the primary resource for a customer's automotive needs. We
reinforce our brand image through a mix of media that includes television,
radio, promotional signage, outdoor media, print, on-line advertising and our
Internet site.
Our
marketing and advertising plan is a brand-building program primarily built
around television, direct marketing, radio advertising, and local marketing. The
plan is supported by in-store signage, on-line advertising and print. Our
television advertising is a combination of national and regional media in both
sports and entertainment programming. Radio advertising generally airs during
peak drive times. We use Spanish-language radio and television advertising to
market to our Hispanic customers. Our advertising program is also supported
through a new title sponsorship program for Monster Jam, a live family oriented
motorsports event tour and television show highlighted by the racing and
freestyle competition of monster trucks, and sponsorships of sporting events,
racing teams and other grass-root level events intended to positively impact
individual communities, including Hispanic and other ethnic communities, to
create awareness and drive traffic for our stores. Since 2004, we have used an
integrated consumer education program to build our image as not only the best
source for parts, but also the best resource for vehicle information. Our goal
with our consumer education initiative is to continue our long-term brand
building success, increase customer loyalty and expand our customer
base.
We
continue to support our 2008 branding campaign, “Keep the wheels turning.” This
campaign was developed based on a strategic review of our business as well as
extensive research conducted with our customers and Team Members. We believe
this campaign, which targets core DIY and Commercial customers, differentiates
Advance Auto Parts in our industry by positioning us as (i) the brand that best
understands customers’ needs, (ii) the source for brand name parts and products
and (iii) the resource for expert advice and knowledge to help customers keep
their vehicles running. The campaign includes creative and compelling television
and radio commercials designed to drive sales and build an enduring, positive
image of Advance Auto Parts with our targeted customers.
AI
Segment
AI’s
business primarily serves the Commercial market, with an emphasis on parts for
imported cars, from its store locations located primarily throughout the
Northeast and Mid-Atlantic regions. In addition, its North American Sales
Division serves warehouse distributors and jobbers throughout North America. We
believe AI provides a high level of service to its Commercial customers by
providing quality parts, unsurpassed customer service and efficient parts
delivery. As a result of its extensive sourcing network, AI is able to serve its
customers in search of replacement parts for both domestic and imported cars and
light trucks with a greater focus on imported parts. The vast majority of AI’s
product is sold under its own proprietary brand. The AI stores offer
approximately 18,000 SKUs with access to an additional 17,000 unique SKUs
through its supply chain network.
AI has
significantly increased its store count since our acquisition of AI in September
2005. At January 2, 2010, we operated 156 stores under the “Autopart
International” trade name in the following states:
|
Location
|
Number
of
Stores
|
Location
|
Number
of
Stores
|
Location
|
Number
of
Stores
|
|||||
|
Connecticut
|
17
|
Massachusetts
|
32
|
Pennsylvania
|
20
|
|||||
|
Delaware
|
1
|
New
Hampshire
|
8
|
Rhode
Island
|
4
|
|||||
|
Florida
|
3
|
New
Jersey
|
16
|
Vermont
|
1
|
|||||
|
Maine
|
4
|
New
York
|
25
|
Virginia
|
12
|
|||||
|
Maryland
|
13
|
The
following table sets forth information concerning increases in the total number
of our AI stores:
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
Beginning
Stores
|
125 | 108 | 87 | 62 | - | |||||||||||||||
|
New
Stores
|
32 | 18 | 21 | 25 | 62 | (1) | ||||||||||||||
|
Stores
Closed
|
(1 | ) | (1 | ) | - | - | - | |||||||||||||
|
Ending
Stores
|
156 | 125 | 108 | 87 | 62 | |||||||||||||||
|
(1)
|
Of
the 62 new stores in 2005, 61 stores were acquired in September 2005 as
part of our AI acquisition.
|
Seasonality
Our
business is somewhat seasonal in nature, with the highest sales occurring in the
spring and summer months. In addition, our business can be affected by weather
conditions. While unusually heavy precipitation tends to soften sales as
elective maintenance is deferred during such periods, extremely hot or cold
weather tends to enhance sales by causing automotive parts to fail at an
accelerated rate.
Team
Members
At
February 26, 2010, we employed approximately 29,000 full-time Team Members and
approximately 20,000 part-time Team Members. Our workforce consisted of 90% of
our Team Members employed in store-level operations, 7% employed in distribution
and 3% employed in our corporate offices. We have never experienced any labor
disruption and are not party to any collective bargaining agreements. We believe
that our Team Member relations are good.
Intellectual
Property
We own a
number of trade names and own and have federally registered several service
marks and trademarks, including “Advance Auto Parts,” “Western Auto,” “Parts
America,” “Autopart International” and “PDQ®” for
use in connection with the automotive parts retailing business. In addition, we
own and have registered a number of
trademarks for our proprietary
products. We believe that these trade names, service marks and trademarks are
important to our merchandising strategy. We do not know of any infringing uses
that would materially affect the use of these trade names and marks, and we
actively defend and enforce them.
Competition
We
operate in both the DIY and Commercial markets of the automotive aftermarket
industry. Our primary competitors are (i) both national and regional retail
chains of automotive parts stores, including AutoZone, Inc., O'Reilly
Automotive, Inc. and The Pep Boys–Manny, Moe & Jack, (ii) discount stores
and mass merchandisers that carry automotive products, (iii) wholesalers or
jobber stores, including those associated with national parts distributors or
associations, such as NAPA and Carquest, (iv) independent operators and (v)
automobile dealers that supply parts. We believe that chains of automotive parts
stores that, like us, have multiple locations in one or more markets, have
competitive advantages in customer service, marketing, inventory selection,
purchasing and distribution as compared to independent retailers and jobbers
that are not part of a chain or associated with other retailers or jobbers. The
principal methods of competition in our business include store location, product
offerings, availability, quality, price and customer service.
Environmental
Matters
We are
subject to various federal, state and local laws and governmental regulations
relating to the operation of our business, including those governing recycling
of automotive lead-acid batteries and used automotive oil, and ownership and
operation of real property. We sell consumer products containing hazardous
materials as part of our business. In addition, our customers may bring
automotive lead-acid batteries or used automotive oil onto our properties. We
currently provide collection and recycling programs for used lead-acid batteries
and used oil at substantially all of our stores as a service to our customers.
Pursuant to agreements with third party vendors, lead-acid batteries and used
oil are collected by our Team Members, deposited onto pallets or into vendor
supplied containers and stored by us until collected by the third party vendors
for recycling or proper disposal. The terms of our contracts with third party
vendors provide that they are in compliance with all applicable laws and
regulations. Persons who arrange for the removal, disposal, treatment or other
handling of hazardous or toxic substances may be liable for the costs of removal
or remediation at any affected disposal, treatment or other site affected by
such substances. Based on our experience, we do not believe that there are any
material environmental costs associated with the current business practice of
accepting lead-acid batteries and used oil as these costs are borne by the
respective third parties.
We own
and lease real property. Under various environmental laws and regulations, a
current or previous owner or operator of real property may be liable for the
cost of removal or remediation of hazardous or toxic substances on, under or in
such property. These laws often impose joint and several liability and may be
imposed without regard to whether the owner or operator knew of, or was
responsible for, the release of such hazardous or toxic substances. Other
environmental laws and common law principles also could be used to impose
liability for releases of hazardous materials into the environment or work
place, and third parties may seek recovery from owners or operators of real
properties for personal injury or property damage associated with exposure to
released hazardous substances. From time to time, we receive notices from the
Environmental Protection Agency and state environmental authorities indicating
that there may be contamination on properties we own, lease or operate or may
have owned, leased or operated in the past or on adjacent properties for which
we may be responsible. Compliance with these laws and regulations has
not had a material impact on our operations to date.
Item 1A. Risk Factors.
Our
business is subject to a variety of risks, both known and unknown. Our business,
financial condition, results of operations and cash flows could be negatively
impacted by the following risk factors. These risks are not the only risks that
may impact our business.
Deterioration
in general macro-economic conditions, including unemployment, inflation or
deflation, consumer debt levels, high fuel and energy costs, uncertain credit
markets or other recessionary type conditions could have a negative impact on
our business, financial condition, results of operations and cash
flows.
Deterioration
in general macro-economic conditions impacts us through (i) higher operating
costs from higher energy prices, (ii) potential adverse effects from
deteriorating and uncertain credit markets and (iii) the negative impact on our
suppliers and customers.
Impact
of Credit Market Uncertainty
Our
overall credit rating may be negatively impacted by deteriorating and uncertain
credit markets. The interest rates on our credit facilities are linked directly
to our credit ratings. Accordingly, any negative impact on our credit rating
would likely result in higher interest rates and interest expense we pay on
borrowed funds. Additionally, we may be limited in our ability to borrow
additional funds to finance our operations. It is possible that one or more of
the banks that provides us with financing under our credit facilities may fail
to honor the terms of our existing credit facilities or be financially unable to
provide the unused credit. An inability to obtain sufficient financing at
cost-effective rates could have a materially adverse affect on our business,
financial condition, results of operations and cash flows.
Impact
on our Suppliers
Our
business depends on developing and maintaining close relationships with our
suppliers and on our suppliers' ability or willingness to sell quality products
to us at favorable prices and terms. Many factors outside of our control may
harm these relationships and the ability or willingness of these suppliers to
sell us products on favorable terms. One such factor is a general
decline in the economy and economic conditions and prolonged recessionary
conditions. These events could negatively affect our suppliers’
operations and make it difficult for them to obtain the credit lines or loans
necessary to finance their operations in the short-term or long-term and meet
our product requirements. Financial or operational difficulties that
some of our suppliers may face could also increase the cost of the products we
purchase from them or our ability to source product from them. We might not be
able to pass our increased costs onto our customers. In addition, the trend
towards consolidation among automotive parts suppliers as well as the
off-shoring of manufacturing capacity to foreign countries may disrupt or end
our relationship with some suppliers, and could lead to less competition and
result in higher prices. We could also be negatively impacted by
suppliers who might experience bankruptcies, work stoppages, labor strikes or
other interruptions to or difficulties in the manufacture or supply of the
products we purchase from them.
Impact
on our Customers
Deterioration
in macro-economic conditions may have a negative impact on our customers’ net
worth, financial resources and disposable income. This impact could reduce their
willingness or ability to pay for accessories, maintenance or repair of their
vehicles, which results in lower sales in our stores. Higher fuel costs may also
reduce the overall number of miles driven by our customers resulting in less
parts failures and elective maintenance required to be completed.
If
overall demand for products sold by our stores slows or declines, our business,
financial condition, results of operations and cash flows will
suffer. Decreased demand could also negatively impact our stock
price.
Overall
demand for products sold by our stores depends on many factors and may slow or
decrease due to any number of reasons, including:
|
·
|
the economy, because
during periods of declining economic conditions, as mentioned above, both
DIY and Commercial customers may defer vehicle maintenance or repair;
conversely, during periods of favorable economic conditions, more of our
DIY customers may pay others to repair and maintain their cars or they may
purchase new cars;
|
|
·
|
changing weather patterns
along with increased frequency or duration of extreme weather
conditions, as elective vehicle maintenance may be deferred during
periods of unfavorable weather;
|
|
·
|
the average duration of
manufacturer warranties and the decrease in the number of annual miles
driven, because newer cars typically require fewer repairs and will
be repaired by the manufacturer’s dealer network using dealer parts; and
lower vehicle mileage decreases the need for maintenance and repair (while
higher miles driven increases the
need);
|
|
·
|
the quality of vehicles
manufactured, because vehicles that have low part failure rates
will require less frequent repairs using aftermarket parts;
and
|
|
·
|
the refusal of vehicle
manufacturers to make available diagnostic, repair and maintenance
information to the automotive aftermarket
industry that our DIY and Commercial customers require to diagnose, repair
and maintain their vehicles, because this may force consumers to
have all diagnostic work, repairs and maintenance performed by the vehicle
manufacturers’ dealer network.
|
If any of
these factors cause overall demand for the products we sell to decline, our
business, financial condition, results of operations and cash flows will
suffer.
If
we are unable to compete successfully against other companies in the automotive
aftermarket industry we may lose customers, our revenues may decline, and we may
be less profitable or potentially unprofitable.
The sale
of automotive parts, accessories and maintenance items is highly competitive in
many ways, including name recognition, location, price, quality, product
availability and customer service. We compete in both the DIY and Commercial
categories of the automotive aftermarket industry, primarily with: (i) national
and regional retail automotive parts chains, (ii) discount stores and mass
merchandisers that carry automotive products, (iii) wholesalers or jobber
stores, (iv) independent operators and (v) automobile dealers that supply parts.
These competitors and the level of competition vary by market. Some of our
competitors may possess advantages over us in certain markets we share,
including a greater amount of marketing activities, a larger number of stores,
store locations, store layouts, longer operating histories, greater name
recognition, larger and more established customer bases, lower prices, and
better product warranties. Our response to these competitive disadvantages may
require us to reduce our prices below our normal selling prices or increase our
promotional spending, which would lower our revenue and profitability.
Competitive disadvantages may also prevent us from introducing new product
lines, require us to discontinue current product offerings, or change some of
our current operating strategies. If we do not have the resources or expertise,
or otherwise fail to develop successful strategies to address these competitive
disadvantages, we may lose customers, our revenues and profit margins may
decline and we may be less profitable or potentially unprofitable.
We depend on the services of many
qualified Team Members, whom we may not be able to attract and
retain.
Our
success depends to a significant extent on the continued services and experience
of our Team Members. At February 26, 2010, we employed approximately 49,000 Team
Members. We may not be able to retain our current qualified Team Members or
attract and retain additional qualified Team Members that may be needed in the
future. Our ability to maintain an adequate number of qualified Team Members is
highly dependent on an attractive and competitive compensation and benefits
package. If we fail or are unable to maintain such a package, our customer
service and execution levels could suffer by reason of a declining quality of
our workforce, which could adversely affect our business, financial condition,
results of operations and cash flows.
We
may not be able to successfully implement our business strategy, including
increasing comparable store sales, enhancing our margins and increasing our
return on invested capital, which could adversely affect our business, financial
condition, results of operations and cash flows.
We have
implemented numerous initiatives as part of our business strategy, including
four key strategies introduced in 2008, to increase comparable store sales,
enhance our margins and increase our return on invested capital in order to
increase our earnings and cash flow. If we are unable to implement these
initiatives efficiently and effectively, or if these initiatives are
unsuccessful, our business, financial condition, results of operations and cash
flows could be adversely affected.
Successful
implementation of our business strategy also depends on factors specific to the
retail automotive parts industry and numerous other factors that may be beyond
our control. In addition to the aforementioned risk factors, adverse changes in
the following factors could undermine our business strategy and have a material
adverse affect on our business, financial condition, results of operations and
cash flow:
|
·
|
the
competitive environment in the automotive aftermarket parts and
accessories retail sector that may force us to reduce prices below our
desired pricing level or increase promotional
spending;
|
|
·
|
our
ability to anticipate changes in consumer preferences and to meet
customers’ needs for automotive products (particularly parts availability)
in a timely manner;
|
|
·
|
our
ability to maintain and eventually grow DIY market share;
and
|
|
·
|
our
ability to continue our Commercial sales growth at a more rapid pace than
DIY and attain a 50/50 DIY and Commercial sales
mix.
|
We
will not be able to expand our business if our growth strategy is not
successful, including the availability of suitable locations for new store
openings or the successful integration of any acquired businesses, which could
adversely affect our business, financial condition, results of operations and
cash flows.
|
|
New Store
Openings
|
We have
increased our store count significantly from 814 stores at the end of Fiscal
1997 to 3,420 stores at January 2, 2010. We intend to continue to increase the
number of our stores and expand the markets we serve as part of our growth
strategy, primarily by opening new stores. We may also grow our business through
strategic acquisitions. We do not know whether the implementation of our growth
strategy will be successful. The actual number of new stores to be opened and
their success will depend on a number of factors, including, among other
things:
· the
availability of potential store locations;
· the
negotiation of acceptable lease or purchase terms for new
locations;
· the
availability of financial resources, including access to capital at
cost-effective interest rates; and
· our
ability to manage the expansion and hire, train and retain qualified sales
associates.
We are
unsure whether we will be able to open and operate new stores on a timely or
sufficiently profitable basis, or that opening new stores in markets we already
serve will not harm existing store profitability or comparable store sales. The
newly opened and existing stores' profitability will depend on the competition
we face as well as our ability to properly merchandise, market and price the
products desired by customers in these markets.
|
|
Acquisitions,
Investments or Strategic Alliances
|
We may
acquire stores or businesses from, make investments in, or enter into strategic
alliances with companies that have stores or distribution networks in our
current markets or in areas into which we intend to expand our presence. Any
future acquisitions, investments, strategic alliances or related efforts will be
accompanied by risks, including but not limited to:
|
·
|
the
difficulty of identifying appropriate strategic partners or acquisition
candidates;
|
|
·
|
securing
adequate financing on cost-effective terms for acquisition or
post-acquisition expenditures;
|
|
·
|
the
potential disruption to our ongoing business and diversion of our
management's attention;
|
|
·
|
the
inability or failure to discover liabilities prior to completion of an
acquisition, including the assumption of legal
liabilities;
|
|
·
|
the
difficulty of assimilating and integrating the operations of the
respective entities to realize anticipated economic, operational or other
favorable benefits;
|
|
·
|
the
inability to maintain uniform standards, controls, procedures and
policies;
|
|
·
|
the
inability or failure to retain key personnel from the acquired business;
and
|
|
·
|
the
impairment of relationships with Team Members and customers as a result of
changes in management.
|
We are
unsure whether we will be successful in overcoming these risks or any other
problems encountered with any acquisitions, investments, strategic alliances or
related efforts. If we fail to successfully open and operate new stores or make
strategic acquisitions or alliances, then our business, financial condition,
results of operations and cash flows may be negatively impacted.
Because
we are involved in litigation from time to time, and are subject to numerous
laws and governmental regulations, we could incur substantial judgments, fines,
legal fees and other costs.
We are
sometimes the subject of complaints or litigation from customers, employees or
other third parties for various actions. From time to time, we are involved in
litigation involving claims related to, among other things, breach of contract,
tortious conduct, employment discrimination, payment of wages, asbestos
exposure, real estate, and product defects. The damages sought against us in
some of these litigation proceedings are substantial. Although we maintain
liability insurance for some litigation claims, if one or more of the claims
were to greatly exceed our insurance coverage limits or if our insurance
policies do not cover a claim, this could have a material adverse affect on our
business, financial condition, results of operations and cash
flows.
Additionally,
we are subject to numerous federal, state and local laws and governmental
regulations relating to environmental protection, product quality standards,
building and zoning requirements, as well as employment law matters. If we fail
to comply with existing or future laws or regulations, we may be subject to
governmental or judicial fines or sanctions, while incurring substantial legal
fees and costs. In addition, our capital expenses could increase due to
remediation measures that may be required if we are found to be noncompliant
with any existing or future laws or regulations.
We
may be affected by global climate change or by legal, regulatory, or market
responses to such change.
The
growing political and scientific sentiment is that global weather patterns are
being influenced by increased levels of greenhouse gases in the earth’s
atmosphere. This growing sentiment and the concern over climate change have led
to legislative and regulatory initiatives aimed at reducing greenhouse gas
emissions. For example, proposals that would impose mandatory requirements on
greenhouse gas emissions continue to be considered by policy makers in the
United States. Laws enacted that directly or indirectly affect our suppliers
(through an increase in the cost of production or their ability to produce
satisfactory products) or our business (through an impact on our inventory
availability, cost of sales, operations or demand for the products we sell)
could adversely affect our business, financial condition, results of operations
and cash flows. Significant increases in fuel economy requirements or
new federal or state restrictions on emissions of carbon dioxide that may be
imposed on vehicles and automobile fuels could adversely affect demand for
vehicles, annual miles driven or the products we sell or lead to changes in
automotive technology. Compliance with any new or more stringent laws
or regulations, or stricter interpretations of existing laws, could require
additional expenditures by us or our suppliers. Our inability to respond to
changes in automotive technology could adversely impact the demand for our
products and our business, financial condition, results of operations or cash
flows.
War
or acts of terrorism, or the threat of either, may negatively impact the
availability and cost of merchandise and our customers and adversely impact our
sales and profitability.
War or
acts of terrorism, or the threat of either, may have a negative impact on our
ability to obtain merchandise available for sale in our stores. Some of our
merchandise is imported from other countries. If imported goods become difficult
or impossible to import into the United States, and if we cannot obtain such
merchandise from other sources at similar costs, our sales and profit margins
may be negatively affected.
In the
event that commercial transportation is curtailed or substantially delayed, our
business may be adversely impacted, as we may have difficulty shipping
merchandise to our distribution centers and stores.
Furthermore,
terrorist attacks, war in the Middle East, or war within or between any oil
producing country
would likely result in an abrupt increase in the price of crude oil, gasoline, diesel fuel and energy costs. Such price increases would increase the cost of doing business for us and our suppliers, and also would negatively impact our customers' disposable income and have an adverse impact on our business, sales, profit margins and results of operations.
Item 1B. Unresolved Staff Comments.
None.
Item 2.
Properties.
The
following table sets forth certain information relating to our distribution and
other principal facilities:
|
Facility
|
Opening
Date
|
Area
Served
|
Size
(Sq.
ft.)(1)
|
Nature
of
Occupancy
|
|||||
|
Main
Distribution Centers:
|
|||||||||
|
Roanoke,
Virginia
|
|
1988
|
Mid-Atlantic
|
433,681
|
Leased
|
||||
|
Lehigh,
Pennsylvania
|
|
2004
|
Northeast
|
655,991
|
Owned
|
||||
|
Lakeland,
Florida
|
|
1982
|
Southeast,
Offshore
|
552,796
|
Owned
|
||||
|
Gastonia,
North Carolina
|
|
1969
|
South
|
634,472
|
Owned
|
||||
|
Gallman,
Mississippi
|
|
2001
|
West,
Midwest
|
388,168
|
Owned
|
||||
|
Salina,
Kansas
|
|
1971
|
Southwest,
Midwest
|
413,500
|
Owned
|
||||
|
Delaware,
Ohio
|
|
1972
|
North
and South Carolina
|
480,100
|
Owned
|
||||
|
Thomson,
Georgia
|
|
1999
|
Southeast
|
374,400
|
Owned
|
||||
|
Master
PDQ® Warehouse:
|
|||||||||
|
Andersonville,
Tennessee
|
|
1998
|
All
|
113,300
|
Leased
|
||||
|
PDQ®
Warehouses:
|
|||||||||
|
Youngwood,
Pennsylvania
|
|
1999
|
East
|
48,320
|
Leased
|
||||
|
Riverside,
Missouri
|
|
1999
|
West
|
43,912
|
Leased
|
||||
|
Temple,
Texas
|
|
1999
|
Southwest
|
61,343
|
Leased
|
||||
|
Altamonte
Springs, Florida
|
|
1996
|
Central
and Northeast Florida
|
10,000
|
Owned
|
||||
|
Jacksonville,
Florida
|
|
1997
|
Southeastern
Georgia
|
12,712
|
Owned
|
||||
|
Tampa,
Florida
|
|
1997
|
West
Central Florida
|
10,000
|
Owned
|
||||
|
Hialeah,
Florida
|
|
1997
|
South
Florida
|
12,500
|
Owned
|
||||
|
West
Palm Beach, Florida
|
|
1998
|
Southeast
Florida, South Alabama
|
13,300
|
Leased
|
||||
|
and
Southeastern Mississippi
|
|||||||||
|
Mobile,
Alabama
|
|
1998
|
Florida
Panhandle
|
10,000
|
Owned
|
||||
|
Atlanta,
Georgia
|
|
1999
|
Georgia
|
16,786
|
Leased
|
||||
|
Tallahassee,
Florida
|
|
1999
|
Northwest
Florida
|
10,000
|
Owned
|
||||
|
Fort
Myers, Florida
|
|
1999
|
Southwest
Florida
|
14,330
|
Owned
|
||||
|
Brooklyn
Heights, Ohio
|
2008
|
Cleveland,
Ohio
|
22,000
|
Leased
|
|||||
|
Chicago,
Illinois
|
2009
|
Mid-West
|
42,600
|
Leased
|
|||||
|
Rochester,
New York
|
2009
|
Northeast
|
38,000
|
Leased
|
|||||
|
Leicester,
Massachussetts
|
2009
|
Northeast
|
34,200
|
Leased
|
|||||
|
Washington,
DC
|
2009
|
East
|
33,124
|
Leased
|
|||||
|
Houston,
Texas
|
2009
|
Southwest
|
36,340
|
Leased
|
|||||
|
Denver,
Colorado
|
2009
|
West
|
25,400
|
Leased
|
|||||
|
West
Deptford, New Jersey
|
2009
|
East
|
33,029
|
Leased
|
|||||
|
Corporate/Administrative
Offices:
|
|||||||||
|
Roanoke,
Virginia
|
|
1995
|
All
|
49,000
|
Leased
|
||||
|
Roanoke,
Virginia
|
|
2002
|
All
|
202,293
|
Leased
|
||||
|
Minneapolis,
Minnesota
|
2008
|
All
|
51,674
|
Leased
|
|||||
|
AI
Properties:
|
|||||||||
|
Norton,
Massachusetts
|
2006
|
AI
corporate office
|
30,000
|
Leased
|
|||||
|
Norton,
Massachusetts
|
|
2006
|
Primarily
Northeast and
|
317,500
|
Leased
|
||||
|
Mid-Atlantic
|
|||||||||
|
(1)
|
Square
footage amounts exclude adjacent office
space.
|
At
January 2, 2010, we owned 666 of our stores and leased 2,754 stores. The
expiration dates, including the exercise of renewal options, of the store leases
are summarized as follows:
|
Years
|
AAP
Stores
|
AI
Stores
|
Total
|
|||
|
2009-2010
|
22
|
6
|
28
|
|||
|
2011-2015
|
251
|
67
|
318
|
|||
|
2016-2020
|
626
|
44
|
670
|
|||
|
2021-2030
|
739
|
39
|
778
|
|||
|
2031-2040
|
836
|
-
|
836
|
|||
|
2041-2057
|
124
|
-
|
124
|
|||
|
2,598
|
156
|
2,754
|
Item 3.
Legal Proceedings.
We
currently and from time to time are involved in litigation incidental to the
conduct of our business, including litigation arising from claims of employment
discrimination or other types of employment matters as a result of claims by
current and former employees. Although we diligently defend against these
claims, we may enter into discussions regarding settlement of these and other
lawsuits, and may enter into settlement agreements, if we believe settlement is
in the best interests of our shareholders. The damages claimed against us in
some of these proceedings are substantial. Although the amount of liability that
may result from these matters cannot be ascertained, we do not currently believe
that, in the aggregate, they will result in liabilities material to our
consolidated financial condition, future results of operations or cash
flow.
Our
Western Auto subsidiary, together with other defendants including automobile
manufacturers, automotive parts manufacturers and other retailers, has been
named as a defendant in lawsuits alleging injury as a result of exposure to
asbestos-containing products. We and some of our other subsidiaries also have
been named as defendants in many of these lawsuits. The plaintiffs have alleged
that these products were manufactured, distributed and/or sold by the various
defendants. To date, these products have included brake and clutch parts and
roofing materials. Many of the cases pending against us or our subsidiaries are
in the early stages of litigation. The damages claimed against the defendants in
some of these proceedings are substantial. Additionally, some of the automotive
parts manufacturers named as defendants in these lawsuits have declared
bankruptcy, which will limit plaintiffs’ ability to recover monetary damages
from those defendants. Although we diligently defend against these claims, we
may enter into discussions regarding settlement of these and other lawsuits, and
may enter into settlement agreements, if we believe settlement is in the best
interests of our shareholders. We also believe that most of these claims are at
least partially covered by insurance. Based on discovery to date, we do not
believe the cases currently pending will have a material adverse effect on us.
However, if we were to incur an adverse verdict in one or more of these claims
and were ordered to pay damages that were not covered by insurance, these claims
could have a material adverse effect on our operating results, financial
position and liquidity. If the number of claims filed against us or any of our
subsidiaries alleging injury as a result of exposure to asbestos-containing
products increases substantially, the costs associated with concluding these
claims, including damages resulting from any adverse verdicts, could have a
material adverse effect on our operating results, financial position and
liquidity in future periods.
Item 4. Reserved.
None.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
|
Our
common stock is listed on the New York Stock Exchange, or NYSE, under the symbol
"AAP." The table below sets forth, for the fiscal periods indicated, the high
and low sale prices per share for our common stock, as reported by the
NYSE.
|
High
|
Low
|
|||||||
|
Fiscal
Year Ended January 2, 2010
|
||||||||
|
Fourth
Quarter
|
$ | 41.77 | $ | 36.11 | ||||
|
Third
Quarter
|
$ | 47.41 | $ | 37.31 | ||||
|
Second
Quarter
|
$ | 45.59 | $ | 40.50 | ||||
|
First
Quarter
|
$ | 44.64 | $ | 29.50 | ||||
|
Fiscal
Year Ended January 3, 2009
|
||||||||
|
Fourth
Quarter
|
$ | 37.37 | $ | 24.17 | ||||
|
Third
Quarter
|
$ | 44.61 | $ | 36.75 | ||||
|
Second
Quarter
|
$ | 41.74 | $ | 33.57 | ||||
|
First
Quarter
|
$ | 37.99 | $ | 31.20 | ||||
The
closing price of our common stock on February 26, 2010 was $40.80. At February
26, 2010, there were 363 holders of record of our common stock (which does not
include the number of individual beneficial owners whose shares were held on
their behalf by brokerage firms in street name).
Our Board
of Directors has declared a $0.06 per share quarterly cash dividend since its
inception in Fiscal 2006. Any payments of dividends in the future will be at the
discretion of our Board of Directors and will depend upon our results of
operations, cash flows, capital requirements and other factors deemed relevant
by our Board of Directors.
The
following table sets for the information with respect to repurchases of our
common stock for the quarter ended January 2, 2010 (amounts in thousands, except
per share amounts);
|
Period
|
Total
Number
of
Shares
Purchased
|
Average
Price
Paid
per
Share (1)
|
Total
Number of
Shares
Purchased as
Part
of Publicly
Announced
Plans or
Programs
(2)
|
Maximum
Dollar
Value
that May Yet
Be
Purchased Under
the
Plans or Programs
(2)(3)
|
||||||||||||
|
October
11, 2009, to November 7, 2009
|
- | $ | - | - | $ | 139,381 | ||||||||||
|
November
8, 2009, to December 5, 2009
|
700 | 39.93 | 700 | 111,422 | ||||||||||||
|
December
6, 2009, to January 2, 2010
|
542 | 40.59 | 542 | 89,406 | ||||||||||||
|
Total
|
1,242 | $ | 40.22 | 1,242 | $ | 89,406 | ||||||||||
|
(1)
|
Average
price paid per share excludes related expenses paid on previous
repurchases.
|
|
(2)
|
All
of the above repurchases were made on the open market at prevailing market
rates plus related expenses under our stock repurchase program, which
authorized the repurchase of up to $250 million in common stock. Our stock
repurchase program was authorized by our Board of Directors and publicly
announced on May 15, 2008. Subsequent to January 2, 2010, our Board of
Directors authorized a new $500 million stock repurchase program on
February 16, 2010. The new program cancelled and replaced the remaining
portion of our previous $250 million stock repurchase
program.
|
|
(3)
|
The
maximum dollar value yet to be purchased under our stock repurchase
program excludes related expenses paid on previous purchases or
anticipated expenses on future
purchases.
|
Stock
Price Performance
The
following graph shows a comparison of the cumulative total return on our common
stock, the Standard & Poor’s 500 Index and the Standard & Poor’s 500
Specialty Retail Index. The graph assumes that the value of an investment in our
common stock and in each such index was $100 on January 1, 2005, and that any
dividends have been reinvested. The comparison in the graph below is based
solely on historical data and is not intended to forecast the possible future
performance of our common stock.
COMPARISON
OF CUMULATIVE TOTAL RETURN AMONG
ADVANCE
AUTO PARTS, INC., S&P 500 INDEX
AND
S&P 500 SPECIALTY RETAIL INDEX
|
Company
/ Index
|
Jan
1, 2005
|
Dec
31, 2005
|
Dec
30, 2006
|
Dec
29, 2007
|
Jan
3, 2009
|
Jan
2, 2010
|
|
Advance
Auto Parts
|
100
|
149.24
|
122.91
|
132.77
|
119.57
|
142.62
|
|
S&P
500 Index
|
100
|
104.91
|
121.48
|
129.04
|
83.29
|
102.12
|
|
S&P
500 Specialty Retail Index
|
100
|
102.86
|
109.69
|
87.08
|
69.29
|
88.73
|
Item
6.
Selected Consolidated Financial Data.
The
following table sets forth our selected historical consolidated statement of
operations, balance sheet and other operating data. Included in this table are
key metrics and operating results used to measure our financial progress. The
selected historical consolidated financial and other data at January 2, 2010 and
January 3, 2009 and for the three years ended January 2, 2010 have been derived
from our audited consolidated financial statements and the related notes
included elsewhere in this report. The historical consolidated financial and
other data at December 29, 2007, December 30, 2006 and December 31, 2005 and for
the years ended December 30, 2006 and December 31, 2005 have been derived from
our audited consolidated financial statements and the related notes that have
not been included in this report. You should read this data along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and our consolidated financial statements and the related notes
included elsewhere in this report.
|
Fiscal
Year (1)
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
(in
thousands, except per share data and ratios)
|
||||||||||||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||||||
|
Net
sales
|
$ | 5,412,623 | $ | 5,142,255 | $ | 4,844,404 | $ | 4,616,503 | $ | 4,264,971 | ||||||||||
|
Cost
of sales
(2)(15)
|
2,768,397 | 2,743,131 | 2,585,665 | 2,472,203 | 2,301,799 | |||||||||||||||
|
Gross
profit
|
2,644,226 | 2,399,124 | 2,258,739 | 2,144,300 | 1,963,172 | |||||||||||||||
|
Selling,
general and administrative expenses
(15)
|
2,189,841 | 1,984,197 | 1,842,310 | 1,740,950 | 1,554,680 | |||||||||||||||
|
Operating
income
|
454,385 | 414,927 | 416,429 | 403,350 | 408,492 | |||||||||||||||
|
Interest
expense
|
(23,337 | ) | (33,729 | ) | (34,809 | ) | (35,992 | ) | (32,384 | ) | ||||||||||
|
Gain
on extinguishment of debt
|
- | - | - | 986 | - | |||||||||||||||
|
Other
income (expense), net
|
607 | (506 | ) | 1,014 | 1,571 | 2,815 | ||||||||||||||
|
Income
from continuing operations before
|
||||||||||||||||||||
|
income
taxes and loss on
|
||||||||||||||||||||
|
discontinued
operations
|
431,655 | 380,692 | 382,634 | 369,915 | 378,923 | |||||||||||||||
|
Income
tax expense
|
161,282 | 142,654 | 144,317 | 138,597 | 144,198 | |||||||||||||||
|
Net
income
|
270,373 | 238,038 | 238,317 | 231,318 | 234,725 | |||||||||||||||
|
Per
Share Data:
|
||||||||||||||||||||
|
Net
income per basic share
|
$ | 2.85 | $ | 2.51 | $ | 2.29 | $ | 2.18 | $ | 2.17 | ||||||||||
|
Net
income per diluted share
|
$ | 2.83 | $ | 2.49 | $ | 2.28 | $ | 2.16 | $ | 2.13 | ||||||||||
|
Cash
dividends declared per basic share
|
$ | 0.24 | $ | 0.24 | $ | 0.24 | $ | 0.24 | $ | - | ||||||||||
|
Weighted
average basic shares outstanding
|
94,459 | 94,655 | 103,826 | 106,129 | 108,318 | |||||||||||||||
|
Weighted
average diluted shares outstanding
|
95,113 | 95,205 | 104,637 | 107,124 | 109,987 | |||||||||||||||
|
Cash
flows provided by (used in):
|
||||||||||||||||||||
|
Operating
activities
|
$ | 699,690 | $ | 478,739 | $ | 410,542 | $ | 333,604 | $ | 321,632 | ||||||||||
|
Investing
activities
|
(185,539 | ) | (181,609 | ) | (202,143 | ) | (258,642 | ) | (302,780 | ) | ||||||||||
|
Financing
activities
|
(451,491 | ) | (274,426 | ) | (204,873 | ) | (104,617 | ) | (34,390 | ) | ||||||||||
|
Balance
Sheet and Other Financial Data:
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 100,018 | $ | 37,358 | $ | 14,654 | $ | 11,128 | $ | 40,783 | ||||||||||
|
Inventory
|
$ | 1,631,867 | $ | 1,623,088 | $ | 1,529,469 | $ | 1,463,340 | $ | 1,367,099 | ||||||||||
|
Inventory
turnover(3)
|
1.70 | 1.74 | 1.73 | 1.75 | 1.79 | |||||||||||||||
|
Inventory
per store(4)
|
$ | 477 | $ | 482 | $ | 469 | $ | 475 | $ | 476 | ||||||||||
|
Accounts
payable to inventory ratio(5)
|
61.2 | % | 57.2 | % | 55.1 | % | 53.2 | % | 54.8 | % | ||||||||||
|
Net
working capital(6)
|
$ | 421,591 | $ | 442,632 | $ | 456,897 | $ | 498,553 | $ | 406,476 | ||||||||||
|
Capital
expenditures
|
$ | 192,934 | $ | 184,986 | $ | 210,600 | $ | 258,586 | $ | 216,214 | ||||||||||
|
Total
assets
|
$ | 3,072,963 | $ | 2,964,065 | $ | 2,805,566 | $ | 2,682,681 | $ | 2,542,149 | ||||||||||
|
Total
debt
|
$ | 204,271 | $ | 456,164 | $ | 505,672 | $ | 477,240 | $ | 438,800 | ||||||||||
|
Total
net debt(7)
|
$ | 113,781 | $ | 439,394 | $ | 521,018 | $ | 500,318 | $ | 448,187 | ||||||||||
|
Total
stockholders' equity
|
$ | 1,282,365 | $ | 1,075,166 | $ | 1,023,795 | $ | 1,030,854 | $ | 919,771 | ||||||||||
|
Selected
Store Data:
|
||||||||||||||||||||
|
Comparable
store sales growth (8)
|
5.3 | % | 1.5 | % | 0.7 | % | 1.6 | % | 8.2 | % | ||||||||||
|
Number
of stores at beginning of year
|
3,368 | 3,261 | 3,082 | 2,872 | 2,652 | |||||||||||||||
|
New
stores
|
107 | 127 | 196 | 215 | 231 | |||||||||||||||
|
Closed
stores
|
(55 | ) | (20 | ) | (17 | ) | (5 | ) | (11 | ) | ||||||||||
|
Number
of stores, end of period
|
3,420 | 3,368 | 3,261 | 3,082 | 2,872 | |||||||||||||||
|
Relocated
stores
|
10 | 10 | 29 | 47 | 54 | |||||||||||||||
|
Stores
with commercial delivery program, end of period
|
3,024 | 2,880 | 2,712 | 2,526 | 2,254 | |||||||||||||||
|
Total
commercial sales, as a percentage of total sales
|
32.0 | % | 29.5 | % | 26.6 | % | 25.0 | % | 21.8 | % | ||||||||||
|
SG&A
expenses per store (in
000s)(9)(10)(15)
|
$ | 645 | $ | 599 | $ | 581 | $ | 585 | $ | 585 | ||||||||||
|
Operating
income per team member (in 000s)(11)(15)
|
$ | 9.41 | $ | 9.02 | $ | 9.40 | $ | 9.29 | $ | 10.30 | ||||||||||
|
Total
store square footage, end of period
|
24,973 | 24,711 | 23,982 | 22,753 | 21,246 | |||||||||||||||
|
Average
net sales per store (in
000s)(10)(12)
|
$ | 1,595 | $ | 1,551 | $ | 1,527 | $ | 1,551 | $ | 1,555 | ||||||||||
|
Average
net sales per square foot(10)(13)
|
$ | 218 | $ | 211 | $ | 207 | $ | 210 | $ | 209 | ||||||||||
|
Gross
margin return on inventory(14)
|
$ | 3.98 | $ | 3.47 | $ | 3.29 | $ | 3.29 | $ | 3.34 | ||||||||||
|
(1)
|
Our
fiscal year consists of 52 or 53 weeks ending on the Saturday nearest to
December 31st.
All fiscal years presented are 52 weeks, with the exception of Fiscal 2008
which consisted of 53 weeks.
|
|
(2)
|
Cost
of sales includes a non-cash inventory adjustment of $37.5 million
recorded in Fiscal 2008 due to a change in our inventory management
approach for slow moving inventory.
|
|
(3)
|
Inventory
turnover is calculated as cost of sales divided by the average of
beginning and ending inventories.
|
|
(4)
|
Inventory
per store is calculated as ending inventory divided by ending store
count.
|
|
(5)
|
Accounts
payable to inventory ratio is calculated as ending accounts payable
divided by ending inventory. We aggregate financed vendor accounts payable
with accounts payable to calculate our accounts payable to inventory
ratio.
|
|
(6)
|
Net
working capital is calculated by subtracting current liabilities from
current assets.
|
|
(7)
|
Net
debt includes total debt and bank overdrafts, less cash and cash
equivalents.
|
|
(8)
|
Comparable
store sales growth 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
growth from the original date of opening. Beginning in Fiscal 2008, we
include in comparable store sales growth the net sales from stores
operated Offshore and AI stores. The comparable periods have been adjusted
accordingly. Fiscal 2008 comparable store sales growth excludes sales from
the 53rd
week.
|
|
(9)
|
Selling,
general and administrative, or SG&A, expense per store is calculated
as total SG&A expenses divided by the average of beginning and ending
store count. SG&A expenses per store for Fiscal 2009 were $638
excluding the $26.1 million impact of store divestitures. SG&A
expenses per store for Fiscal 2008 were $590 excluding the impact of the
53rd week of Fiscal 2008 of approximately $28.4
million.
|
|
(10)
|
The
ending store count and/or store square footage used in the calculation of
the 2005 ratios has been weighted for the period of the AI
acquisition.
|
|
(11)
|
Operating
income per team member is calculated as operating income divided by an
average of the beginning and ending number of team members. Operating
income per team member for Fiscal 2009 was $9.94 excluding the $26.1
million impact of store divestitures. Excluding the operating income
impact of the 53rd
week of Fiscal 2008 of approximately $15.8 million and a $37.5 million
non-cash inventory adjustment, operating income per team member in Fiscal
2008 was $9.49.
|
|
(12)
|
Average
net sales per store is calculated as net sales divided by the average of
the beginning and the ending number of stores for the respective period.
Excluding the net sales impact of the 53rd
week of Fiscal 2008 of approximately $88.8 million, average net sales per
store in Fiscal 2008 was $1,524.
|
|
(13)
|
Average
net sales per square foot is calculated as net sales divided by the
average of the beginning and ending total store square footage for the
respective period. Excluding the net sales impact of the 53rd
week of Fiscal 2008 of approximately $88.8 million, average net sales per
square foot in Fiscal 2008 was $208. This measure is presented in whole
dollars.
|
|
(14)
|
Gross
margin return on inventory is calculated as gross profit divided by an
average of beginning and ending inventory, net of accounts payable and
financed vendor accounts payable. Excluding the gross profit impact of the
53rd
week of Fiscal 2008 of approximately $44.0 million and a $37.5 million
non-cash inventory adjustment, gross margin return on inventory in Fiscal
2008 was $3.37.
|
|
(15)
|
Effective
first quarter 2009, we implemented a change in accounting principle for
costs included in inventory. Accordingly, we have retrospectively applied
the change in accounting principle to all prior periods presented herein
related to cost of sales and
SG&A.
|
Item 7.
Management's Discussion
and Analysis of Financial Condition and Results of Operations.
The
following discussion and analysis of financial condition and results of
operations should be read in conjunction with "Selected Consolidated Financial
Data," our consolidated historical financial statements and the notes to those
statements that appear elsewhere in this report. Our discussion contains
forward-looking statements based upon current expectations that involve risks
and uncertainties, such as our plans, objectives, expectations and intentions.
Actual results and the timing of events could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including those set forth under the sections entitled “Forward-Looking
Statements” and "Risk Factors" elsewhere in this report.
Our
fiscal year ends on the Saturday nearest December 31st of each year, which
results in an extra week every several years (Fiscal 2008 contained 53 weeks).
Our first quarter consists of 16 weeks, and the other three quarters consist of
12 weeks, with the exception of the fourth quarter of Fiscal 2008 which
contained 13 weeks due to our 53-week Fiscal 2008.
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 DIY and Commercial customers. At
January 2, 2010, we operated 3,420 stores throughout 39 states, Puerto Rico and
the Virgin Islands.
We
operate in two reportable segments: Advance Auto Parts, or AAP, and Autopart
International, or AI. The AAP segment is comprised of our store
operations within the United States, Puerto Rico and the Virgin Islands which
operate under the trade names “Advance Auto Parts,” “Advance Discount Auto
Parts” and “Western Auto.” At January 2, 2010, we operated 3,264 stores in the
AAP segment, of which 3,238 stores operated under the trade names “Advance Auto
Parts” and “Advance Discount Auto Parts” throughout 39 states in the
Northeastern, Southeastern and Midwestern regions of the United States. These
stores offer automotive replacement parts, accessories and maintenance
items. In addition, we operated 26 stores under the “Western Auto”
and “Advance Auto Parts” trade names, located in Puerto Rico and the Virgin
Islands, or Offshore.
At
January 2, 2010, we operated 156 stores in the AI segment under the “Autopart
International” trade name. We acquired AI in September 2005. AI operates as an
independent, wholly-owned subsidiary. AI’s business primarily serves the
Commercial market from its store locations located primarily in the Northeast
and Mid-Atlantic regions. In addition, its North American Sales Division
services warehouse distributors and jobbers throughout North
America.
Management
Overview
During
Fiscal 2009, we produced favorable financial results primarily due to top-line
sales growth and strong gross profit improvement resulting in earnings per
diluted share, or EPS, of $2.83 compared to $2.49 in Fiscal 2008. Although we
have presented our financial results in this Form 10-K in conformity with
accounting principles generally accepted in the United States (GAAP), our
financial results for Fiscal 2009 and Fiscal 2008 include the impact of the
following significant items. Our Fiscal 2009 results were reduced by an EPS
impact of $0.17 resulting from the closure of 45 stores in connection with our
store divestiture plan. Our Fiscal 2008 financial results included an extra week
of operations (53rd
week) as well as a non-cash obsolete inventory write-down of $37.5 million due
to a change in inventory management approach for slow moving inventory, or
non-cash inventory adjustment. The impact of the Fiscal 2008 items was a net
reduction in EPS of $0.15. We generated significant operating cash flow in
Fiscal 2009 that allowed us to invest in business initiatives related to our
four key strategies, repay a significant portion of our bank debt and repurchase
shares of our common stock.
Fiscal 2009
Highlights
Highlights
from our Fiscal 2009 include:
Financial
|
·
|
Total
sales for Fiscal 2009 increased 5.3% over Fiscal 2008 to $5.41 billion.
Excluding the impact of the 53rd
week in Fiscal 2008, our total sales increased 7.1%. This growth was
primarily due to a comparable store sales increase of 5.3% and sales from
the net addition of 52 total stores opened within the last
year.
|
|
·
|
Our
gross profit rate increased 220 basis points as compared to Fiscal 2008.
Approximately 73 basis points of this increase is related to the non-cash
inventory adjustment of $37.5 million in Fiscal
2008.
|
|
·
|
Our
selling, general and administrative expenses, or SG&A, rate increased
187 basis points as compared to Fiscal 2008 partially due to 48 basis
points of store divestiture expenses. Excluding store divestitures, this
increase in SG&A is primarily linked to the targeted investments we
are making to support each of our four key strategies which have already
begun to yield benefits in our sales and gross profit
results.
|
|
·
|
We
generated operating cash flow of $699.7 million for the year, an increase
of $221.0 million over Fiscal 2008, and used available operating cash to
pay down $252.2 million of outstanding bank debt and
|
|
|
repurchase
2.5 million shares of our common stock at a cost of $99.6
million.
|
General
|
·
|
Our
continuous improvements in customer satisfaction and Team Member
engagement scores, renewed focus on core values and ongoing initiatives
within each of our four key strategies – Commercial Acceleration, DIY
Transformation, Availability Excellence and Superior Experience – were
equally important in driving our favorable financial results for the
year.
|
|
·
|
We
began our global sourcing operation in Taiwan which we expect will provide
gross profit improvements and allow us to more quickly source products
that our customers want and need.
|
|
·
|
We
launched our new AAP e-commerce website, which offers our customers online
shopping and access to over 100,000 parts and
accessories.
|
|
·
|
We
continued to make progress towards our goal of obtaining investment grade
credit ratings based on our increased profitability and cash flow and
strength of our balance
sheet.
|
Key
Strategies
Fiscal
2009 marked the end of the turnaround phase of our strategic plan. We made
significant investments in each of our four key strategies with the ultimate
focus on the customer and growth in our business. Our principal focus during
this turnaround phase has been on Commercial Acceleration and Availability
Excellence to accelerate our growth and profitability. We have made strategic
choices to fund investments in each of these strategies and will continue to
balance our investments between Commercial and DIY over the long
term. As we transition from our turnaround phase to a transformation
phase, we expect to increase our focus on customer facing capabilities to ensure
our customers have a superior experience with us.
|
Ø
|
Commercial
Acceleration
|
Our
Commercial comparable store sales increase was 13.7% during Fiscal 2009. Our
Commercial sales, as a percentage of total sales, increased 25 basis points to
32.0% for Fiscal 2009 as compared to Fiscal 2008. We believe our consistent
growth in Commercial sales and market share is being driven in part by the
investments we have made over the last year and continue to make under our
Commercial Acceleration strategy. As of the end of Fiscal 2009, we
have made substantial investments in parts, key brands, and additional parts
professionals, delivery trucks and drivers in approximately one-third of our
stores. We have also increased our Commercial sales force by approximately 45%
from the beginning of Fiscal 2009. We continue to make progress in redefining
and realigning the roles and responsibilities of our operational teams in
preparation for the continued growth in Commercial at a faster pace than
DIY. We plan to eventually generate closer to a 50/50 mix of
Commercial and DIY sales as a result of the highly fragmented Commercial
market. Our current market share is less than 5% of the $40 billion
Commercial market.
|
Ø
|
DIY
Transformation
|
Our
Fiscal 2009 DIY comparable store sales increase of 1.7% marks our first positive
increase for a full fiscal year since Fiscal 2005. The overall growth in DIY
sales during Fiscal 2009 was impacted by the acceleration of store closings, the
deceleration of new store openings, reduced marketing spend in the second and
third quarters, and the absence of an E-commerce platform. The industry
continues to benefit from increased customer traffic as consumers are saving
money by maintaining their existing vehicles rather than replacing them and
miles driven have started to increase again. Although industry data reported by
The NPD Group indicates the market grew slightly faster than we did during
Fiscal 2009, we believe we can maintain and eventually increase DIY market share
based on our recently revamped marketing programs and other initiatives underway
in our DIY Transformation.
We have
initiatives underway to address both the conversion rate of our existing
customers as well as the consideration rate of potential customers. Conversion
rate initiatives include the installation of traffic counters and updated phone
systems to provide valuable information about the customer experience, improved
staffing and
targeting
certain stores with specific research and sales development efforts to help us
better solve our customers’ problems and leverage the parts availability and
merchandising improvements we are making in our stores. Regarding consideration
rate, we have made significant changes to our marketing program during the
second half of the year which includes a more targeted approach to attract our
highest potential customers. We established a title sponsorship with Monster
Jam, a live family oriented motorsports event tour and television show
highlighted by the racing and freestyle competition of monster trucks. The
Monster Jam tour destinations align closely with our store
footprint.
|
Ø
|
Availability
Excellence
|
Our
Availability Excellence strategy represents our commitment to enhance the
breadth and depth of our parts availability in our stores and improve the speed of our parts delivery, in
order to help us better serve both our Commercial and DIY customers. In
addition to our positive sales results, we believe our ongoing investments and
initiatives under this strategy are driving our strong gross profit results. Our
gross profit for Fiscal 2009 increased 149 basis points compared to Fiscal 2008,
excluding the non-cash inventory adjustment and impact of the 53rd week
in Fiscal 2008.
During
Fiscal 2009, we made significant progress in capabilities to help drive our
sales and gross profit growth, including the continued improvement in parts
availability, the strengthening and development of a price optimization
capability and implementation of the first phase of our core merchandising
system. We also added six net PDQ®
facilities and 80 larger stores which stock a wider selection and greater
supply of inventory, or HUB stores, to our supply chain network and completed
the implementation of engineered standards in all eight of our distribution
centers to improve productivity, increase efficiency and ultimately reduce
distribution expenses.
We
disposed of substantially all of the nonproductive inventory we identified in
Fiscal 2008 by the end of Fiscal 2009. We continue to manage our inventory
productivity by removing unproductive inventory from our store assortments
through utilizing markdown strategies and our vendor return privileges. We
expect to manage more effectively the growth in our inventory as compared to our
sales growth.
|
Ø
|
Superior
Experience
|
Superior
Experience is centered around our store operations and providing superior
customer service. The successful rollout and completion of Commercial and DIY
initiatives in our stores is greatly dependent on the Superior Experience
strategy. The feedback from our customer satisfaction surveys, coupled with our
Team Member engagement surveys, provides the evidence of our continued focus and
commitment to understand what our customers need and how to engage our Team
Members to fulfill that goal. We have a dedicated team of field operations
leaders who are leading the rollout of initiatives over our entire store chain
in a very disciplined and focused way. These initiatives include improving
staffing, structuring operations to more effectively serve both Commercial and
DIY customers, providing sales development and coaching and driving gross profit
improvements through new battery warranty procedures, better pricing decisions
and improved shrink control.
Store
Divestiture Plan
For
Fiscal 2009, we divested a total of 45 stores that were delivering strategically
or financially unacceptable results. These closures were in addition to 10
stores that we closed as part of our routine review and closure of
underperforming stores at or near the end of their respective lease terms.
During Fiscal 2009, we recognized expenses of $26.1 million related to our store
divestiture plan. The majority of this expense was related to the estimated
remaining lease obligations at the time of the closures. As of January 2, 2010,
we had completed our store divestiture plan. Our total store closures for Fiscal
2010 are estimated at 10 to 15.
Change
in Accounting Principle
We have
retrospectively adjusted all comparable periods related to cost of sales and
SG&A as a result of a change in accounting principle effective January 4,
2009. We changed our accounting for freight and other handling costs associated
with transferring merchandise from our HUB stores and PDQ®
facilities to our retail stores from recording such costs as SG&A to
recording such costs in cost of sales. This change, which had no impact to
operating income or cash flows, more accurately reflects the nature of the
expense.
The net
adjustment increasing cost of sales and decreasing SG&A was $63.9 million
and $62.3 million for Fiscal 2008 and 2007, respectively. For additional
information regarding this change, see Note 3, Change in Accounting
Principle, of the Notes to Consolidated Financial Statements in this
Annual Report on Form 10-K.
Industry
Challenging
macroeconomic conditions continue with the unemployment rate at 9.7%, the
highest in over 25 years, and consumer confidence remaining low. Financial
results from the leading automotive aftermarket companies suggest that the
entire industry is benefiting from the economic downturn because consumers are
keeping their vehicles longer, which in turn increases the average age of
vehicles and the need to repair and complete routine maintenance on those
vehicles. Recent statistics indicate miles driven have increased three straight
quarters reversing a negative trend throughout 2008 and early 2009. In addition,
gas prices remain well under the historic highs experienced throughout most of
2008 and the average vehicle age continues to rise and is slightly over 10
years.
In
summary, the economic environment continues to present mixed results to our
industry with opportunities to serve customers in need of parts and other
required maintenance but other elective maintenance and accessory purchases
being deferred until disposable income returns to higher levels. We believe we
can maintain market share and eventually increase our market share in the less
fragmented DIY market. We also believe we will continue to significantly
increase our market share in the Commercial market where our current market
share is less than 5% of the $40 billion Commercial market.
We are
pleased with our Fiscal 2009 financial results. We remain committed
to making the necessary investments to help ensure our long-term profitability
and the success of our transformation as we strive to become the industry
leader.
Store
Development by Segment
The
following table sets forth the total number of new, closed and relocated stores
and stores with Commercial delivery programs during Fiscal 2009, 2008 and 2007.
We lease approximately 81% of our stores.
|
AAP
|
||||||||||||
|
Fiscal
Year
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Number
of stores at beginning of year
|
3,243 | 3,153 | 2,995 | |||||||||
|
New
stores
|
75 | 109 | 175 | |||||||||
|
Closed
stores
|
(54 | ) | (19 | ) | (17 | ) | ||||||
|
Number
of stores, end of period
|
3,264 | 3,243 | 3,153 | |||||||||
|
Relocated
stores
|
6 | 10 | 29 | |||||||||
|
Stores
with commercial delivery programs
|
2,868 | 2,755 | 2,604 | |||||||||
|
AI
|
||||||||||||
|
Fiscal
Year
|
||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Number
of stores at beginning of year
|
125 | 108 | 87 | |||||||||
|
New
stores
|
32 | 18 | 21 | |||||||||
|
Closed
stores
|
(1 | ) | (1 | ) | - | |||||||
|
Number
of stores, end of period
|
156 | 125 | 108 | |||||||||
|
Relocated
stores
|
4 | - | - | |||||||||
|
Stores
with commercial delivery programs
|
156 | 125 | 108 | |||||||||
During
Fiscal 2010, we anticipate adding approximately 110 AAP and 40 AI stores
and closing 10 to 15 total stores.
Critical
Accounting Policies
Our
financial statements have been prepared in accordance with accounting policies
generally accepted in the United States of America. Our discussion and analysis
of the financial condition and results of operations are based on these
financial statements. The preparation of these financial statements requires the
application of accounting policies in addition to certain estimates and
judgments by our management. Our estimates and judgments are based on currently
available information, historical results and other assumptions we believe are
reasonable. Actual results could differ materially from these
estimates.
The
preparation of our financial statements included the following significant
estimates and exercise of judgment.
Vendor
Incentives
We
receive incentives in the form of reductions to amounts owed and/or payments
from vendors related to cooperative advertising allowances, volume rebates and
other promotional considerations. Many of these incentives are under long-term
agreements (terms in excess of one year), while others are negotiated on an
annual basis or less (short-term). Both cooperative advertising allowances and
volume rebates are earned based on inventory purchases and initially recorded as
a reduction to inventory. These deferred amounts are included as a reduction to
cost of sales as the inventory is sold since these payments do not represent
reimbursements for specific, incremental and identifiable costs. Total deferred
vendor incentives included in inventory was $46.3 million at January 2,
2010.
Similarly,
we recognize other promotional incentives earned under long-term agreements as a
reduction to cost of sales. However, these incentives are recognized based on
the cumulative net purchases as a percentage of total estimated net purchases
over the life of the agreement. Our margins could be impacted positively or
negatively if actual purchases or results from any one year differ from our
estimates; however, the impact over the life of the agreement would be the same.
Short-term incentives (terms less than one year) are generally recognized as a
reduction to cost of sales over the duration of any short-term
agreements.
Amounts
received or receivable from vendors that are not yet earned are reflected as
deferred revenue. Management's estimate of the portion of deferred revenue that
will be realized within one year of the balance sheet date is
included in Other current liabilities. Earned amounts that are receivable from
vendors are included in Receivables, net except for that portion expected to be
received after one year, which is included in Other assets, net.
Inventory
Reserves
Our
inventory reserves consist of reserves for projected losses related to shrink
and for potentially excess and obsolete inventory. An increase (or decrease) to
our inventory reserves is recorded as an increase (or decrease) to our cost of
sales.
Shrink
may occur due to theft, loss or inaccurate records for the receipt of
merchandise, among other things. We
establish reserves for estimated store shrink based on results of completed
independent physical inventories, results from recent cycle counts and
historical and current loss trends. We perform cycle counts in the distribution
facilities throughout the year to measure actual shrink and to estimate reserve
requirements. If estimates of our shrink reserves are inaccurate
based on the inventory counts, we may be exposed to losses or gains that could
be material.
We
establish reserves for potentially excess and obsolete inventories based on (i)
current inventory levels, (ii) the historical analysis of product sales and
(iii) current market conditions. We also provide reserves when less than full
credit is expected from a vendor or when liquidating product will result in
retail prices below recorded costs. At the end of Fiscal 2008, we reviewed our
inventory productivity and changed our inventory management approach for slow
moving inventory. As a result, we increased our reserve for excess and obsolete
inventories by $34.1 million, excluding a LIFO and warehousing cost impact of
$3.4 million. This non-cash expense was presented as an increase to cost of
goods sold in our consolidated statement of operations. With this change in
inventory management approach, we intend to more effectively manage slow moving
inventory and continue to utilize vendor
return privileges when
necessary.
Our total
inventory reserves decreased by $34.4 million in Fiscal 2009 compared to Fiscal
2008 primarily related to the entire utilization of our reserve for slow moving
inventory established in Fiscal 2008 in connection with the change in approach
for slow moving inventory. Future changes by vendors in their policies or
willingness to accept returns of excess inventory, changes in our inventory
management approach for excess and obsolete inventory or failure by us to
effectively manage the lifecycle of our inventory could require us to revise our
estimates of required reserves and result in a negative impact on our
consolidated statement of operations. A 10% difference in actual inventory
reserves at January 3, 2009 would have affected net income by approximately $1.8
million for the fiscal year ended January 2, 2010.
Warranty
Reserves
We offer
limited warranties on certain products that range from 30 days to lifetime
warranties; the warranty obligation on the majority of merchandise sold by us
with a manufacturer’s warranty is borne by our vendors. However, we have
an obligation to provide customers free replacement of merchandise or
merchandise at a prorated cost if under a warranty and not covered by the
manufacturer. Merchandise sold with warranty coverage by us primarily
includes batteries but may also include other parts such as brakes and
shocks. We estimate and record a reserve for future warranty claims
at the time of sale based on the historical return experience of the respective
product sold. If claims experience differs from historical levels, revisions in
our estimates may be required, which could have an impact on our consolidated
statement of operations. To the extent vendors provide upfront allowances in
lieu of accepting the obligation for warranty claims and the allowance is in
excess of the related warranty expense, the excess is recorded as a reduction to
cost of sales.
A 10%
change in the warranty reserves at January 2, 2010 would have affected net
income by approximately $1.9 million for the fiscal year ended January 2,
2010.
Self-Insurance
Reserves
We are
self-insured for general and automobile liability, workers' compensation and the
health care claims of our Team Members, although we maintain stop-loss coverage
with third-party insurers to limit our total liability exposure. Our
self-insurance program started in 2001. Our self-insurance reserves for fiscal
2009, 2008 and 2007 were $93.7 million, $90.6 million and $85.5 million,
respectively.
Each
year, our reserve for self-insurance increases over the prior year because each
year adds an additional layer of reserves without an equal amount of prior year
reserves being fully relieved. Generally, claims have historically taken several
years to settle and thus are not relieved at the same rate as additional
reserves are added each year. We have experienced an increase in overall claims
during the last three years which is generally reflective of our overall growth,
including an increase in total stores, team members and Commercial delivery
vehicles. While we have seen the severity and frequency of worker’s compensation
and general liability claims moderate, the severity and frequency of automobile
liability claims have increased primarily due to the significant increase in the
number of our commercial delivery vehicles.
Our
reserve for claims filed, claims incurred but not yet reported, projected future
claims using actuarial methods followed in the insurance industry and our
historical claims experience. While we do not expect the amounts ultimately paid
to differ significantly from our estimates, our self-insurance reserves and
corresponding SG&A could be affected if future claim experience differs
significantly from historical trends and actuarial assumptions. A 10% change in
our self-insurance liabilities at January 2, 2009 would have affected net income
by approximately $5.9 million for the fiscal year ended January 2,
2010.
Goodwill
and Intangible Assets
We
evaluate goodwill and indefinite-lived intangibles for impairment annually
during our fiscal fourth quarter or whenever events or changes in circumstances
indicate the carrying value of the goodwill or other intangible asset may not be
recoverable. We complete our impairment evaluation by combining information from
our internal valuation analyses by reporting units, considering other publicly
available market information and using an
independent valuation
firm. We determine fair value using widely accepted valuation
techniques, including discounted cash flows and market multiple analyses. These
types of analyses contain uncertainties because they require management to make
assumptions as a marketplace participant would and to apply judgment to estimate
industry economic factors and the profitability of future business strategies of
our company and our reporting units. These assumptions and estimates are a major
component of the derived fair value of our reporting units. The
margin of calculated fair value over the respective carrying value of our
reporting units may not be indicative of the total company due to differences in
the individual reporting units, including but not limited to size
and projected growth.
It is our
policy to conduct impairment testing based on our current business strategy in
light of present industry and economic conditions, as well as our future
expectations. We have not made any material changes in the accounting
methodology we use to assess impairment loss during the past three fiscal years.
We do not believe there is a reasonable likelihood that there will be a material
change in the future estimates or assumptions we use to test for impairment
losses on goodwill. However, if actual results are not consistent with our
estimates or assumptions, we may be exposed to an impairment charge that could
be material. A 10% change in our total goodwill and intangible assets
outstanding at January 2, 2010 would have affected net income by approximately
$3.8 million for the fiscal year ended January 2, 2010.
Tax
Reserves
The
determination of our income tax liabilities is based upon the tax law, codes,
regulations, pronouncements and court cases for the taxing jurisdictions in
which we do business. Our income tax returns are periodically examined by those
jurisdictions. These examinations include, among other things, auditing our
filing positions, the timing of deductions and allocation of income among the
various jurisdictions. At any particular time, multiple years are subject to
examination by various taxing authorities.
In
evaluating our income tax positions, we record a reserve when a tax benefit
cannot be recognized and measured in accordance with the authoritative guidance
on uncertain tax positions. These tax reserves are adjusted in the period actual
developments give rise to such change. Those developments could be, but are not
limited to: settlement of tax audits, expiration of the statute of limitations,
the evolution of tax law, codes, regulations and court cases, along with varying
applications of tax policy and administration within those
jurisdictions.
These tax
reserves contain uncertainties because management is required to make
assumptions and apply judgment to estimate exposures associated with our various
filing positions. Although management believes that the judgments and estimates
are reasonable, actual results could differ and we may be exposed to gains or
losses that could be material. To the extent that actual results differ from our
estimates, the effective tax rate in any particular period could be materially
affected. Favorable tax developments would be recognized as a reduction in our
effective tax rate in the period of resolution. Unfavorable tax developments
would require an increase in our effective tax rate and a possible use of cash
in the period of resolution. A 10% change in the tax reserves at January 2, 2010
would have affected net income by approximately $1.0 million for the fiscal year
ended January 2, 2010.
Components
of Statement of Operations
Net
Sales
Net sales
consist primarily of merchandise sales from our retail store locations to both
our DIY and Commercial customers. Our total sales growth is comprised of both
comparable store sales and new store sales. We calculate comparable store sales
based on the change in store sales starting once a store has been opened for 13
complete accounting periods (approximately one year). We include sales from
relocated stores in comparable store sales from the original date of opening.
Beginning in Fiscal 2008, we began including in comparable store sales the net
sales from the Offshore and AI stores. The comparable periods have been adjusted
accordingly. Fiscal 2008 comparable store sales exclude the effect of the
53rd
week.
Cost
of Sales
Our cost
of sales consists of merchandise costs, net of incentives under vendor programs;
inventory shrinkage, defective merchandise and warranty costs; and warehouse and
distribution expenses. Gross profit as a percentage of
net sales
may be affected by (i) variations in our product mix, (ii) price changes in
response to competitive factors and fluctuations in merchandise costs, (iii)
vendor programs, (iv) inventory shrinkage, (v) defective merchandise and
warranty costs and (v) warehouse and distribution costs. We seek to minimize
fluctuations in merchandise costs and instability of supply by entering into
long-term purchasing agreements, without minimum purchase volume requirements,
when we believe it is advantageous. Our gross profit may not be comparable to
those of our competitors due to differences in industry practice regarding the
classification of certain costs. See Note 2 to our consolidated financial
statements elsewhere in this report for additional discussion of these costs and
Note 3 for additional discussion of a change in accounting principle for freight
and other handling costs associated with transferring merchandise from HUB
stores and PDQ®
facilities to our retail stores from recording such costs as SG&A to
recording such costs in cost of sales.
Selling,
General and Administrative Expenses
SG&A
consists of store payroll, store occupancy (including rent and depreciation),
advertising expenses, Commercial delivery expenses, other store expenses and
general and administrative expenses, including salaries and related benefits of
store support center Team Members, share-based compensation expense, store
support center administrative office expenses, data processing, professional
expenses, self-insurance costs, closed store expense, impairment charges, if
any, and other related expenses. See Note 2 to our consolidated financial
statements for additional discussion of these costs and Note 3 for additional
discussion of a change in accounting principle.
Consolidated
Results of Operations
The
following table sets forth certain of our operating data expressed as a
percentage of net sales for the periods indicated.
|
Fiscal
Year Ended
|
||||||||||||
|
January
2,
2010
|
January
3,
2009
|
December
29,
2007
|
||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost
of sales
|
51.1 | 53.3 | 53.4 | |||||||||
|
Gross
profit
|
48.9 | 46.7 | 46.6 | |||||||||
|
Selling,
general and administrative expenses
|
40.5 | 38.6 | 38.0 | |||||||||
|
Operating
income
|
8.4 | 8.1 | 8.6 | |||||||||
|
Interest
expense
|
(0.4 | ) | (0.7 | ) | (0.7 | ) | ||||||
|
Other
income, net
|
0.0 | (0.0 | ) | 0.0 | ||||||||
|
Income
tax expense
|
3.0 | 2.8 | 3.0 | |||||||||
|
Net
income
|
5.0 | 4.6 | 4.9 | |||||||||
Fiscal
2009 Compared to Fiscal 2008
Net
Sales
Net sales
for Fiscal 2009 were $5,412.6 million, an increase of $270.4 million, or 5.3%,
over net sales for Fiscal 2008. Excluding the $88.8 million impact of the
53rd week
in Fiscal 2008, our sales increase was 7.1%. This growth was primarily due to an
increase in comparable store sales of 5.3% and sales from the net addition of 52
new AAP and AI stores opened within the last year.
AAP
produced sales of $5,218.3 million, an increase of $241.7 million, or 4.9%, over
Fiscal 2008. Excluding the $86.5 million impact of the 53rd week
in Fiscal 2008, AAP’s sales increase was 6.7%. This growth was primarily due to
a 5.1% comparable store sales increase and sales from the net addition of 21 new
stores opened within the last year. The AAP comparable store sales increase was
driven by an increase in average ticket sales and overall customer traffic. AI
produced sales of $202.6 million, an increase of $36.9 million, or 22.3%, over
Fiscal 2008. Excluding the $2.3 million impact of the 53rd week
in Fiscal 2008, AI’s sales increase was 24.0%. This growth was
primarily reflective of a 9.9% comparable store sales increase and sales from
the net addition of 31 new stores opened within the last
year.
Gross
Profit
Gross
profit for Fiscal 2009 was $2,644.2 million, or 48.9% of net sales, as compared
to $2,399.1 million, or 46.7% of net sales, in Fiscal 2008, or an increase of
220 basis points. Excluding the impacts of the $37.5 million non-cash inventory
adjustment and the 53rd week
in Fiscal 2008, the increase in gross profit rate was 149 basis points. This
increase in gross profit as a percentage of net sales was primarily due to
continued investments in pricing and merchandising capabilities (including
global sourcing), increased parts availability resulting in the sale of more
parts which generally contribute a higher gross profit and improved store
execution partially offset by decreased inventory shrink.
SG&A
SG&A
expenses for Fiscal 2009 were $2,189.8 million, or 40.5% of net sales, as
compared to $1,984.2 million, or 38.6% of net sales, for Fiscal 2008, or an
increase of 187 basis points. Store divestiture expenses comprised 48 basis
points of the increase in SG&A as a percentage of net sales. The remaining
increase was primarily due to:
|
·
|
increased
investments in store labor and Commercial sales
force;
|
|
·
|
higher
incentive compensation driven by the favorable financial results in fiscal
2009; and
|
|
·
|
continued
investments to improve our gross profit rate and to operate our new
e-commerce operation.
|
These
increases were partially offset by lower advertising expenses and occupancy
expense leverage. Excluding store divestitures, this increase in SG&A is
primarily linked to the targeted investments we are making to support each of
our four key strategies which have already begun to yield benefits in our sales
and gross profit results. While our transformation will require continued
investments in areas such as Commercial, e-commerce and global sourcing,
management plans to balance increases in fixed and variable SG&A relative to
our sales growth.
Operating
Income
Operating
income for Fiscal 2009 was $454.4 million, or 8.4% of net sales, as compared to
$414.9 million, or 8.1% of net sales, in Fiscal 2008, or an increase of 33 basis
points. This increase in operating income, as a percentage of net sales,
reflects an increase in gross profit partially offset by higher SG&A. The
increase in SG&A reflects many of the investments we are making in our
business with short-term benefits already being realized in net sales and gross
profit resulting in an overall net increase in profitability. The Fiscal 2009
increase in our operating income also benefited from the $37.5 million non-cash
inventory adjustment, partially offset by the approximately $15.8 million impact
from the 53rd
week, in Fiscal 2008.
AAP
produced operating income of $446.8 million, or 8.6% of net sales, for Fiscal
2009 as compared to $410.7 million, or 8.3% of net sales, in Fiscal 2008. AI
generated operating income for Fiscal 2009 of $7.6 million as compared to $4.2
million in Fiscal 2008. AI’s operating income increased primarily due to its
positive sales results for the year and leverage of supply chain costs as a
percentage of net sales.
Interest
Expense
Interest
expense for Fiscal 2009 was $23.3 million, or 0.4% of net sales, as compared to
$33.7 million, or 0.7% of net sales, in Fiscal 2008. The decrease in interest
expense as a percentage of sales is primarily a result of lower outstanding
borrowings and increased sales during Fiscal 2009.
Income
Taxes
Income
tax expense for Fiscal 2009 was $161.3 million, as compared to
$142.7 million for Fiscal 2008. Our effective income tax rate was 37.4% and
37.5% for Fiscal 2009 and Fiscal 2008, respectively.
Net
Income
Net
income for Fiscal 2009 was $270.4 million, or $2.83 per diluted share, for
Fiscal 2009, as compared to $238.0 million, or $2.49 per diluted share, for
Fiscal 2008. As a percentage of net sales, net income for Fiscal 2009 was 5.0%,
as compared to 4.6% for Fiscal 2008. The increase in diluted earnings per share
was primarily due to growth in our operating income.
Fiscal
2008 Compared to Fiscal 2007
Net
Sales
Net sales
for Fiscal 2008 were $5,142.3 million, an increase of $297.9 million, or 6.1%,
over net sales for Fiscal 2007. The net sales increase was due to contributions
from the 107 net new AAP and AI stores opened within Fiscal 2008, $88.8 million
in sales from the 53rd week
and an increase in comparable store sales of 1.5%.
AAP
produced sales of $4,976.6 million, an increase of $267.2 million, or 5.7%, over
Fiscal 2007. AAP’s sales increase was primarily driven by a 1.3% comparable
store sales increase, $86.5 million in sales from the 53rd week
and sales from the 90 net new stores opened within Fiscal 2008. The AAP
comparable store sales increase was driven by (i) an increase in average ticket
sales and customer traffic in our Commercial business and (ii) an increase in
average ticket sales by our DIY customers offset by a decrease in DIY customer
count. AI produced sales of $165.7 million, an increase of $30.6 million, or
22.7%, over Fiscal 2007. AI’s sales increase was primarily driven by a 9.2%
comparable store sales increase, $2.3 million in sales from the 53rd week
and sales from 17 net new stores opened within Fiscal 2008.
Gross
Profit
Gross
profit for Fiscal 2008 was $2,399.1 million, or 46.7% of net sales, as compared
to $2,258.7 million, or 46.6% of net sales, in Fiscal 2007, increasing slightly
from an implemented change in accounting principle for costs included in
inventory beginning in the first quarter of Fiscal 2009 and retrospectively
applied to all prior periods presented herein related to gross profit. Gross
profit for Fiscal 2008 reflects a reduction of $37.5 million, or 73 basis points
resulting from a non-cash inventory adjustment. Offsetting this reduction in
gross profit as a percentage of net sales were improvements in gross profit from
more effective pricing, decreased inventory shrink, and higher sales from AI,
which generated a higher gross profit rate. The impact on gross profit from the
53rd
week
was approximately $44.0 million and did not materially affect our gross profit
rate.
SG&A
SG&A
expenses for Fiscal 2008 were $1,984.2 million, or 38.6% of net sales, as
compared to $1,842.3 million, or 38.0% of net sales, for Fiscal 2007, or an
increase of 56 basis points. The increase in SG&A expenses as a percentage
of net sales was driven primarily by investments in strategic initiatives,
increased incentive compensation and legal settlement costs partially offset by
favorable medical costs. Our SG&A rate for Fiscal 2008 was favorably
impacted by approximately 14 basis points from the 53rd week
as a result of not including an additional week of fixed expenses that are
typically expensed in a 52-week year.
Operating
Income
Operating
income for Fiscal 2008 was $414.9 million, or 8.1% of net sales, as compared to
$416.4 million, or 8.6% of net sales, in Fiscal 2007, or a decrease of 53 basis
points. AAP produced operating income of $410.7 million, or 8.3% of net sales,
for Fiscal 2008 as compared to $417.2 million, or 8.9% of net sales, in Fiscal
2007. AI generated operating income for Fiscal 2008 of $4.2 million as compared
to an operating loss of $0.8 million in Fiscal 2007. Operating income for AI
increased primarily due to its positive sales results for the year and a
decrease in payroll expense as a percentage of sales. Our overall operating
income was reduced by a non-cash inventory adjustment of $37.5 million while
results from the 53rd week
contributed approximately $15.8 million to our operating income.
Interest
Expense
Interest
expense for Fiscal 2008 was $33.7 million, or 0.7% of net sales, as compared to
$34.8 million, or 0.7% of net sales, in Fiscal 2007. The decrease in interest
expense was a result of lower average borrowing rates partially offset by higher
average outstanding borrowings as compared to Fiscal 2007.
Income
Taxes
Income
tax expense for Fiscal 2008 was $142.7 million, as compared to
$144.3 million for Fiscal 2007. Our effective income tax rate was 37.5% and
37.7% for Fiscal 2008 and Fiscal 2007, respectively.
Net
Income
Net
income for Fiscal 2008 was $238.0 million, or $2.49 per diluted share, as
compared to $238.3 million, or $2.28 per diluted share, for Fiscal 2007. As a
percentage of net sales, net income for Fiscal 2008 was 4.6%, as compared to
4.9% for Fiscal 2007. The increase in diluted earnings per share was primarily
due to a reduced share count as a result of the shares repurchased during Fiscal
2007. Net income and diluted earnings per share for Fiscal 2008 were reduced by
the non-cash inventory adjustment of $23.7 million (net of tax) and $0.25,
respectively. Our results from the 53rd week
contributed approximately $9.6 million of net income and earnings per diluted
share of $0.10.
Quarterly
Consolidated Financial Results (in thousands, except per share
data)
|
16-Weeks
Ended
4/19/2008
|
12-Weeks
Ended
7/12/2008
|
12-Weeks
Ended
10/4/2008
|
13-Weeks
Ended
1/3/2009
|
16-Weeks
Ended
4/25/2009
|
12-Weeks
Ended
7/18/2009
|
12-Weeks
Ended
10/10/2009
|
12-Weeks
Ended
1/2/2010
|
|||||||||||||||||||||||||
|
Net
sales
|
$ | 1,526,132 | $ | 1,235,783 | $ | 1,187,952 | $ | 1,192,388 | $ | 1,683,636 | $ | 1,322,844 | $ | 1,262,576 | $ | 1,143,567 | ||||||||||||||||
|
Gross
profit
(1)
|
724,854 | 586,282 | 562,175 | 525,813 | 821,988 | 652,650 | 621,459 | 548,129 | ||||||||||||||||||||||||
|
Net
income
|
82,086 | 75,386 | 56,155 | 24,411 | 93,585 | 80,330 | 61,979 | 34,479 | ||||||||||||||||||||||||
|
Net
income per share:
|
||||||||||||||||||||||||||||||||
|
Basic
|
$ | 0.86 | $ | 0.79 | $ | 0.59 | $ | 0.26 | $ | 0.99 | $ | 0.84 | $ | 0.65 | $ | 0.37 | ||||||||||||||||
|
Diluted
(2)
|
$ | 0.86 | $ | 0.78 | $ | 0.58 | $ | 0.26 | $ | 0.98 | $ | 0.83 | $ | 0.65 | $ | 0.36 | ||||||||||||||||
|
(1)
|
Effective
first quarter of Fiscal 2009, we implemented a change in accounting
principle for costs included in inventory. Accordingly, we have
retrospectively applied the change in accounting principle to all prior
periods presented herein related to gross
profit.
|
|
(2)
|
Our
diluted earnings per share reported for the second and third quarters of
Fiscal 2008 have been reduced by $0.01, respectively, as a result of the
adoption of the two-class method. Refer to Footnote 14 of our consolidated
financial statements for further discussion of this
adoption.
|
Liquidity
and Capital Resources
Overview
of Liquidity
Our
primary cash requirements to maintain our current operations include payroll and
benefits, the purchase of inventory, contractual obligations and capital
expenditures as well as the payment of quarterly cash dividends and estimated
income taxes. In addition, we have used available funds to repay borrowings
under our revolving credit facility and periodically repurchase shares of our
common stock under our stock repurchase program. We have funded these
requirements primarily through cash generated from operations, supplemented by
borrowings under our credit facilities as needed. We believe funds generated
from our expected results of operations, available cash
and cash equivalents, and available borrowings under our revolving credit
facility will be sufficient to fund our primary obligations for the next fiscal
year.
At
January 2, 2010, our cash and cash equivalents balance was $100.0 million, an
increase of $62.7 million compared to January 3, 2009 (the end of Fiscal 2008).
This increase resulted from additional cash flows from operating activities
(including higher net income, slower growth in inventory, net of our accounts
payable ratio, and increase in deferred income taxes) and a decrease in
repurchases of our common stock partially offset by an increase in the net
repayment of debt. Additional discussion of our cash flow results is set forth
in the Analysis of Cash
Flows section.
At
January 2, 2010, our outstanding indebtedness was $251.9 million lower when
compared to January 3, 2009 and consisted of borrowings of $200.0 million under
our term loan, $3.3 million outstanding on an economic development note and $1.0
million outstanding under other financing arrangements. Additionally, we had
$99.8 million in letters of credit outstanding, which reduced our total
availability under the revolving credit facility to $650.2 million. The letters
of credit serve as collateral for our self-insurance policies and routine
purchases of imported merchandise.
We have
15 lenders participating in our revolving credit facility, each with a
commitment of not more than 15% of the total $750 million commitment. All of
these lenders have met their contractual funding commitments to us through
January 2, 2010. An inability to obtain sufficient financing at cost-effective
rates could have a materially adverse impact on our business, financial
condition, results of operations and cash flows.
Capital
Expenditures
Our
primary capital requirements have been the funding of our continued store
expansion program, including new store openings and store acquisitions, store
relocations, maintenance of existing stores, the construction and upgrading of
distribution centers, and the development of proprietary information systems and
purchased information systems. Our capital expenditures were $192.9 million in
Fiscal 2009, or $7.9 million more than Fiscal 2008, primarily due to routine
spending on our existing stores and information technology investments,
partially offset by fewer stores opened and the timing of store development
expenditures. During Fiscal 2009, we opened 75 AAP and 32 AI stores, remodeled
13 AAP stores and relocated 6 AAP and 4 AI stores.
Our
future capital requirements will depend in large part on the number of and
timing for new stores we open or acquire within a given year and the investments
we make in information technology and supply chain networks. During Fiscal 2010,
we anticipate adding 110 new AAP and 40 new AI stores. We expect to
relocate and remodel existing stores only in the normal course of
business.
We also
plan to make continued investments in the maintenance of our existing stores and
supply chain network and to invest in new information systems to support our
turnaround strategies, including the multi-year implementation of a
merchandising system. In Fiscal 2010, we anticipate that our capital
expenditures will be approximately $220.0 million to
$240.0 million.
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 Securities and Exchange Commission.
During
Fiscal 2009, we repurchased 2.5 million shares of common stock at an aggregate
cost of $99.6 million, or an average price of $40.36 per share, leaving $89.4
million remaining under our $250 million stock repurchase program, excluding
related expenses.
Subsequent
to January 2, 2010, our Board of Directors authorized a new $500 million stock
repurchase program on February 16, 2010. The new program cancelled and replaced
the remaining portion of our previous $250 million stock repurchase program,
which was authorized on May 15, 2008. As of February 26, 2010, we have
repurchased 1.4 million shares of our common stock at an aggregate cost of $56.2
million, or an average price of $40.40 per share, under our $500 million stock
repurchase program.
Dividend
Our Board
of Directors have paid quarterly dividends of $0.06 per share to stockholders of
record since fiscal 2006. Subsequent to January 2, 2010, our Board of Directors
declared a quarterly dividend of $0.06 per share to be paid on April 9, 2010 to
all common stockholders of record as of March 26, 2010.
Other
Liquidity
During
the last two years, we have transitioned certain of our merchandise vendors from
a vendor financing program to a customer-managed services arrangement, or vendor
program. Under this vendor program, a third party provides an accounts payable
tracking system which facilitates the participating suppliers’ ability to
finance our payment obligations with designated third-party financial
institutions. Participating suppliers may, at their sole discretion, make offers
to participating financial institutions to finance one or more of our payment
obligations prior to their scheduled due dates at a discounted price. Our
obligations to suppliers, including amounts due and scheduled payment dates, are
not impacted by suppliers’ decisions to finance our accounts payable due to them
under this arrangement. Our goal in entering into this arrangement is to capture
overall supply chain savings in the form of pricing, payment terms or vendor
funding, created by facilitating our suppliers’ ability to finance payment
obligations at more favorable discount rates, while providing them with greater
working capital flexibility.
Any
deterioration in the credit markets could adversely impact our ability to secure
funding for any of these programs, which would reduce our anticipated savings,
including but not limited to, causing us to increase our borrowings under our
revolving credit facility.
Analysis
of Cash Flows
A summary
and analysis of our cash flows for Fiscal 2009, 2008 and 2007 is reflected in
the table and following discussion.
|
Fiscal
Year
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(in
millions)
|
||||||||||||
|
Cash
flows from operating activities
|
$ | 699.7 | $ | 478.7 | $ | 410.5 | ||||||
|
Cash
flows from investing activities
|
(185.5 | ) | (181.6 | ) | (202.1 | ) | ||||||
|
Cash
flows from financing activities
|
(451.5 | ) | (274.4 | ) | (204.9 | ) | ||||||
|
Net
increase in cash and
|
||||||||||||
|
cash
equivalents
|
$ | 62.7 | $ | 22.7 | $ | 3.5 | ||||||
Operating Activities
For
Fiscal 2009, net cash provided by operating activities increased $221.0 million
to $699.7 million. This net increase in operating cash was driven primarily
by:
|
·
|
a
$32.3 million increase in net income, $23.6 million of which represented a
non-cash inventory adjustment in Fiscal 2008 (net of
tax);
|
|
·
|
a
$69.3 million increase in deferred income
taxes;
|
|
·
|
a
$194.5 million increase in cash flows from inventory, net of accounts
payable, reflective of our slow down in inventory growth combined with the
addition of vendors to our new vendor program (this increase is partially
offset by the reduction of financed vendor account payable included under
Financing Activities as a result of our vendor program transition);
and
|
|
·
|
a
$56.6 million decrease in cash flows resulting from an increase in other
working capital, including a $64.0 million decrease in cash flows
resulting from the timing of the payment of accrued operating
expenses.
|
For
Fiscal 2008, net cash provided by operating activities increased $68.2 million
to $478.7 million. This net increase in operating cash was driven primarily
by:
|
·
|
a
$23.4 million increase in net income exclusive of a $23.6 million non-cash
inventory adjustment (net of tax) as a result of our favorable operating
income during Fiscal 2008 (inclusive of the approximate $9.6 million
impact of the 53rd
week); and
|
|
·
|
a
$29.5 million increase in cash flows resulting from the timing of the
payment of accrued operating
expenses.
|
Investing
Activities
For
Fiscal 2009, net cash used in investing activities increased by $3.9 million to
$185.5 million. The increase in cash used was primarily due to an increase in
routine spending on our existing stores and information technology investments,
partially offset by fewer stores opened and the timing of store development
expenditures.
For
Fiscal 2008, net cash used in investing activities decreased by $20.5 million to
$181.6 million. The decrease in cash used was primarily due
to:
|
·
|
a
$25.6 million decrease in capital expenditures reflective of a reduction
in store development; and
|
|
·
|
the
absence of $6.6 million in insurance proceeds received in Fiscal
2007.
|
Financing
Activities
For
Fiscal 2009, net cash used in financing activities increased by $177.1 million
to $451.5 million. Cash flows from financing activities increased as a result of
a decrease of $119.4 million in repurchases of common stock under our stock
repurchase program. Cash flows from financing activities decreased as result
of:
|
·
|
a
$202.0 million increase in net debt repayments, primarily under our
revolving credit facility; and
|
|
·
|
a
$87.1 million decrease in financed vendor accounts payable driven by the
transition of our vendors from our vendor financing program to our vendor
program.
|
For
Fiscal 2008, net cash used in financing activities increased by $69.6 million to
$274.4 million. Cash flows from financing activities increased as a result of a
$63.5 million decrease in the repurchase of common stock under our stock
repurchase program. Cash flows from financing activities decreased as result
of:
|
·
|
a
$5.2 million cash outflow resulting from the timing of bank
overdrafts;
|
|
·
|
a
$43.2 million decrease in financed vendor accounts payable driven by the
transition of our vendors from our vendor financing program to our vendor
program;
|
|
·
|
a
reduction of $78.6 million in net borrowings primarily under our credit
facilities; and
|
|
·
|
a
$7.3 million decrease in additional tax benefits associated with the
decreased number of stock options
exercised.
|
Off-Balance-Sheet
Arrangements
As of
January 2, 2010, 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 including
operating lease payments, interest payments on our credit facility and letters
of credit outstanding.
Contractual
Obligations
In
addition to our revolving credit facility, we utilize operating leases as
another source of financing. The amounts payable under these operating leases
are included in our schedule of contractual obligations. Our future contractual
obligations related to long-term debt, operating leases and other contractual
obligations at January 2, 2010 were as follows:
|
Contractual
Obligations
|
Total
|
Fiscal
2010
|
Fiscal
2011
|
Fiscal
2012
|
Fiscal
2013
|
Fiscal
2014
|
Thereafter
|
|||||||||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||||||||||
|
Long-term
debt (1)
|
$ | 204,271 | $ | 1,344 | $ | 200,972 | $ | 742 | $ | 689 | $ | 524 | $ | - | ||||||||||||||
|
Interest
payments
|
$ | 26,203 | $ | 14,813 | $ | 11,310 | $ | 44 | $ | 24 | $ | 12 | $ | - | ||||||||||||||
|
Operating
leases(2)
|
$ | 2,072,671 | $ | 287,320 | $ | 250,396 | $ | 227,551 | $ | 202,104 | $ | 171,743 | $ | 933,557 | ||||||||||||||
|
Other
long-term liabilities(3)
|
$ | 121,644 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
|
(1)
|
Long-term
debt represents primarily the principal amounts due under our term loan
and revolving credit facility, which become due in October
2011.
|
|
(2)
|
We
lease certain store locations, distribution centers, office space,
equipment and vehicles. Our property leases generally contain renewal and
escalation clauses and other concessions. These provisions are considered
in our calculation of our minimum lease payments which are recognized as
expense on a straight-line basis over the applicable lease term. In
accordance with SFAS No. 13, “Accounting for Leases,” as amended by SFAS
No. 29, “Determining Contingent Rental” (collectively now under ASC Topic
840), any lease payments that are based upon an existing index or rate,
are included in our minimum lease payment
calculations.
|
|
(3)
|
Primarily
includes employee benefits accruals, closed store liabilities,
unrecognized tax benefits and deferred income taxes for which no
contractual payment schedule exists and we expect the payments to occur
beyond 12 months from January 2, 2010. During the next 12 months, it
is possible that we could conclude on approximately $1 to $2 million of
the contingencies associated with these tax uncertainties, a portion of
which may be settled in cash and is reflected as a current liability. We
do not anticipate any significant impact on our liquidity and capital
resources due to the conclusion of these tax
matters.
|
Long
Term Debt
Bank
Debt
We have a
$750 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 million, and swingline loans in an
amount not to exceed $50 million. We may request, subject to agreement by one or
more lenders, that the total revolving commitment be increased by an amount not
exceeding $250 million (up to a total commitment of $1 billion) during the term
of the credit agreement. Voluntary prepayments and voluntary reductions of the revolving balance are permitted in whole or in
part, at our option, in minimum principal amounts as specified in the revolving
credit facility. The revolving credit facility matures on October 5,
2011.
As of
January 2, 2010, we had no amount outstanding under our revolving credit
facility, and letters of credit outstanding of $99.8 million, which reduced the
availability under the revolving credit facility to $650.2 million. (The letters
of credit generally have a term of one year or less.) A commitment fee is
charged on the unused portion of the revolver, payable in arrears. The current
commitment fee rate is 0.150% per annum.
In
addition to the revolving credit facility, we had borrowed $200 million under
our unsecured four-year term loan as of January 2, 2010. We entered into
the term loan with Stores serving as borrower. The proceeds from the term loan
were used to repurchase shares of our common stock under our stock
repurchase program during Fiscal 2008. The term loan matures on
October 5, 2011.
The
interest rate on borrowings under the revolving credit facility is based, at our
option, on an adjusted LIBOR rate, plus a margin, or an alternate base rate,
plus a margin. The current margin is 0.75% and 0.0% per annum for the adjusted
LIBOR and alternate base rate borrowings, respectively. Under the terms of the
revolving credit facility, the interest rate and commitment fee are based on our
credit rating. The interest rate on the term loan is based, at our
option, on an adjusted LIBOR rate, plus a margin, or an alternate base rate,
plus a margin. The current margin is 1.0% and 0.0% per annum for the
adjusted LIBOR and alternate base rate borrowings, respectively. Under the terms
of the term loan, the interest rate is based on our credit rating. We have
elected to use the 90-day adjusted LIBOR rate and have the ability and intent to
continue to use this rate on our hedged borrowings. At January 2, 2010, the
entire portion of our bank debt was hedged through the use of interest rate swaps which effectively fixed our LIBOR at rates ranging from 4.01% to 4.98%.
Other
As of
January 2, 2010, we had $4.3 million outstanding under an economic development
note and other financing arrangements.
Guarantees
and Covenants
The term
loan and revolving credit facility are fully and unconditionally guaranteed by
Advance Auto Parts, Inc. Our debt agreements collectively contain covenants
restricting our ability to, among other things: (1) create, incur or
assume additional debt (including hedging arrangements), (2) incur liens or
engage in sale-leaseback transactions, (3) make loans and investments, (4)
guarantee obligations, (5) engage in certain mergers, acquisitions and asset
sales, (6) change the nature of our business and the business conducted by our
subsidiaries and (7) change our status as a holding company. We are 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
these covenants at January 2, 2010 and January 3, 2009. Our term loan and
revolving credit facility also provide for customary events of default, covenant
defaults and cross-defaults to our other material indebtedness.
Credit
Ratings
At
January 2, 2010, we had credit ratings from Standard & Poor’s of BB+ and
from Moody’s Investor Service of Ba1, both of which are unchanged from January
3, 2009. The current outlooks by Standard & Poor’s and Moody’s are stable
and positive, respectively. The current pricing grid used to determine our
borrowing rates under our term loan and revolving credit facility is based on
our credit ratings, irrespective of the rating agencies’ outlooks. If these
credit ratings decline, our interest expense may increase. Conversely, if these
credit ratings improve, our interest expense may decrease. In addition, if our
credit ratings decline, our access to financing may become more
limited.
Recent
Accounting Developments
We
adopted several new accounting pronouncements as of the beginning of Fiscal
2009.
Earnings
per Share
Earnings
per share is determined using the two-class method and is computed by dividing
net income attributable to our common shareholders by the weighted-average
common shares outstanding during the period. The two-class method is an
earnings allocation formula that determines income per share for each class of
common stock and participating securities according to dividends declared and
participation rights in undistributed earnings. Diluted income per common share
reflects the more dilutive earnings per share amount calculated using the
treasury stock method or the two-class method. Upon adoption of the
two-class method, prior-period earnings per share data presented were adjusted
retrospectively if applicable. As a result, our diluted earnings per share
decreased by $0.01 for Fiscal 2008 and basic earnings per share decreased by
$0.01 for Fiscal 2007. For a complete discussion of our adoption of the
two-class method, see Note 14 to the Consolidated Financial Statements in this
Report on Form 10-K.
Other
Effective
as of the first quarter of Fiscal 2009, we added the expanded disclosures on
fair value and hedging activities as provided in Note 8, Derivative Instruments and Hedging
Activities, and Note 9, Fair Value Measurements,
respectively, to the Consolidated Financial Statements in this Report on Form
10-K.
New
Accounting Pronouncements
For a
description of recently announced accounting standards, including the expected
dates of adoption and estimated effects, if any, on our consolidated financial
statements, see New Accounting
Pronouncements in Note 2 to the Consolidated Financial Statements in this
Report on Form 10-K.
Item 7A.
Quantitative and Qualitative
Disclosures about Market Risks.
We are
exposed to cash flow risk due to changes in interest rates with respect to our
long-term bank debt as a result of the movements in LIBOR. Our long-term bank
debt consists of borrowings under a revolving credit facility and a term loan.
While we cannot predict the impact interest rate movements will have on our bank
debt, exposure to rate changes is managed through the use of hedging
activities.
Our
future exposure to interest rate risk is mitigated by utilizing interest rate
swaps. At January 2, 2010, our outstanding swaps fixed our LIBOR on an aggregate
of $275 million of hedged debt at interest rates ranging from 4.01% to 4.98%.
All of the swaps expire in October 2011.
The table
below presents principal cash flows and related weighted average interest rates
on our long-term bank debt outstanding at January 2, 2010, by expected maturity
dates. Additionally, the table includes (i) the notional amounts of our hedged
debt, and (ii) the impact of the anticipated average pay and receive rates of
our interest rate swaps through their maturity dates. Expected maturity dates
approximate contract terms. Weighted average variable rates are based on implied
forward rates in the yield curve at January 2, 2010. Implied forward rates
should not be considered a predictor of actual future interest
rates.
|
Fiscal
2010
|
Fiscal
2011
|
Fiscal
2012
|
Fiscal
2013
|
Fiscal
2014
|
Thereafter
|
Total
|
Fair
Market
Liability
|
|||||||||||||||||||||||||
|
Long-term
bank debt:
|
(dollars
in thousands)
|
|||||||||||||||||||||||||||||||
|
Variable
rate
|
$ | - | $ | 200,000 | $ | - | $ | - | $ | - | $ | - | $ | 200,000 | $ | 195,000 | (1) | |||||||||||||||
|
Weighted
average
|
||||||||||||||||||||||||||||||||
|
interest
rate
|
1.7% | 3.0% | - | - | - | - | 2.1% | - | ||||||||||||||||||||||||
|
Interest
rate swap:
|
||||||||||||||||||||||||||||||||
|
Variable
to fixed(2)
|
$ | 275,000 | $ | 275,000 | $ | - | $ | - | - | - | 275,000 | $ | 17,344 | |||||||||||||||||||
|
Weighted
average pay rate
|
4.1% | 2.8% | - | - | - | - | 3.5% | - | ||||||||||||||||||||||||
|
Weighted
average receive rate
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
(1) The
fair value of our bank debt is approximated based on similar issues available to
us as of January 2, 2010.
(2)
Amounts presented may not be outstanding for the entire year.
Item 8.
Financial Statements and
Supplementary Data.
See
financial statements included in Item 15 “Exhibits, Financial Statement
Schedules” of this annual report.
Item 9.
Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Controls and
Procedures.
Disclosure
Controls and Procedures
Disclosure
controls and procedures are our controls and other procedures that are designed
to ensure that information required to be disclosed by us in our reports that we
file or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
us in our reports that we file or submit under the Securities Exchange Act of
1934 is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure. Our management evaluated, with
the participation of our principal executive officer and principal financial
officer, the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this report in accordance with Rule 13a-15(b) under
the Exchange Act. Based on this evaluation, our principal executive
officer and our principal financial officer have concluded that, as of the end
of the period covered by this report, our disclosure controls and procedures
were effective.
Management's
Report on Internal Control over Financial Reporting
Management’s
Report on Internal Control over Financial Reporting is set forth in Part IV,
Item 15 of this annual report.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting that occurred
during the quarter ended January 2, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other Information.
None.
Item 10.
Directors,
Executive Officers and Corporate Governance.
For
a discussion of our directors, executive officers and corporate governance, see
the information set forth in the sections entitled “Proposal No. 1 – Election of
Directors,” “Corporate Governance,” “Meetings and Committees of the Board,”
“Information Concerning Our Executive Officers,” “Audit Committee Report,” and
“Section 16(a) Beneficial Ownership Reporting Compliance” in our proxy statement
for the 2010 annual meeting of stockholders to be
filed with the SEC within 120 days after the end of the fiscal year ended
January 2, 2010 (the “2010 Proxy Statement”), which is incorporated herein by
reference.
Item 11.
Executive Compensation.
See the
information set forth in the sections entitled “Meetings and Committees of the
Board – Compensation Committee Interlocks and Insider Participation,”
“Compensation Committee Report” and “Executive Compensation” in the 2010 Proxy
Statement, which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
See the
information set forth in the sections entitled “Equity Compensation Plan
Information” and "Security Ownership of Certain Beneficial Owners and
Management" in the 2010 Proxy Statement, which is incorporated herein by
reference.
Item 13.
Certain Relationships and Related
Transactions, and Director Independence.
See the
information set forth in the sections entitled "Related-Party Transactions,” and
“Corporate Governance” in the 2010 Proxy Statement, which is incorporated herein
by reference.
Item 14.
Principal Accountant Fees and
Services.
See the
information set forth in the section entitled “2009 and 2008 Audit Fees” in the
2010 Proxy Statement, which is incorporated herein by reference.
Item
15. Exhibits, Financial Statement
Schedules.
|
|
|||
|
(a)
(1) Financial Statements
|
|
||
|
Audited Consolidated Financial
Statements of Advance Auto Parts, Inc. and Subsidiaries for the years
ended January 2, 2010, January 3, 2009 and December 29,
2007:
|
|||
|
F-1
|
|||
|
F-2
|
|||
|
F-4
|
|||
|
F-5
|
|||
|
F-6
|
|||
| Consolidated Statements of Cash Flows |
F-7
|
||
| Notes to the Consolidated Financial Statements |
F-9
|
||
| (2) Financial Statement Schedules |
|
||
| Report of Independent Registered Public Accounting Firm |
F-44
|
||
| Schedule I - Condensed Financial Information of the Registrant |
F-45
|
||
| Schedule II - Valuation and Qualifying Accounts |
F-52
|
||
| (3) Exhibits |
|
||
| The Exhibit Index following the signatures for this report is incorporated herein by reference. | |||
FINANCIAL
REPORTING
Management
of Advance Auto Parts, Inc. and its subsidiaries (collectively the “Company”) is
responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13(a) – 15(f) under the Securities
Exchange Act of 1934, as amended. The Company’s internal control over financial
reporting is a process designed under the supervision of the Company’s principal
executive officer and principal financial officer, and effected by the Company’s
Board of Directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of the Company’s financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America.
Our
internal control over financial reporting includes policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
Company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and
that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements.
As of
January 2, 2010, management, including the Company’s principal executive officer
and principal financial officer, assessed the effectiveness of the Company’s
internal control over financial reporting based on the criteria established in
Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on this assessment, management has determined
that the Company’s internal control over financial reporting as of January 2,
2010 is effective. Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud
may not be prevented or detected on a timely basis. Also, projections
of any evaluation of the effectiveness of the internal control over financial
reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Deloitte
& Touche LLP, the Company’s independent registered public accounting firm
who audited the Company’s consolidated financial statements, has issued an
attestation report on the Company’s internal control over financial reporting as
of January 2, 2010 which is included on page F-3 herein.
| /s/ Darren R. Jackson | /s/ Michael A. Norona | ||
| Darren R. Jackson | Michael A. Norona | ||
|
Chief Executive Officer and
Director
|
Executive Vice President and
Chief Financial Officer
|
||
March 2,
2010
To the
Board of Directors and Stockholders of
Advance
Auto Parts, Inc. and Subsidiaries
Roanoke,
Virginia
We have
audited the accompanying consolidated balance sheets of Advance Auto Parts, Inc.
and subsidiaries (the "Company") as of January 2, 2010 and January 3, 2009, and
the related consolidated statements of operations, changes in stockholders’
equity, and cash flows for each of the three years in the period ended January
2, 2010. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Advance Auto Parts, Inc. and subsidiaries as
of January 2, 2010 and January 3, 2009, and the results of their operations and
their cash flows for each of the three years in the period ended January 2,
2010, in conformity with accounting principles generally accepted in the United
States of America.
As
discussed in Notes 2, 14 and 15 to the consolidated financial statements, the
Company changed its methods of accounting for computing earnings per share when
there are participating securities in 2009 and retrospectively applied it to the
periods ended January 3, 2009 and December 29, 2007 and for uncertain tax
positions in 2007. As discussed in Note 3 to the consolidated financial
statements, the Company implemented a change in accounting principle for costs
included in inventory on January 4, 2009 and retrospectively applied it to the
consolidated statements of operations, for the periods ended January 3, 2009 and
December 29, 2007.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of January 2, 2010, based on the criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated March 2, 2010 expressed an
unqualified opinion on the Company's internal control over financial
reporting.
/s/ Deloitte & Touche
LLP
Richmond, Virginia
March 2,
2010
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Advance
Auto Parts, Inc. and Subsidiaries
Roanoke,
Virginia
We have
audited the internal control over financial reporting of Advance Auto Parts,
Inc. and subsidiaries (the "Company") as of January 2, 2010 based on criteria
established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. The Company's management
is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company's internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of January 2, 2010, based on the criteria
established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended January 2, 2010 of the Company and our report dated March 2,
2010 expressed an unqualified opinion on those financial statements and included
an explanatory paragraph regarding the Company’s adoption of new accounting
standards and change in accounting principle for costs included in
inventory.
/s/ Deloitte & Touche
LLP
Richmond,
Virginia
March 2,
2010
CONSOLIDATED BALANCE
SHEETS
January 2, 2010 and January 3,
2009
(in thousands, except per share
data)
|
January
2,
|
January
3,
|
|||||||
|
Assets
|
2010
|
2009
|
||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 100,018 | $ | 37,358 | ||||
|
Receivables,
net
|
92,560 | 97,203 | ||||||
|
Inventories,
net
|
1,631,867 | 1,623,088 | ||||||
|
Other
current assets
|
63,173 | 49,977 | ||||||
|
Total
current assets
|
1,887,618 | 1,807,626 | ||||||
|
Property
and equipment, net of accumulated depreciation of
|
||||||||
|
$914,045
and $817,428
|
1,100,338 | 1,071,405 | ||||||
|
Assets
held for sale
|
1,492 | 2,301 | ||||||
|
Goodwill
|
34,387 | 34,603 | ||||||
|
Intangible
assets, net
|
26,419 | 27,567 | ||||||
|
Other
assets, net
|
22,709 | 20,563 | ||||||
| $ | 3,072,963 | $ | 2,964,065 | |||||
|
Liabilities and Stockholders'
Equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Bank
overdrafts
|
$ | - | $ | 20,588 | ||||
|
Current
portion of long-term debt
|
1,344 | 1,003 | ||||||
|
Financed
vendor accounts payable
|
32,092 | 136,386 | ||||||
|
Accounts
payable
|
966,274 | 791,330 | ||||||
|
Accrued
expenses
|
393,060 | 372,510 | ||||||
|
Other
current liabilities
|
73,257 | 43,177 | ||||||
|
Total
current liabilities
|
1,466,027 | 1,364,994 | ||||||
|
Long-term
debt
|
202,927 | 455,161 | ||||||
|
Other
long-term liabilities
|
121,644 | 68,744 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity:
|
||||||||
|
Preferred
stock, nonvoting, $0.0001 par value,
|
||||||||
|
10,000
shares authorized; no shares issued or outstanding
|
- | - | ||||||
|
Common
stock, voting, $0.0001 par value, 200,000 shares
authorized;
|
||||||||
|
104,251
shares issued and 93,623 outstanding at January 2, 2010
|
||||||||
|
and
103,000 shares issued and 94,852 outstanding at January 3,
2009
|
10 | 10 | ||||||
|
Additional
paid-in capital
|
392,962 | 335,991 | ||||||
|
Treasury
stock, at cost, 10,628 and 8,148 shares
|
(391,176 | ) | (291,114 | ) | ||||
|
Accumulated
other comprehensive loss
|
(6,699 | ) | (9,349 | ) | ||||
|
Retained
earnings
|
1,287,268 | 1,039,628 | ||||||
|
Total
stockholders' equity
|
1,282,365 | 1,075,166 | ||||||
| $ | 3,072,963 | $ | 2,964,065 | |||||
The accompanying notes to the consolidated
financial statements
are an integral part of these statements.
CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Years Ended January 2, 2010,
January 3, 2009 and December 29, 2007
(in thousands, except per share
data)
|
Fiscal
Years
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(52
weeks)
|
(53
weeks)
|
(52
weeks)
|
||||||||||
|
Net
sales
|
$ | 5,412,623 | $ | 5,142,255 | $ | 4,844,404 | ||||||
|
Cost of sales, including
purchasing and warehousing costs
|
2,768,397 | 2,743,131 | 2,585,665 | |||||||||
|
Gross
profit
|
2,644,226 | 2,399,124 | 2,258,739 | |||||||||
|
Selling,
general and administrative expenses
|
2,189,841 | 1,984,197 | 1,842,310 | |||||||||
|
Operating
income
|
454,385 | 414,927 | 416,429 | |||||||||
|
Other,
net:
|
||||||||||||
|
Interest
expense
|
(23,337 | ) | (33,729 | ) | (34,809 | ) | ||||||
|
Other
income (expense), net
|
607 | (506 | ) | 1,014 | ||||||||
|
Total
other, net
|
(22,730 | ) | (34,235 | ) | (33,795 | ) | ||||||
|
Income
before provision for income taxes
|
431,655 | 380,692 | 382,634 | |||||||||
|
Provision
for income taxes
|
161,282 | 142,654 | 144,317 | |||||||||
|
Net
income
|
270,373 | 238,038 | 238,317 | |||||||||
|
Basic
earnings per share
|
$ | 2.85 | $ | 2.51 | $ | 2.29 | ||||||
|
Diluted
earnings per share
|
$ | 2.83 | $ | 2.49 | $ | 2.28 | ||||||
|
Average
common shares outstanding
|
94,459 | 94,655 | 103,826 | |||||||||
|
Average
common shares outstanding - assuming dilution
|
95,113 | 95,205 | 104,637 | |||||||||
The accompanying notes to the consolidated
financial statements
are an integral part of these
statements.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For the Years Ended January 2, 2010,
January 3, 2009 and December 29, 2007
(in
thousands)
|
Preferred
Stock
|
Common
Stock
|
Additional
Paid-in
|
Trasury
Stock,
at
cost
|
Accumulated
Other
Comprehensive
|
Retained
|
Total
Stockholders'
|
||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Shares
|
Amount
|
Income
(Loss)
|
Earnings
|
Equity
|
|||||||||||||||||||||||||||||||
|
Balance,
December 30, 2006
|
- | $ | - | 105,351 | $ | 11 | $ | 414,153 | - | $ | - | $ | 3,472 | $ | 613,218 | $ | 1,030,854 | |||||||||||||||||||||||
|
Net
income
|
- | - | - | - | - | - | - | - | 238,317 | 238,317 | ||||||||||||||||||||||||||||||
|
Changes
in net unrecognized other postretirement benefit costs, net of $414
tax
|
- | - | - | - | - | - | - | 636 | - | 636 | ||||||||||||||||||||||||||||||
|
Unrealized
loss on hedge arrangement, net of $3,087 tax
|
- | - | - | - | - | - | - | (4,809 | ) | - | (4,809 | ) | ||||||||||||||||||||||||||||
|
Comprehensive
income
|
234,144 | |||||||||||||||||||||||||||||||||||||||
|
Issuance
of shares upon the exercise of stock options
|
- | - | 1,867 | - | 40,468 | - | - | - | - | 40,468 | ||||||||||||||||||||||||||||||
|
Tax
benefit from share-based compensation
|
- | - | - | - | 11,088 | - | - | - | - | 11,088 | ||||||||||||||||||||||||||||||
|
Issuance
of restricted stock, net of forfeitures
|
- | - | 130 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
Amortization
of restricted stock balance
|
- | - | - | - | 1,341 | - | - | - | - | 1,341 | ||||||||||||||||||||||||||||||
|
Share-based
compensation
|
- | - | - | - | 16,755 | - | - | - | - | 16,755 | ||||||||||||||||||||||||||||||
|
Stock
issued under employee stock purchase plan
|
- | - | 53 | - | 1,888 | - | - | - | - | 1,888 | ||||||||||||||||||||||||||||||
|
Treasury
stock purchased
|
- | - | - | - | - | 8,341 | (285,869 | ) | - | - | (285,869 | ) | ||||||||||||||||||||||||||||
|
Treasury
stock retired
|
- | - | (6,329 | ) | (1 | ) | (211,225 | ) | (6,329 | ) | 211,225 | - | - | (1 | ) | |||||||||||||||||||||||||
|
Cash
dividends
|
- | - | - | - | - | - | - | - | (24,789 | ) | (24,789 | ) | ||||||||||||||||||||||||||||
|
Adoption
of unrecognized tax position guidance
|
- | - | - | - | - | - | - | - | (2,275 | ) | (2,275 | ) | ||||||||||||||||||||||||||||
|
Other
|
- | - | - | - | 191 | - | - | - | - | 191 | ||||||||||||||||||||||||||||||
|
Balance,
December 29, 2007
|
- | $ | - | 101,072 | $ | 10 | $ | 274,659 | 2,012 | $ | (74,644 | ) | $ | (701 | ) | $ | 824,471 | $ | 1,023,795 | |||||||||||||||||||||
|
Net
income
|
- | - | - | - | - | - | - | - | 238,038 | 238,038 | ||||||||||||||||||||||||||||||
|
Changes
in net unrecognized other postretirement benefit costs, net of $52
tax
|
- | - | - | - | - | - | - | 81 | - | 81 | ||||||||||||||||||||||||||||||
|
Unrealized
loss on hedge arrangement, net of $5,605 tax
|
- | - | - | - | - | - | - | (8,729 | ) | - | (8,729 | ) | ||||||||||||||||||||||||||||
|
Comprehensive
income
|
229,390 | |||||||||||||||||||||||||||||||||||||||
|
Issuance
of shares upon the exercise of stock options
|
- | - | 1,421 | - | 31,989 | - | - | - | - | 31,989 | ||||||||||||||||||||||||||||||
|
Tax
benefit from share-based compensation
|
- | - | - | - | 8,405 | - | - | - | - | 8,405 | ||||||||||||||||||||||||||||||
|
Issuance
of restricted stock, net of forfeitures
|
- | - | 427 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
Amortization
of restricted stock balance
|
- | - | - | - | 4,661 | - | - | - | - | 4,661 | ||||||||||||||||||||||||||||||
|
Share-based
compensation
|
- | - | - | - | 13,046 | - | - | - | - | 13,046 | ||||||||||||||||||||||||||||||
|
Stock
issued under employee stock purchase plan
|
- | - | 80 | - | 2,801 | - | - | - | - | 2,801 | ||||||||||||||||||||||||||||||
|
Treasury
stock purchased
|
- | - | - | - | - | 6,136 | (216,470 | ) | - | - | (216,470 | ) | ||||||||||||||||||||||||||||
|
Cash
dividends
|
- | - | - | - | - | - | - | - | (22,881 | ) | (22,881 | ) | ||||||||||||||||||||||||||||
|
Other
|
- | - | - | - | 430 | - | - | - | - | 430 | ||||||||||||||||||||||||||||||
|
Balance,
January 3, 2009
|
- | $ | - | 103,000 | $ | 10 | $ | 335,991 | 8,148 | $ | (291,114 | ) | $ | (9,349 | ) | $ | 1,039,628 | $ | 1,075,166 | |||||||||||||||||||||
|
Net
income
|
- | - | - | - | - | - | - | - | 270,373 | 270,373 | ||||||||||||||||||||||||||||||
|
Changes
in net unrecognized other postretirement benefit costs, net of $246
tax
|
- | - | - | - | - | - | - | (384 | ) | - | (384 | ) | ||||||||||||||||||||||||||||
|
Unrealized
gain on hedge arrangement, net of $1,815 tax
|
- | - | - | - | - | - | - | 3,034 | - | 3,034 | ||||||||||||||||||||||||||||||
|
Comprehensive
income
|
273,023 | |||||||||||||||||||||||||||||||||||||||
|
Issuance
of shares upon the exercise of stock options
|
- | - | 1,090 | - | 32,723 | - | - | - | - | 32,723 | ||||||||||||||||||||||||||||||
|
Tax
benefit from share-based compensation
|
- | - | - | - | 1,887 | - | - | - | - | 1,887 | ||||||||||||||||||||||||||||||
|
Issuance
of restricted stock, net of forfeitures
|
- | - | 110 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
Amortization
of restricted stock balance
|
- | - | - | - | 7,287 | - | - | - | - | 7,287 | ||||||||||||||||||||||||||||||
|
Share-based
compensation
|
- | - | - | - | 12,395 | - | - | - | - | 12,395 | ||||||||||||||||||||||||||||||
|
Stock
issued under employee stock purchase plan
|
- | - | 51 | - | 2,010 | - | - | - | - | 2,010 | ||||||||||||||||||||||||||||||
|
Treasury
stock purchased
|
- | - | - | - | - | 2,480 | (100,062 | ) | - | - | (100,062 | ) | ||||||||||||||||||||||||||||
|
Cash
dividends
|
- | - | - | - | - | - | - | - | (22,733 | ) | (22,733 | ) | ||||||||||||||||||||||||||||
|
Other
|
- | - | - | - | 669 | - | - | - | - | 669 | ||||||||||||||||||||||||||||||
|
Balance,
January 2, 2010
|
- | $ | - | 104,251 | $ | 10 | $ | 392,962 | 10,628 | $ | (391,176 | ) | $ | (6,699 | ) | $ | 1,287,268 | $ | 1,282,365 | |||||||||||||||||||||
The accompanying notes to the consolidated
financial statements
are an integral part of these
statements.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
For the Years Ended January 2, 2010,
January 3, 2009 and December 29, 2007
(in
thousands)
|
Fiscal
Years
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(52 weeks)
|
(53 weeks)
|
(52 weeks)
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income
|
$ | 270,373 | $ | 238,038 | $ | 238,317 | ||||||
|
Adjustments
to reconcile net income to net cash provided by
|
||||||||||||
|
operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
150,917 | 146,580 | 147,264 | |||||||||
|
Amortization
of deferred debt issuance costs
|
360 | 360 | 236 | |||||||||
|
Share-based
compensation
|
19,682 | 17,707 | 18,096 | |||||||||
|
Loss
on property and equipment, net
|
8,975 | 2,232 | 11,066 | |||||||||
|
Provision
(benefit) for deferred income taxes
|
66,622 | (2,702 | ) | (20,535 | ) | |||||||
|
Excess
tax benefit from share-based compensation
|
(3,219 | ) | (9,047 | ) | (11,841 | ) | ||||||
|
Inventory
write-down for change in inventory management approach
|
- | 37,484 | - | |||||||||
|
Net
(increase) decrease in:
|
||||||||||||
|
Receivables,
net
|
4,643 | (11,943 | ) | 5,951 | ||||||||
|
Inventories,
net
|
(8,779 | ) | (130,657 | ) | (66,129 | ) | ||||||
|
Other
assets
|
(15,694 | ) | (6,178 | ) | (10,709 | ) | ||||||
|
Net
increase in:
|
||||||||||||
|
Accounts
payable
|
174,944 | 102,360 | 37,383 | |||||||||
|
Accrued
expenses
|
20,778 | 84,806 | 55,256 | |||||||||
|
Other
liabilities
|
10,088 | 9,699 | 6,187 | |||||||||
|
Net
cash provided by operating activities
|
699,690 | 478,739 | 410,542 | |||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Purchases
of property and equipment
|
(192,934 | ) | (184,986 | ) | (210,600 | ) | ||||||
|
Insurance
proceeds related to damaged property
|
- | - | 6,636 | |||||||||
|
Proceeds
from sales of property and equipment
|
7,395 | 6,790 | 1,821 | |||||||||
|
Other
|
- | (3,413 | ) | - | ||||||||
|
Net
cash used in investing activities
|
(185,539 | ) | (181,609 | ) | (202,143 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Decrease
in bank overdrafts
|
(11,060 | ) | (9,412 | ) | (4,206 | ) | ||||||
|
(Decrease)
increase in financed vendor accounts payable
|
(104,294 | ) | (17,163 | ) | 26,006 | |||||||
|
Dividends
paid
|
(22,803 | ) | (23,181 | ) | (25,152 | ) | ||||||
|
Borrowings
on note payable
|
- | - | 4,232 | |||||||||
|
Payments
on note payable
|
(685 | ) | (666 | ) | - | |||||||
|
Borrowings
under credit facilities
|
173,400 | 438,600 | 495,400 | |||||||||
|
Payments
on credit facilities
|
(424,900 | ) | (488,100 | ) | (471,200 | ) | ||||||
|
Payment
of debt related costs
|
- | - | (821 | ) | ||||||||
|
Proceeds
from the issuance of common stock, primarily exercise
|
||||||||||||
|
of
stock options
|
35,402 | 35,220 | 42,547 | |||||||||
|
Excess
tax benefit from share-based compensation
|
3,219 | 9,047 | 11,841 | |||||||||
|
Repurchase
of common stock
|
(100,062 | ) | (219,429 | ) | (282,910 | ) | ||||||
|
Other
|
292 | 658 | (610 | ) | ||||||||
|
Net
cash used in financing activities
|
(451,491 | ) | (274,426 | ) | (204,873 | ) | ||||||
|
Net
increase in cash and cash equivalents
|
62,660 | 22,704 | 3,526 | |||||||||
|
Cash and cash
equivalents, beginning of period
|
37,358 | 14,654 | 11,128 | |||||||||
|
Cash and cash
equivalents, end of period
|
$ | 100,018 | $ | 37,358 | $ | 14,654 | ||||||
The accompanying notes to the consolidated
financial statements
are an integral part of these
statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- (Continued)
For the Years Ended January 2, 2010,
January 3, 2009 and December 29, 2007
(in
thousands)
|
Fiscal
Years
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(52 weeks)
|
(53 weeks)
|
(52 weeks)
|
||||||||||
|
Supplemental
cash flow information:
|
||||||||||||
|
Interest
paid
|
$ | 18,935 | $ | 27,224 | $ | 26,112 | ||||||
|
Income
tax payments, net
|
126,391 | 106,715 | 158,314 | |||||||||
|
Non-cash
transactions:
|
||||||||||||
|
Accrued
purchases of property and equipment
|
28,838 | 26,299 | 30,523 | |||||||||
|
Repurchases
of common stock not settled
|
- | - | 2,959 | |||||||||
|
Retirement
of common stock
|
- | - | 211,225 | |||||||||
|
Changes
in other comprehensive income (loss)
|
2,650 | (8,648 | ) | (4,173 | ) | |||||||
|
Adoption
of unrecognized tax position guidance
|
- | - | 2,275 | |||||||||
|
Declared
but unpaid cash dividends
|
5,587 | 5,657 | 5,957 | |||||||||
The accompanying notes to the consolidated
financial statements
are an integral part of these
statements.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
1.
Organization and Description of Business:
Advance
Auto Parts, Inc. (“Advance”) conducts all of its operations through its wholly
owned subsidiary, Advance Stores Company, Incorporated (“Stores”) and its
subsidiaries (collectively, the “Company”). The Company operates
3,264 stores within the United States, Puerto Rico and the Virgin Islands. The
Company operates 3,238 stores throughout 39 states in the Northeastern,
Southeastern and Midwestern regions of the United States. These stores operate
under the “Advance Auto Parts” trade name except for certain stores in the State
of Florida which operate under the “Advance Discount Auto Parts” trade name.
These stores offer a broad selection of brand name and proprietary automotive
replacement parts, accessories and maintenance items for domestic and imported
cars and light trucks to do-it-yourself, or DIY, and do-it-for-me, or
Commercial, customers. The Company’s Commercial customers consist of both
walk-in and delivery customers. For Commercial delivery sales, the Company
utilizes a fleet of vehicles to deliver product from its 2,868 store locations
with delivery service to Commercial customers’ places of business, including
independent garages, service stations and auto dealers. In addition, the Company
operates 26 stores located in Puerto Rico and the Virgin Islands under the
“Western Auto” and “Advance Auto Parts” trade names.
Autopart
International (“AI”) is an independently run subsidiary of Stores and operates
156 stores under the “Autopart International” trade name located primarily
throughout the Northeastern region of the United States.
2.
Summary of Significant Accounting Policies:
Accounting
Period
The
Company's fiscal year ends on the Saturday nearest the end of December, which
results in an extra week every several years. Accordingly, our fiscal year ended
January 3, 2009, or Fiscal 2008, included 53 weeks of operations. All other
fiscal years presented included 52 weeks of operations.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Advance and its wholly
owned subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ materially from those
estimates.
|
Cash,
Cash Equivalents and Bank
Overdrafts
|
Cash and
cash equivalents consist of cash in banks and money market funds with original
maturities of three months or less. Included in cash equivalents are credit card
and debit card receivables from banks, which generally settle within two to four
business days. Credit and debit card receivables included in Cash and cash
equivalents at January 2, 2010 and January 3, 2009 were $24,308 and $18,800,
respectively. Bank overdrafts consist of outstanding checks not yet presented to
a bank for settlement, net of cash held in accounts with right of offset. Bank
overdrafts of $9,528 are included in Other current liabilities at January 2,
2010.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
Receivables
Receivables,
net consist primarily of accounts receivables from vendors and commercial
customers. Vendor receivables are recorded based on amounts owed by
the Company’s suppliers as provided in incentive agreements and other overall
terms of the Company’s purchase agreements. The Company provides an allowance
for doubtful accounts based upon factors related to the
credit risk of specific customers or vendors, historical payment trends, current
economic conditions and other relevant information regarding the debtor’s
ability to pay. The Company also extends credit to certain Commercial
customers through a third-party provider of private label credit cards.
Receivables under the private label credit card program are transferred to a
third-party provider generally with no recourse.
Inventory
Inventory
amounts are stated at the lower of cost or market. The cost of the Company’s
merchandise inventory is determined using the last-in, first-out ("LIFO")
method. Under the LIFO method, the Company’s cost of sales reflects the costs of
the most recently purchased inventories, while the inventory carrying balance
represents the costs relating to prices paid in prior years.
Vendor
Incentives
The
Company receives incentives in the form of reductions to amounts owed and/or
payments from vendors related to cooperative advertising allowances, volume
rebates and other promotional considerations. Many of these incentives are under
long-term agreements (terms in excess of one year), while others are negotiated
on an annual basis or less (short-term). Both cooperative advertising allowances
and volume rebates are earned based on inventory purchases and initially
recorded as a reduction to inventory. These deferred amounts are included as a
reduction to cost of sales as the inventory is sold since these payments do not
represent reimbursements for specific, incremental and identifiable costs. Total
deferred vendor incentives included in Inventory, net was $46,294 and $50,527 at
January 2, 2010 and January 3, 2009, respectively.
Similarly,
the Company recognizes other promotional incentives earned under long-term
agreements as a reduction to cost of sales. However, these incentives are
recognized based on the cumulative net purchases as a percentage of total
estimated net purchases over the life of the agreement. The Company's margins
could be impacted positively or negatively if actual purchases or results from
any one year differ from its estimates; however, the impact over the life of the
agreement would be the same. Short-term incentives (terms less than one year)
are generally recognized as a reduction to cost of sales over the duration of
any short-term agreements.
Amounts
received or receivable from vendors that are not yet earned are reflected as
deferred revenue in the accompanying consolidated balance sheets. Management's
estimate of the portion of deferred revenue that will be realized within one
year of the balance sheet date has been included in Other current liabilities in
the accompanying consolidated balance sheets. Total deferred revenue was $11,695
and $12,266 at January 2, 2010 and January 3, 2009, respectively. Earned amounts
that are receivable from vendors are included in Receivables, net except for
that portion expected to be received after one year, which is included in Other
assets, net on the accompanying consolidated balance sheets.
Preopening
Expenses
Preopening
expenses, which consist primarily of payroll and occupancy costs related to the
opening of new stores, are expensed as incurred.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
Income
Taxes
The
Company accounts for income taxes under the asset and liability method which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements. Under the asset and liability method, deferred tax assets and
liabilities are determined based on the differences between the financial
statements and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period of the enactment date.
On
December 31, 2006, the Company adopted the authoritative guidance under ASC
Topic 740 for uncertainty in income taxes and upon adoption recorded an increase
of $2,275 to the liability for unrecognized tax benefits and a corresponding
decrease in its balance of retained earnings. Accordingly, the
Company accounts for uncertainties in income taxes pursuant to this guidance,
which clarifies the accounting for uncertainty in income taxes recognized in the
financial statements. The Company recognizes tax benefits and/or tax liabilities
for uncertain income tax positions based on a two-step process. The first step
is to evaluate the tax position for recognition by determining if the weight of
available evidence indicates that it is more likely than not that the position
will be sustained on audit, including resolution of related appeals or
litigation processes, if any. The second step requires the Company to estimate
and measure the tax benefit as the largest amount that is more than 50% likely
to be realized upon ultimate settlement. It is inherently difficult and
subjective to estimate such amounts, as the Company must determine the
probability of various possible outcomes.
The
Company reevaluates these uncertain tax positions on a quarterly basis or when
new information becomes available to management. The reevaluations are based on
many factors, including but not limited to, changes in facts or circumstances,
changes in tax law, successfully settled issues under audit, expirations due to
statutes of limitations, and new federal or state audit activity. Any change in
either the Company’s recognition or measurement could result in the recognition
of a tax benefit or an increase to the tax accrual.
The
Company also follows guidance provided on derecognition of benefits,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. Refer to Note 15 for a further discussion of
income taxes.
Advertising
Costs
The
Company expenses advertising costs as incurred. Gross advertising expense
incurred was approximately $65,431, $75,321 and $78,823 in Fiscal 2009, 2008 and
2007, respectively.
Self-Insurance
The
Company is self-insured for general and automobile liability, workers'
compensation and health care claims of its employees, or Team Members, while
maintaining stop-loss coverage with third-party insurers to limit its total
liability exposure. Expenses associated with these liabilities are calculated
for (i) claims filed and (ii) claims incurred but not yet reported using
actuarial methods followed in the insurance industry as well as the Company’s
historical claims experience.
Warranty
Liabilities
The
warranty obligation on the majority of merchandise sold by the Company with a
manufacturer’s warranty is the responsibility of the Company’s vendors.
However, the Company has an obligation to provide customers free replacement of
merchandise or merchandise at a prorated cost if under a warranty and not
covered by the manufacturer. Merchandise sold with warranty coverage by the
Company primarily includes batteries but may also include other parts such as
brakes and shocks. The Company estimates its warranty obligation at the time of
sale based on the historical return experience, sales level and cost of the
respective product sold. To the extent vendors provide upfront allowances in
lieu of accepting the obligation for warranty claims and the allowance is in
excess of the related warranty expense, the excess is recorded as a reduction to
cost of sales.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
Revenue
Recognition
The
Company recognizes revenue at the time the sale is made, and at which time the
Company’s walk-in customers take immediate possession of the merchandise or
same-day delivery is made to the Company’s commercial delivery customers. Sales
are recorded net of discounts, sales taxes and estimated allowances. The Company
estimates returns based on current sales levels and the Company’s historical
return experience on a specific product basis. The Company’s reserve for sales
returns and allowances was not material at January 2, 2010 and January 3,
2009.
Share-Based
Payments
The
Company provides share-based compensation to its employees and board of
directors. The Company is required to exercise judgment and make estimates when
determining the projected (i) fair value of each award granted and (ii) number
of awards expected to vest. The Company uses the Black-Scholes option-pricing
model to value all share-based awards at the date of grant and the straight-line
method to amortize this fair value as compensation cost over the requisite
service period.
Derivative
Instruments and Hedging Activities
The
Company’s accounting policy for derivative financial instruments is based on
whether the instruments meet the criteria for designation as cash flow or fair
value hedges. The criteria for designating a derivative as a hedge includes the
assessment of the instrument’s effectiveness in risk reduction, matching of the
derivative instrument to its underlying transaction and the probability that the
underlying transaction will occur. For derivatives with cash flow hedge
designation, the Company reports the after-tax gain or loss from the effective
portion of the hedge as a component of accumulated other income (loss) and
reclassifies it into earnings in the same period or periods in which the hedged
transaction affects earnings, and within the same income statement line item as
the impact of the hedged transaction. For derivatives with fair value hedge
accounting designation, the Company would recognize gains or losses from the
change in the fair value of these derivatives, as well as the offsetting change
in the fair value of the underlying hedged item, in earnings.
The
Company currently holds derivative financial instruments to manage interest rate
risk. The Company has designated these derivative instruments as cash flow
hedges. The derivative financial instruments are recorded at fair value and are
included in Other current liabilities and Other long-term liabilities. On a
quarterly basis, the Company measures the effectiveness of the derivative
financial instruments by comparing the present value of the cumulative change in
the expected future interest to be paid or received on the variable leg of the
instruments against the expected future interest payments on the corresponding
variable rate debt. In addition, the Company compares the critical terms,
including notional amounts, underlying indexes and reset dates of the derivative
financial instruments with the respective variable rate debt to ensure all terms
agree. Any ineffectiveness would be reclassified from accumulated other
comprehensive income (loss) to other income (expense).
Historically,
the Company has utilized forward commodity contracts to manage the risk of
fluctuating fuel prices. The Company elected to apply the normal purchase
election allowed and therefore did not account for these contracts at fair
value. The Company does not have any forward commodity contracts outstanding as
of January 2, 2010.
Accumulated
Other Comprehensive Income (Loss)
The
purpose of reporting Accumulated comprehensive income (loss) is to report a
measure of all changes in equity of an enterprise that result from transactions and other economic events of the period. The changes in
accumulated comprehensive income are reported as other comprehensive income and refer to revenues,
expenses, gains, and losses that are included in other comprehensive income but
excluded from net income.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
The
Company’s Accumulated other comprehensive loss is comprised of the effective
portion of fair value adjustments of interest rate swap transactions and the net
unrealized gain associated with the Company’s postretirement benefit
plan.
Goodwill
and Other Intangible Assets
Goodwill
is the excess of the purchase price over the fair value of identifiable net
assets acquired in business combinations accounted for under the purchase
method. The Company tests goodwill and indefinite-lived intangible assets for
impairment annually as of the first day of the fiscal fourth quarter, or when
indications of potential impairment exist. These indicators would include a
significant change in operating performance, the business climate, legal
factors, competition, or a planned sale or disposition of a significant portion
of the business, among other factors.
Testing
for impairment is a two-step process. The first step is a review for potential
impairment, while the second step measures the amount of impairment, if any.
Under the first step, the Company compares the fair value of its reporting units
with their respective carrying amounts, including goodwill. If the fair value of
a reporting unit exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired and the second step of the impairment test is
unnecessary. If the carrying amount of the reporting unit exceeds its fair
value, the second step of the impairment test must be performed to measure the
amount of impairment loss to be recognized, if any. An impairment loss is
recognized when the fair value of goodwill or other intangible asset is below
its carrying value.
Valuation
of Long-Lived Assets
The
Company evaluates the recoverability of its long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset might not
be recoverable and exceeds its fair value.
Significant
factors, which would trigger an impairment review, include the
following:
|
·
|
Significant
decrease in the market price of a long-lived asset (asset
group);
|
|
·
|
Significant
changes in how assets are used or are planned to be
used;
|
|
·
|
Significant
adverse change in legal factors or business climate, including adverse
regulatory action;
|
|
·
|
Significant
negative industry trends;
|
|
·
|
An
accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of a long-lived asset (asset
group);
|
|
·
|
Significant
changes in technology;
|
|
·
|
A
current-period operating or cash flow loss combined with a history of
operating or cash flow losses, or a projection or forecast that
demonstrates continuing losses associated with the use of a long-lived
asset (asset group); or
|
|
·
|
A
current expectation that, more likely than not, a long-lived asset (asset
group) will be sold or otherwise disposed of significantly before the end
of its previously estimated useful
life.
|
When such
an event occurs, the Company estimates the undiscounted future cash flows
expected to result from the use of the long-lived asset (asset group) and its
eventual disposition. These impairment evaluations involve estimates of asset
useful lives and future cash flows. If the undiscounted expected future cash
flows are less than the carrying amount of the asset and the carrying amount of
the asset exceeds its fair value, an impairment loss is recognized. Management
utilizes an expected present value technique, which uses a risk-free interest
rate and multiple cash flow scenarios reflecting a range of possible outcomes,
to estimate the fair value of its long-lived assets. Actual useful lives and
cash flows could differ from those estimated by management using these
techniques, which could have a material effect on our results of operations,
financial position or cash flows.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
Financed
Vendor Accounts Payable
The
Company is party to a short-term financing program with a bank allowing it to
extend its payment terms on certain merchandise purchases. The substance of the
program is for the Company to borrow money from the bank to finance purchases
from vendors. The
Company records any discount given by the vendor to its inventory and accretes
this discount to the resulting short-term payable to the bank through interest
expense over the extended term. At January 2, 2010 and January 3, 2009, $32,092
and $136,386, respectively, was payable to the bank by the Company under this
program and is included in the accompanying consolidated balance sheets as
Financed vendor accounts payable.
Earnings
per Share
The
Company adopted FASB Staff Position, or FSP, EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities,” effective January 4, 2009 (now included in overall earnings per
share guidance under ASC Topic 260). FSP EITF 03-6-1 addresses whether
instruments granted in share-based payment awards are participating securities
prior to vesting, and therefore, need to be included in the earnings allocation
when computing earnings per share under the two-class method. Unvested
share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method. 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.
Accordingly,
earnings per share is determined using the two-class method and is computed by
dividing net income attributable to the Company’s common shareholders by the
weighted-average common shares outstanding during the period. The
two-class method is an earnings allocation formula that determines income
per share for each class of common stock and participating security according to
dividends declared and participation rights in undistributed earnings. Diluted
income per common share reflects the more dilutive earnings per share amount
calculated using the treasury stock method or the
two-class method.
Basic
earnings per share of common stock has been computed based on the
weighted-average number of common shares outstanding during the period, which is
reduced by stock held in treasury and shares of nonvested restricted stock.
Diluted earnings per share of common stock reflects the weighted-average number
of shares of common stock outstanding, outstanding deferred stock units and the
impact of outstanding stock options, and stock appreciation rights (collectively
“share-based awards”). Diluted earnings per share are calculated by
including the effect of dilutive securities.
Lease
Accounting
The
Company leases certain store locations, distribution centers, office space,
equipment and vehicles. Initial terms for facility leases are typically 10 to 15
years, with renewal options at five year intervals, and may include rent
escalation clauses. The total amount of the minimum rent is expensed on a
straight-line basis over the initial term of the lease unless external economic
factors exist such that renewals are reasonably assured, in which case the
Company would include the renewal period in its amortization period. In those
instances, the renewal period would be included in the lease term for purposes
of establishing an amortization period and determining if such lease qualified
as a capital or operating lease. In addition to minimum fixed rental payments,
some leases provide for contingent facility rentals. Contingent facility rentals
are determined on the basis of a percentage of sales in excess of stipulated
minimums for certain store facilities as defined in the individual lease
agreements. Most of the leases provide that the Company pay taxes, maintenance,
insurance and certain other expenses applicable to the leased premises.
Management expects that in the normal course of business leases that expire will
be renewed or replaced by other leases.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
Property
and Equipment
Property
and equipment are stated at cost, less accumulated depreciation. Expenditures
for maintenance and repairs are charged directly to expense when incurred; major
improvements are capitalized. When items are sold or retired, the related cost
and accumulated depreciation are removed from the account balances, with any
gain or loss reflected in the consolidated statements of
operations.
Depreciation
of land improvements, buildings, furniture, fixtures and equipment, and vehicles
is provided over the estimated useful lives, which range from 2 to 30 years, of
the respective assets using the straight-line method. Depreciation of building
and leasehold improvements is provided over the shorter of the original useful
lives of the respective assets or the term of the lease using the straight-line
method. The term of the lease is generally the initial term of the lease unless
external economic factors exist such that renewals are reasonably assured, in
which case the renewal period would be included in the lease term for purposes
of establishing an amortization period.
Closed
Store Liabilities
The
Company continually reviews the operating performance of its existing store
locations and closes or relocates certain stores identified as underperforming
or delivering strategically or financially unacceptable results. Expenses
pertaining to closed store exit activities are included in the Company’s closed
store liabilities. Closed store liabilities include the present value of the
remaining lease obligations and management’s estimate of future costs of
insurance, property tax and common area maintenance expenses (reduced by the
present value of estimated revenues from subleases and lease buyouts) and new
provisions are established by a charge to selling, general and administrative
expenses, or SG&A, in the accompanying consolidated statements of operations
at the time the facilities actually close.
From time
to time closed store liability estimates require revisions, primarily due to
changes in assumptions associated with revenue from subleases. The effect of
changes in estimates for our closed store liabilities impact both our income
statement and balance sheet: (i) they are included in SG&A in the
accompanying consolidated statements of operations, and (ii) they are recorded
in Accrued expenses (current portion) and Other long-term liabilities (long-term
portion) in the accompanying consolidated balance sheets.
The
Company also evaluates and determines if the results from the closure of store
locations should be reported as discontinued operations based on the elimination
of the operations and associated cash flows from the Company’s ongoing
operations. The Company does not include in its evaluation of discontinued
operations those operations and associated cash flows transferred to another
store in the local market.
Cost
of Sales and Selling, General and Administrative Expenses
The
following table illustrates the primary costs classified in each major expense
category:
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
|
Cost
of Sales
|
SG&A
|
||||||
|
●
|
Total
cost of merchandise sold including:
|
●
|
Payroll
and benefit costs for retail and corporate
|
||||
|
–
|
Freight
expenses associated with moving
|
team
members;
|
|||||
|
merchandise
inventories from our vendors to
|
●
|
Occupancy
costs of retail and corporate facilities;
|
|||||
|
our
distribution center,
|
●
|
Depreciation
related to retail and corporate assets;
|
|||||
|
–
|
Vendor
incentives, and
|
●
|
Advertising;
|
||||
|
–
|
Cash
discounts on payments to vendors;
|
●
|
Costs
associated with our commercial delivery
|
||||
|
●
|
Inventory
shrinkage;
|
program,
including payroll and benefit costs,
|
|||||
|
●
|
Defective
merchandise and warranty costs;
|
and
transportation expenses associated with moving
|
|||||
|
●
|
Costs
associated with operating our distribution
|
merchandise
inventories from our retail stores to
|
|||||
|
network,
including payroll and benefit costs,
|
our
customer locations;
|
||||||
|
occupancy
costs and depreciation; and
|
●
|
Self-insurance
costs;
|
|||||
|
●
|
Freight
and other handling costs associated with
|
●
|
Professional
services;
|
||||
|
moving
merchandise inventories through our
|
●
|
Other
administrative costs, such as credit card
|
|||||
|
supply
chain
|
service
fees, supplies, travel and lodging;
|
||||||
|
–
|
From
our distribution centers to our retail
|
●
|
Closed
store expenses; and
|
||||
|
store
locations, and
|
●
|
Impairment
charges, if any.
|
|||||
|
–
|
From
certain of our larger stores which stock a
|
||||||
|
wider
variety and greater supply of inventory, or
|
|||||||
|
HUB
stores, and Parts Delivered Quickly warehouses,
|
|||||||
|
or
PDQ®s,
to our retail stores after the customer
|
|||||||
|
has
special-ordered the merchandise.
|
|||||||
New Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board, or FASB, approved the FASB
Accounting Standards Codification, or ASC, as the single source of authoritative
nongovernmental GAAP. All existing accounting standard guidance issued by the
FASB, American Institute of Certified Public Accountants, Emerging Issues Task
Force and related literature, excluding guidance from the Securities and
Exchange Commission, or SEC, has been superseded by the ASC. All other
non-grandfathered, non-SEC accounting literature not included in the ASC has
become non-authoritative. The ASC did not change GAAP, but instead introduced a
new structure that combines all authoritative standards into a comprehensive,
topically organized online database. The ASC was effective for interim or annual
periods ending after September 15, 2009.
Accordingly,
the Company adopted the ASC as of October 10, 2009 as provided by Accounting
Standards Update, or ASU, No. 2009-01, “Topic 105 – Generally Accepted
Accounting Principles – amendments based on Statement of Financial Accounting
Standards No. 168, The FASB
Accounting Standards Codification TM and the Hierarchy of Generally
Accepted Accounting Principles.” As a result of this adoption, previous
references to new accounting standards and literature are no longer applicable.
The Company has provided references to both new and old guidance to assist in
understanding the impacts of recently adopted accounting literature,
particularly for guidance adopted since the beginning of the current fiscal year
but prior to the ASC.
Effective
October 10, 2009, the Company adopted ASU No. 2009-05, “Fair Value
Measurements and Disclosures (ASC Topic 820): Measuring Liabilities at Fair
Value.” This ASU provides amendments to ASC Topic 820-10, “Fair Value
Measurements and Disclosures – Overall,” for the fair value measurement of
liabilities. It provides clarification that in circumstances in which a quoted
price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using (a) a valuation
technique that uses the quoted price of the identical liability when traded as
an asset or quoted prices for similar liabilities and/or (b) an income
approach valuation technique or a market approach valuation technique,
consistent with the principles of ASC Topic 820. The adoption had no
impact on the Company’s consolidated financial statements.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
Effective
July 18, 2009 (the Company’s second quarter), the Company adopted FSP No.
FAS 157-4, “Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly” (currently included in ASC Topic
820-10-65-4). This FSP provides guidance for estimating the fair value of an
asset or liability when the volume and level of activity for the asset or
liability have significantly decreased, as well as guidance on identifying
circumstances that indicate a transaction is not orderly. It also requires
disclosure in interim and annual periods of the inputs and valuation techniques
used to measure fair value and a discussion of changes in valuation techniques
and related inputs, if any, during the period. The adoption had no impact on the
Company’s consolidated financial statements.
Effective
July 18, 2009 (the Company’s second quarter), the Company adopted FSP No.
FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of
Financial Instruments” (currently included in ASC Topic 825-10-65-1). This FSP
amends SFAS No. 107, “Disclosures about Fair Value of Financial
Instruments,” to require disclosures about fair value of financial instruments
for interim reporting periods as well as in annual financial statements. This
FSP also requires disclosure about the methods and significant assumptions used
to estimate the fair value of financial instruments and changes in those methods
and significant assumptions, if any, during the period. The adoption had no
impact on the Company’s consolidated financial statements other than the
additional disclosures.
Effective
July 18, 2009 (the Company’s second quarter), the Company adopted SFAS No. 165,
“Subsequent Events” (currently ASC Topic 855-10). This statement sets
forth general standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are
issued. The Company evaluated all activity through March 2, 2010 (the
issuance date of the financial statements) and concluded that no subsequent
events have occurred, other than the Company’s subsequent repurchase of its
common stock as discussed in Note 13, that would require recognition in the
consolidated financial statements or disclosure in the related notes to the
consolidated financial statements.
In June
2008, the FASB Issued EITF No. 08-3, “Accounting by Lessees for
Nonrefundable Maintenance Deposits” (currently ASC Topic 840). EITF 08-3
requires that nonrefundable maintenance deposits paid by a lessee under an
arrangement accounted for as a lease be accounted for as a deposit asset until
the underlying maintenance is performed. When the underlying maintenance is
performed, the deposit may be expensed or capitalized in accordance with the
lessee’s maintenance accounting policy. Upon adoption entities must recognize
the effect of the change as a change in accounting principle. The adoption of
EITF 08-3 had no impact on the Company’s consolidated financial
statements.
In
April 2008, the FASB issued FASB Staff Position No. FAS 142-3,
“Determination of the Useful Life of Intangible Assets” (currently ASC Topic
350), which amends the factors that must be considered in developing renewal or
extension assumptions used to determine the useful life over which to amortize
the cost of a recognized intangible asset under SFAS 142, “Goodwill and Other
Intangible Assets.” The FSP requires an entity to consider its own assumptions
about renewal or extension of the term of the arrangement, consistent with its
expected use of the asset, and is an attempt to improve consistency between the
useful life of a recognized intangible asset under SFAS 142 and the period of
expected cash flows used to measure the
fair value of the asset under SFAS 141, “Business Combinations”
(collectively now under ASC Topic 805). The Company adopted the provisions of
FSP FAS 142-3 effective January 4, 2009. The adoption of the FSP had no impact
on the Company’s consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations”
(collectively now under ASC Topic 805), which replaces SFAS No. 141, “Business
Combinations.” SFAS No. 141R, among other things, establishes principles
and requirements for how an acquirer entity recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed
and any controlling interests in the acquired entity; recognizes and measures
the goodwill acquired in the business combination or a gain from a bargain
purchase; and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. Costs of the acquisition will be recognized separately
from the business combination. SFAS No. 141R applies to business combinations
for fiscal years beginning after December
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
15, 2008.
The Company will consider this standard when evaluating potential future
transactions to which it would apply.
In
December 2009, the FASB issued ASU No. 2009-16, “Transfers and Servicing (Topic
860) Accounting for Transfers of Financial Assets,” which amends the ASC for the
issuance of SFAS No. 166, “Accounting for Transfers of Financial Assets – an
amendment of FASB Statement No. 140.” The amendments in this ASU clarifies the
requirements for isolation and limitations on portions of financial assets that
are eligible for sale accounting and requires enhanced disclosures about the
risks that a transferor continues to be exposed to because of its continuing
involvement in transferred financial assets. ASU 2009-16 is effective for the
Company’s fiscal year beginning after November 15, 2009. The Company does not
expect the adoption to have a material impact on its consolidated financial
statements.
3.
Change in Accounting Principle:
Effective
January 4, 2009, the Company implemented a change in accounting principle for
costs included in inventory. Under the Company’s historical accounting policy,
freight and other handling costs (collectively “handling costs”) associated with
moving merchandise inventories from our distribution centers to our retail
stores and handling costs associated with moving our merchandise inventories
from our vendors to our distribution centers were capitalized as inventory and
expensed in cost of sales as inventory was sold. However, handling costs
associated with moving merchandise inventories from our HUB stores and PDQ®s to
our retail stores after a customer had special-ordered the merchandise were
expensed as incurred in SG&A.
The
change relates to capitalizing handling costs associated with moving merchandise
inventories from our HUB stores and PDQ®s to
our retail stores, which are now treated as inventory product costs. Such costs
are includable in inventory and expensed in cost of sales as inventory is sold
because they relate to the acquisition of goods for resale by the Company. The
Company has determined that it is preferable to capitalize such handling costs
into inventory because it better represents the costs incurred to prepare
inventory for sale to the customer and it is consistent with the Company’s
treatment of other handling costs associated with moving merchandise inventories
from our distribution centers to our retail stores.
The
change in accounting principle has been retrospectively applied to all prior
periods presented herein related to cost of sales and SG&A. However, because
the inventory transferred is typically at the retail store for only one or two
days until customer pick-up, the current and historical impact of this change on
the accompanying consolidated balance sheets, consolidated net income, earnings
per share, and consolidated statements of cash flows is not material and, as a
result, Inventories, net was not adjusted. Accordingly, there is no impact on
any financial statement line items other than cost of sales and SG&A, and
there was no cumulative effect of the change in accounting principle on retained
earnings. The change in accounting principle was initially reported in the
Company’s Form 10-Q for the first quarter of Fiscal 2009. The table below
represents the impact of the accounting change on the current period presented
and comparable periods presented, respectively:
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
|
Fifty-Two
week period ended January 2, 2010
|
||||||||||||
|
Prior
to Effect
|
||||||||||||
|
of
Accounting
|
||||||||||||
|
Change
|
Adjustments
|
As
Reported
|
||||||||||
|
Cost
of sales, including purchasing
|
||||||||||||
|
and
warehousing costs
|
$ | 2,698,907 | $ | 69,490 | $ | 2,768,397 | ||||||
|
Gross
profit
|
$ | 2,713,716 | $ | (69,490 | ) | $ | 2,644,226 | |||||
|
Selling,
general and administrative expenses
|
$ | 2,259,331 | $ | (69,490 | ) | $ | 2,189,841 | |||||
|
Fifty-Three
week period ended January 3, 2009
|
||||||||||||
|
As
Previously
|
||||||||||||
|
Reported
|
Adjustments
|
As
Adjusted
|
||||||||||
|
Cost
of sales, including purchasing
|
||||||||||||
|
and
warehousing costs
|
$ | 2,679,191 | $ | 63,940 | $ | 2,743,131 | ||||||
|
Gross
profit
|
$ | 2,463,064 | $ | (63,940 | ) | $ | 2,399,124 | |||||
|
Selling,
general and administrative expenses
|
$ | 2,048,137 | $ | (63,940 | ) | $ | 1,984,197 | |||||
|
Fifty-Two
week period ended December 29, 2007
|
||||||||||||
|
As
Previously
|
||||||||||||
|
Reported
|
Adjustments
|
As
Adjusted
|
||||||||||
|
Cost
of sales, including purchasing
|
||||||||||||
|
and
warehousing costs
|
$ | 2,523,435 | $ | 62,230 | $ | 2,585,665 | ||||||
|
Gross
profit
|
$ | 2,320,969 | $ | (62,230 | ) | $ | 2,258,739 | |||||
|
Selling,
general and administrative expenses
|
$ | 1,904,540 | $ | (62,230 | ) | $ | 1,842,310 | |||||
4.
Store Closures and Impairment:
During
Fiscal 2009, the Company closed 55 stores and relocated 10 stores, 45 of which
were designated under the store divestiture plan. The remaining store closures
were part of the Company’s routine review and closure of underperforming stores
at or near the end of their respective lease terms. The store divestiture plan
consisted of a review of operating stores to identify locations for potential
closing based on both financial and operating factors. These factors included
cash flow, profitability, strategic market importance, store full potential and
current lease rates.
During
Fiscal 2009, the Company recognized $27,725 of total expense associated with its
closed store activities, $26,057 of which was divestiture related, or
divestiture expense. For Fiscal 2009, divestiture expense included
closed store exit costs of $21,121. The closed store exit costs primarily
included the establishment of the liability for future lease obligations as well
as severance. Closed store liabilities include the present value of the
remaining lease obligations and management’s estimate of future costs of
insurance, property tax and common area maintenance (reduced by the present
value of estimated revenues from subleases and lease buyouts). New provisions
are established by a charge to SG&A in the accompanying consolidated
statements of operations at the time the facilities actually close.
A summary
of the Company’s closed store liabilities, which are recorded in Accrued
expenses (current portion) and Other long-term liabilities (long-term portion)
in the accompanying consolidated balance sheet, are presented in the following
table:
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
|
Lease
Obligations
|
Severance
and
Other
Exit
|
Total
|
||||||||||
|
For the fifty-three weeks ended January 3,
2009:
|
||||||||||||
|
Closed
Store Liabilities, December 29, 2007
|
$ | 2,485 | $ | - | $ | 2,485 | ||||||
|
Reserves
established
|
4,650 | - | 4,650 | |||||||||
|
Change
in estimates
|
638 | - | 638 | |||||||||
|
Reserves
utilized
|
(2,706 | ) | - | (2,706 | ) | |||||||
|
Closed
Store Liabilities, January 3, 2009
|
$ | 5,067 | $ | - | $ | 5,067 | ||||||
|
For the fifty-two weeks ended January 2,
2010:
|
||||||||||||
|
Closed
Store Liabilities, January 3, 2009
|
$ | 5,067 | $ | - | $ | 5,067 | ||||||
|
Reserves
established
|
20,739 | 777 | 21,516 | |||||||||
|
Change
in estimates
|
(365 | ) | - | (365 | ) | |||||||
|
Reserves
utilized
|
(5,070 | ) | (777 | ) | (5,847 | ) | ||||||
|
Closed
Store Liabilities, January 2, 2010
|
$ | 20,371 | $ | - | $ | 20,371 | ||||||
The
Company’s ending closed store liabilities at January 2, 2010 included $18,050
related to the store divestiture plan.
The
Company also included impairment charges of $4,936 in its total divestiture
expense during Fiscal 2009. These charges primarily consisted of the
impairment of certain store assets contained in leased store locations of the
AAP segment identified as part of the store divestiture plan. The
Company evaluates the recoverability of its long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset might not
be recoverable and exceeds its fair value. Accordingly, the Company determined
that the carrying amounts of the assets were considered to not be recoverable
based on the stores’ closure and /or projected inability to produce sufficient
cash flows.
The
impairment was determined based on the excess of the assets’ carrying value as
compared to their fair value as determined by the income
approach. Under this approach, the Company utilized internal cash
flow projections over the life of the underlying lease agreements discounted
based on a risk-free rate of return. This impairment charge is
included in SG&A of the accompanying consolidated statements of
operations.
5.
Inventories, net:
Merchandise
Inventory
The
Company uses the LIFO method of accounting for approximately 95% of inventories
at January 2, 2010 and January 3, 2009, respectively. The Company’s overall
costs to acquire inventory for the same or similar products have generally
decreased historically due to the Company’s significant growth and execution of
merchandise strategies. As a result of utilizing LIFO, the Company recorded a
reduction to cost of sales of $16,040 and $11,055 for Fiscal 2009 and Fiscal
2007, respectively. The Company recorded an increase to cost of sales of $12,555
for Fiscal 2008 primarily due to commodity inflation experienced in Fiscal
2008.
Product
Cores
The
remaining inventories are comprised of product cores, the non-consumable portion
of certain parts and batteries, which are valued under the first-in, first-out
("FIFO") method. Product cores are included as part of the Company’s merchandise
costs and are either passed on to the customer or returned to the vendor.
Because product cores are not subject to frequent cost changes like the
Company’s other merchandise inventory, there is no material difference when
applying either the LIFO or FIFO valuation method.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
Inventory
Overhead Costs
Purchasing
and warehousing costs included in inventory, at FIFO, at January 2, 2010 and
January 3, 2009, were $104,761 and $104,594, respectively.
Inventory
Balances and Inventory Reserves
Inventory
balances at year-end for Fiscal 2009 and Fiscal 2008 were as
follows:
|
January
2,
|
January
3,
|
|||||||
|
2010
|
2009
|
|||||||
|
Inventories
at FIFO, net
|
$ | 1,534,610 | $ | 1,541,871 | ||||
|
Adjustments
to state inventories at LIFO
|
97,257 | 81,217 | ||||||
|
Inventories
at LIFO, net
|
$ | 1,631,867 | $ | 1,623,088 | ||||
Inventory
quantities are tracked through a perpetual inventory system. The Company uses a
cycle counting program in all distribution centers and PDQ®s to
ensure the accuracy of the perpetual inventory quantities of both merchandise
and product core inventory. For our retail stores, the Company completes
physical inventories in addition to periodic cycle counts to ensure the accuracy
of the perpetual inventory quantities of both merchandise and core inventory in
these locations. The Company establishes reserves for estimated shrink based on
results of completed physical inventories, results from recent cycle counts and
historical and current loss trends.
The
Company also establishes reserves for potentially excess and obsolete
inventories based on (i) current inventory levels, (ii) the historical analysis
of product sales and (iii) current market conditions. The Company provides
reserves when less than full credit is expected from a vendor or when
liquidating product will result in retail prices below recorded costs. At the
end of Fiscal 2008, the Company reviewed its inventory productivity and changed
its inventory management approach for slow moving inventory. As a result, the
Company increased its reserve for excess and obsolete inventories by $34,084,
excluding a LIFO and warehousing cost impact of $3,400. With this change in
inventory management approach, the Company intends to more effectively manage
slow moving inventory and utilize vendor return privileges when necessary.
During Fiscal 2009, the Company utilized substantially all of the reserve
established in Fiscal 2008 for its change in approach for slow moving
inventory.
The
following table presents changes in the Company’s inventory reserves for years
ended January 2, 2010, January 3, 2009 and December 29, 2007:
|
January
2,
|
January
3,
|
December
29,
|
||||||||||
|
2010
|
2009
|
2007
|
||||||||||
|
Inventory
reserves, beginning of period
|
$ | 62,898 | $ | 35,565 | $ | 31,376 | ||||||
|
Additions
to inventory reserves
|
63,133 | 113,605 | 106,387 | |||||||||
|
Reserves
utilized
|
(97,545 | ) | (86,272 | ) | (102,198 | ) | ||||||
|
Inventory
reserves, end of period
|
$ | 28,486 | $ | 62,898 | $ | 35,565 | ||||||
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
6.
Goodwill and Intangible Assets:
Goodwill
The
following table reflects the carrying amount of goodwill pertaining to the
Company’s two segments, and the changes in goodwill carrying amounts, for the
years ended January 2, 2010 and January 3, 2009, respectively:
|
AAP
Segment
|
AI
Segment
|
Total
|
||||||||||
|
Balance
at December 29, 2007
|
$ | 16,093 | $ | 17,625 | $ | 33,718 | ||||||
|
Fiscal
2008 activity
|
- | 885 | 885 | |||||||||
|
Balance
at January 3, 2009
|
$ | 16,093 | $ | 18,510 | $ | 34,603 | ||||||
|
Fiscal
2009 activity
|
- | (216 | ) | (216 | ) | |||||||
|
Balance
at January 2, 2010
|
$ | 16,093 | $ | 18,294 | $ | 34,387 | ||||||
During
Fiscal 2008, AI recorded goodwill in the amount of $885 and a subsequent
reduction of $216 in Fiscal 2009 in connection with an acquisition of a small
retail chain.
Intangible
Assets Other Than Goodwill
The
carrying amount and accumulated amortization of acquired intangible assets as of
January 2, 2010 and January 3, 2009 are comprised of the following:
|
Acquired
intangible assets
|
||||||||||||||||
|
Not
Subject
|
||||||||||||||||
|
Subject
to Amortization
|
to
Amortization
|
|||||||||||||||
|
Customer
|
Trademark
and
|
Intangible
|
||||||||||||||
|
Relationships
|
Other
|
Tradenames
|
Assets,
net
|
|||||||||||||
|
Gross:
|
||||||||||||||||
|
Gross
carrying amount at December 29, 2007
|
$ | 9,600 | $ | 885 | $ | 18,800 | $ | 29,285 | ||||||||
|
Additions
|
200 | - | 1,750 | 1,950 | ||||||||||||
|
Gross
carrying amount at January 3, 2009
|
$ | 9,800 | $ | 885 | $ | 20,550 | $ | 31,235 | ||||||||
|
Additions
|
- | - | - | - | ||||||||||||
|
Gross
carrying amount at January 2, 2010
|
$ | 9,800 | $ | 885 | $ | 20,550 | $ | 31,235 | ||||||||
|
Net:
|
||||||||||||||||
|
Net
carrying amount at December 29, 2007
|
$ | 7,464 | $ | 580 | $ | 18,800 | $ | 26,844 | ||||||||
|
Additions
|
200 | - | 1,750 | 1,950 | ||||||||||||
|
2008
amortization
|
(1,098 | ) | (129 | ) | - | (1,227 | ) | |||||||||
|
Net
carrying amount at January 3, 2009
|
$ | 6,566 | $ | 451 | $ | 20,550 | $ | 27,567 | ||||||||
|
Additions
|
- | - | - | - | ||||||||||||
|
2009
amortization
|
(1,023 | ) | (125 | ) | - | (1,148 | ) | |||||||||
|
Net
carrying amount at January 2, 2010
|
$ | 5,543 | $ | 326 | $ | 20,550 | $ | 26,419 | ||||||||
During
the second quarter of Fiscal 2008, AI acquired certain customer relationships
for $200 in connection with an acquisition of a small retail chain.
During
the first quarter of Fiscal 2008, the Company acquired from a Kentucky entity
for $1,750 the limited territorial rights the Kentucky entity had in the
“Advance Auto Parts” trademark, ownership of certain websites and
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
access
to the Louisville, Kentucky market. This acquisition improved the Company’s
trademark rights, opened a new metropolitan market for the Company and is
expected to increase traffic to the Company’s website.
|
FY
2009
|
FY
2008
|
FY
2007
|
||||||||||
|
Amortization
expense
|
$ | 1,148 | $ | 1,227 | $ | 1,082 | ||||||
Future
Amortization Expense
The table
below shows expected amortization expense for the next five years for acquired
intangible assets recorded as of January 2, 2010:
|
Fiscal
Year
|
Amount
|
|
|
2010
|
$ 1,054
|
|
|
2011
|
967
|
|
|
2012
|
967
|
|
|
2013
|
967
|
|
|
2014
|
967
|
7.
Receivables, net:
Receivables
consist of the following:
|
January
2,
|
January
3,
|
|||||||
|
2010
|
2009
|
|||||||
|
Trade
|
$ | 16,389 | $ | 17,843 | ||||
|
Vendor
|
79,006 | 81,265 | ||||||
|
Other
|
2,801 | 3,125 | ||||||
|
Total
receivables
|
98,196 | 102,233 | ||||||
|
Less: Allowance
for doubtful accounts
|
(5,636 | ) | (5,030 | ) | ||||
|
Receivables,
net
|
$ | 92,560 | $ | 97,203 | ||||
8. Derivative
Instruments and Hedging Activities:
Current
outstanding interest rate swaps have fixed the Company’s interest rate on an
aggregate of $275,000 of hedged debt at rates ranging from 4.01% to 4.98%. The
Company elects to receive interest payments based on the 90-day adjusted LIBOR
interest rate and has the intent and ability to continue to use this rate on its
hedged borrowings. Accordingly, the Company does not recognize any
ineffectiveness on the swaps. All of the Company’s interest rate swaps expire in
October 2011.
The fair
value of these interest rate swaps are determined based on a forward yield curve
and the contracted interest rates stated in the interest rate swap agreements.
The fair value of the Company’s interest rate swaps was an unrecognized loss of
$17,344 and $21,979, at January 2, 2010 and January 3, 2009, respectively, which
is reflected in Accumulated other comprehensive income (loss). Any amounts
received or paid under these hedges are recorded in the consolidated statement
of operations during the accounting period the interest on the hedged debt is
paid. Based on the estimated current and future fair values of the hedge
arrangements at January 2, 2010, the Company estimates amounts currently
included in Accumulated other comprehensive income (loss) pertaining to the
interest rate swaps that will be reclassified and recorded in the consolidated
statement of operations in the next 12 months will consist of a net loss of
$10,700.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
The table
below presents the fair value of the Company’s derivative financial instruments
as well as their classification on the consolidated balance sheets as of January
2, 2010 and January 3, 2009:
|
Liability
Derivatives
|
|||||||||
|
Balance
Sheet
|
Fair
Value as of
|
Fair
Value as of
|
|||||||
|
Location
|
January
2, 2010
|
January
3, 2009
|
|||||||
|
Derivatives
designated as hedging
|
|||||||||
|
instruments:
|
|||||||||
|
Interest
rate swaps
|
Accrued
expenses
|
$ | 10,700 | $ | 9,222 | ||||
|
Interest
rate swaps
|
Other
long-term liabilities
|
6,644 | 12,757 | ||||||
| $ | 17,344 | $ | 21,979 | ||||||
The table
below presents the effect of the Company’s derivative financial instruments on
the statement of operations for Fiscal 2009, 2008 and 2007,
respectively:
|
Derivatives
in
Cash
Flow
Hedging
Relationships
|
Amount
of
Gain
or
(Loss)
Recognized
in
OCI on
Derivative,
net
of tax
(Effective
Portion)
|
Location
of Gain
or
(Loss)
Reclassified
from
Accumulated
OCI
into
Income
(Effective
Portion)
|
Amount
of
Gain
or
(Loss)
Reclassified
from
Accumulated
OCI
into
Income,
net
of
tax
(Effective
Portion)
|
Location
of Gain or (Loss)
Recognized
in Income on
Derivative
(Ineffective
Portion
and Amount
Excluded
from
Effectiveness
Testing)
|
Amount
of
Gain
or (Loss)
Recognized
in
Income
on
Derivative,
net
of
tax
(Ineffective
Portion
and
Amount
Excluded
from
Effectiveness
Testing)
|
|||||||||
|
2009
|
||||||||||||||
|
Interest
rate swaps
|
$ | 3,034 |
Interest
expense
|
$ | (6,618 | ) |
Other
income (expense), net
|
$ | (130 | ) | ||||
|
2008
|
||||||||||||||
|
Interest
rate swaps
|
$ | (8,729 | ) |
Interest
expense
|
$ | (2,152 | ) |
Interest
expense
|
$ | - | ||||
|
2007
|
||||||||||||||
|
Interest
rate swaps
|
$ | (4,809 | ) |
Interest
expense
|
$ | 523 |
Interest
expense
|
$ | - | |||||
The
Company reclassified $213 from accumulated other comprehensive loss to earnings
during fiscal 2009 in connection with the $75,000 repayment of the Company’s
revolver. The amount reclassified to earnings represents an estimate
of the forecasted interest that will not be paid as a result of the revolver
repayment. The Company intends to reborrow $75,000 on its revolver subsequent to
January 2, 2010 and will redesignate the applicable interest rate swap at that
time.
Forward
Contracts
During
Fiscal 2009 and 2008, the Company hedged approximately 50% and 70%,
respectively, of its diesel fuel consumption. All of these agreements expired
during 2009.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
9.
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, inputs other than quoted prices that are
observable for the asset or liability or corroborated by other observable
market data.
|
|
·
|
Level
3 – Unobservable inputs for assets or liabilities that are not able to be
corroborated by observable market data and reflect the use of a reporting
entity’s own assumptions. These values are
generally determined using pricing models for which the assumptions
utilize management’s estimates of market participant
assumptions.
|
Assets
and Liabilities Measured at Fair Value on a Recurring Basis
The fair
value hierarchy requires the use of observable market data when available. In
instances where inputs used to measure fair value fall into different levels of
the fair value hierarchy, the fair value measurement has been determined based
on the lowest level input that is significant to the fair value measurement in
its entirety. Our assessment of the significance of a particular item to the
fair value measurement in its entirety requires judgment, including the
consideration of inputs specific to the asset or liability.
The
following table sets forth the Company’s financial liabilities that were
measured at fair value on a recurring basis during the 2009 fiscal year,
including at January 2, 2010:
|
|
Fair
Value Measurements at Reporting Date Using
|
|||||||||||||||
|
Level
1
|
Level
2
|
Level
3
|
||||||||||||||
|
Quoted
Prices in
|
Significant
|
|||||||||||||||
|
Fair
Value at
|
Active
Markets for
|
Significant
Other
|
Unobservable
|
|||||||||||||
|
January
2, 2010
|
Identical
Assets
|
Observable
Inputs
|
Inputs
|
|||||||||||||
|
Interest
rate swaps
|
$ | 17,344 | $ | - | $ | 17,344 | $ | - | ||||||||
The fair
value of these interest rate swaps at January 2, 2010 and January 3, 2009,
respectively, was an unrecognized loss of $17,344 and $21,979. The fair value of
the Company’s interest rate swaps is mainly based on observable interest rate
yield curves for similar instruments.
The
carrying amount of the Company’s cash and cash equivalents, accounts receivable,
bank overdrafts, financed vendor accounts payable, 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. As of January 2, 2010
and January 3, 2009, the fair value of the Company’s long-term debt with a
carrying value of $202,927 and $455,161, respectively, was approximately
$195,000 and $374,000, respectively, and was based on similar long-term debt
issues available to the Company as of that date. The fair value of the Company’s
fixed rate debt was determined by using an assumed market interest rate
commensurate with the Company’s credit risk.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
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). The Company recorded an impairment charge
of $4,936 during Fiscal 2009 to reduce certain store assets in its store
divestiture plan to their estimated fair value of zero. The fair
values were determined based on the income approach, in which the Company
utilized internal cash flow projections over the life of the underlying lease
agreements discounted based on a risk-free rate of return. These
measures of fair value, and related inputs, are considered a level 3 approach
under the fair value hierarchy. There were no other changes related
to level 3 assets.
10. Long-term
Debt:
Long-term
debt consists of the following:
|
January
2,
2010
|
January
3,
2009
|
|||||||
|
Senior
Debt:
|
||||||||
|
Revolving
credit facility at variable interest rates
|
||||||||
|
(4.81%
at January 3, 2009) due October 2011
|
$ | - | $ | 251,500 | ||||
|
Term
loan at variable interest rates
|
||||||||
|
(1.31%
and 3.02% at January 2, 2010 and January 3,
|
||||||||
|
2009,
respectively) due October 2011
|
200,000 | 200,000 | ||||||
|
Other
|
4,271 | 4,664 | ||||||
| 204,271 | 456,164 | |||||||
|
Less:
Current portion of long-term debt
|
(1,344 | ) | (1,003 | ) | ||||
|
Long-term
debt, excluding current portion
|
$ | 202,927 | $ | 455,161 | ||||
Bank Debt
The
Company has a $750,000 unsecured five-year revolving credit facility with Stores
serving as the borrower. The revolving credit facility also provides for the
issuance of letters of credit with a sub limit of $300,000, and swingline loans
in an amount not to exceed $50,000. The Company may request, subject to
agreement by one or more lenders, that the total revolving commitment be
increased by an amount not exceeding $250,000 (up to a total commitment of
$1,000,000) during the term of the credit agreement. Voluntary prepayments and
voluntary reductions of the revolving balance are permitted in whole or in
part, at the Company’s option, in minimum principal amounts as specified in the
revolving credit facility. The revolving credit facility matures on October 5,
2011.
As of
January 2, 2010, the Company had no amount outstanding
under its revolving credit facility, and letters of credit outstanding of
$99,805, which reduced the availability under the revolving credit facility to
$650,195. (The letters of credit generally have a term of one year or less.) A
commitment fee is charged on the unused portion of the revolver, payable in
arrears. The current commitment fee rate is 0.150% per annum.
As
January 2, 2010, the Company had $200,000 outstanding under its
unsecured four-year term loan. The Company entered into the term loan in
Fiscal 2007 with Stores serving as borrower. The term loan matures on
October 5, 2011.
The
interest rate on borrowings under the revolving credit facility is based, at the
Company’s option, on an adjusted LIBOR rate, plus a margin, or an alternate base
rate, plus a margin. The current margin is 0.75% and 0.0% per annum for the
adjusted LIBOR and alternate base rate borrowings, respectively. The Company has
elected to use the 90-day adjusted LIBOR rate and has the ability and intent to
continue to use this rate on its hedged borrowings. Under the terms of the
revolving credit facility, the interest rate and commitment fee are based on the
Company’s credit rating.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
The
interest rate on the term loan is based, at the Company’s option, on
an adjusted LIBOR rate, plus a margin, or an alternate base rate, plus a
margin. The current margin is 1.0% and 0.0% per annum for the adjusted
LIBOR and alternate base rate borrowings, respectively. The Company has elected
to use the 90-day adjusted LIBOR rate and has the ability and intent to continue
to use this rate on its hedged borrowings. Under the terms of the term
loan, the interest rate is based on the Company’s credit rating.
Other
As of
January 2, 2010, the Company had $4,271 outstanding under an economic
development note and other financing arrangements.
Guarantees
and Covenants
The term
loan and revolving credit facility are fully and unconditionally guaranteed by
Advance. The Company’s debt agreements collectively contain covenants
restricting its ability to, among other things: (1) create, incur or
assume additional debt (including hedging arrangements), (2) incur liens or
engage in sale-leaseback transactions, (3) make loans and investments, (4)
guarantee obligations, (5) engage in certain mergers, acquisitions and asset
sales, (6) change the nature of the Company’s business and the business
conducted by its subsidiaries and (7) change 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 these covenants at January 2, 2010 and
January 3, 2009. The Company’s term loan and revolving credit facility also
provide for customary events of default, covenant defaults and cross-defaults to
its other material indebtedness.
At
January 2, 2010, the aggregate future annual maturities of long-term debt
instruments are as follows:
|
Fiscal
Year
|
Amount
|
|||
|
2010
|
$ | 1,344 | ||
|
2011
|
200,972 | |||
|
2012
|
742 | |||
|
2013
|
689 | |||
|
2014
|
524 | |||
|
Thereafter
|
- | |||
| $ | 204,271 | |||
11. Property
and Equipment:
Property
and equipment consists of the following:
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
|
Original
Useful
Lives
|
January
2,
2010
|
January
3,
2009
|
|||||||
|
Land
and land improvements
|
0 -
10 years
|
$ | 313,938 | $ | 289,682 | ||||
|
Buildings
|
30
years
|
363,992 | 351,603 | ||||||
|
Building
and leasehold improvements
|
3 -
30 years
|
245,137 | 229,372 | ||||||
|
Furniture,
fixtures and equipment
|
2 -
10 years
|
972,817 | 897,778 | ||||||
|
Vehicles
|
2 -
10 years
|
24,424 | 25,545 | ||||||
|
Construction
in progress
|
82,837 | 90,195 | |||||||
|
Other
|
11,238 | 4,658 | |||||||
| 2,014,383 | 1,888,833 | ||||||||
|
Less
- Accumulated depreciation
|
(914,045 | ) | (817,428 | ) | |||||
|
Property
and equipment, net
|
$ | 1,100,338 | $ | 1,071,405 | |||||
Depreciation
expense was $149,769, $145,353 and $146,182 for Fiscal 2009, 2008 and 2007,
respectively. The Company capitalized approximately $4,657, $2,388 and $2,274
incurred for the development of internal use computer software during Fiscal
2009, 2008 and 2007, respectively. These costs are included in the furniture,
fixtures and equipment category above and are depreciated on the straight-line
method over three to five years.
12. Accrued
Expenses:
Accrued
expenses consist of the following:
|
January
2,
|
January
3,
|
|||||||
|
2010
|
2009
|
|||||||
|
Payroll
and related benefits
|
$ | 90,493 | $ | 75,471 | ||||
|
Warranty
reserves
|
30,387 | 28,662 | ||||||
|
Capital
expenditures
|
28,838 | 26,299 | ||||||
|
Self-insurance
reserves
|
93,706 | 90,554 | ||||||
|
Taxes
payable
|
54,861 | 69,714 | ||||||
|
Other
|
94,775 | 81,810 | ||||||
|
Total
accrued expenses
|
$ | 393,060 | $ | 372,510 | ||||
Additional
information appears below regarding the Company’s accrued expenses for warranty
reserves and self-insurance reserves.
Warranty
Reserves
The
following table presents changes in the Company’s warranty
reserves:
|
January
2,
|
January
3,
|
December
29,
|
||||||||||
|
2010
|
2009
|
2007
|
||||||||||
|
Warranty
reserves, beginning of period
|
$ | 28,662 | $ | 17,757 | $ | 13,069 | ||||||
|
Additions
to warranty reserves
|
36,440 | 38,459 | 24,722 | |||||||||
|
Reserves
utilized
|
(34,715 | ) | (27,554 | ) | (20,034 | ) | ||||||
|
Warranty
reserves, end of period
|
$ | 30,387 | $ | 28,662 | $ | 17,757 | ||||||
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
Effective
December 30, 2007, the Company began including in its warranty reserve the
warranty obligation on certain other products sold in addition to batteries. A
portion of this obligation is funded by the Company’s vendors.
Self-insurance
Reserves
The
following table presents changes in the Company’s self-insurance
reserves:
|
January
2,
|
January
3,
|
December
29,
|
||||||||||
|
2010
|
2009
|
2007
|
||||||||||
|
Self-insurance
reserves, beginning of period
|
$ | 90,554 | $ | 85,523 | $ | 71,519 | ||||||
|
Additions
to self-insurance reserves
|
102,571 | 89,315 | 102,641 | |||||||||
|
Reserves
utilized
|
(99,419 | ) | (84,284 | ) | (88,637 | ) | ||||||
|
Self-insurance
reserves, end of period
|
$ | 93,706 | $ | 90,554 | $ | 85,523 | ||||||
13. 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 Securities and Exchange
Commission.
During
Fiscal 2009, the Company repurchased 2,467 shares of its common stock at an
aggregate cost of $99,567, or an average price of $40.36 per share, under its
$250,000 stock repurchase program leaving $89,406 remaining under this program,
excluding related expenses. Since the inception of the $250,000 stock repurchase
program, the Company has repurchased 4,040 shares of its common stock at an
aggregate cost of $160,594, or an average price of $39.75, excluding related
expenses. Additionally, the Company repurchased 12 shares of its common stock at
an aggregate cost of $495 in connection with the net settlement of shares issued
from the lapse of restricted stock.
During
Fiscal 2008, the Company repurchased 6,136 shares of its common stock at an
aggregate cost of $216,470, or an average price of $35.28 per share, of which
4,563 shares of common stock were repurchased under the previous $500,000 stock
repurchase program. Additionally, the Company settled $2,959 on shares
repurchased at the end of Fiscal 2007.
Subsequent
to January 2, 2010, the Company’s Board of Directors authorized a new
$500,000 stock repurchase program on February 16, 2010. The new program
cancelled and replaced the remaining portion of its previous $250,000 stock
repurchase program, which was authorized on May 15, 2008. As of February 26,
2010, the Company has repurchased 1,392 shares of its common stock at an
aggregate cost of $56,236, or an average price of $40.40 per share, under its
$500,000 stock repurchase program.
14. 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 Fiscal
2009, 2008 and 2007, earnings of $1,382, $875 and $225, respectively, were
allocated to the participating securities exclusive of any cash dividends
already reflected in net income.
Diluted
earnings per share of common stock reflects the weighted-average number of
shares of common stock outstanding, outstanding deferred stock units and the
impact of outstanding stock options, and stock appreciation rights (collectively
“share-based awards”). Diluted earnings per share are calculated by including
the effect of dilutive securities. Share-based awards to purchase approximately
1,224, 2,747 and 2,549 shares of common stock that had an exercise price in
excess of the average market price of the common stock during Fiscal 2009, 2008
and
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
2007,
respectively, were not included in the calculation of diluted earnings per share
because they are anti-dilutive.
The
following table illustrates the computation of basic and diluted earnings per
share for Fiscal 2009, 2008 and 2007, respectively:
|
Fiscal
Year Ended
|
||||||||||||
|
January
2,
|
January
3,
|
December
29,
|
||||||||||
|
2010
|
2009
|
2007
|
||||||||||
|
Numerator
|
(52
weeks)
|
(53
weeks)
|
(52
weeks)
|
|||||||||
|
Net
income applicable to common shares
|
$ | 270,373 | $ | 238,038 | $ | 238,317 | ||||||
|
Participating
securities' share in earnings
|
(1,382 | ) | (875 | ) | (225 | ) | ||||||
|
Net
income applicable to common shares
|
$ | 268,991 | $ | 237,163 | $ | 238,092 | ||||||
|
Denominator
|
||||||||||||
|
Basic
weighted average common shares
|
94,459 | 94,655 | 103,826 | |||||||||
|
Dilutive
impact of share based awards
|
654 | 550 | 811 | |||||||||
|
Diluted
weighted average common shares
|
95,113 | 95,205 | 104,637 | |||||||||
|
Basic
earnings per common share
|
||||||||||||
|
Net
income applicable to common stockholders
|
$ | 2.85 | $ | 2.51 | $ | 2.29 | ||||||
|
Diluted
earnings per common share
|
||||||||||||
|
Net
income applicable to common stockholders
|
$ | 2.83 | $ | 2.49 | $ | 2.28 | ||||||
Earnings
per share for Fiscal 2008 and 2007 were adjusted retrospectively due to the
application of the two-class method rather than the treasury method for the
earnings per share calculation. As a result, diluted earnings per share were
decreased by $0.01 for Fiscal 2008 and basic earnings per share were decreased
by $0.01 for Fiscal 2007.
15.
Income Taxes:
Provision for Income Taxes
Provision
(benefit) for income taxes from continuing operations for Fiscal 2009, 2008 and
2007 consists of the following:
|
Current
|
Deferred
|
Total
|
|||||||||||
| 2009- | |||||||||||||
|
Federal
|
$ | 87,198 | $ | 58,085 | $ | 145,283 | |||||||
|
State
|
7,462 | 8,537 | 15,999 | ||||||||||
| $ | 94,660 | $ | 66,622 | $ | 161,282 | ||||||||
| 2008- | |||||||||||||
|
Federal
|
$ | 128,952 | $ | (1,435 | ) | $ | 127,517 | ||||||
|
State
|
16,404 | (1,267 | ) | 15,137 | |||||||||
| $ | 145,356 | $ | (2,702 | ) | $ | 142,654 | |||||||
| 2007- | |||||||||||||
|
Federal
|
$ | 143,726 | $ | (17,444 | ) | $ | 126,282 | ||||||
|
State
|
21,126 | (3,091 | ) | 18,035 | |||||||||
| $ | 164,852 | $ | (20,535 | ) | $ | 144,317 | |||||||
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
The
provision (benefit) for income taxes differed from the amount computed by
applying the federal statutory income tax rate due to:
|
2009
|
2008
|
2007
|
||||||||||
|
Income
before provision (benefit) for income taxes
|
||||||||||||
|
at
statutory U.S. federal income tax rate (35%)
|
$ | 151,079 | $ | 133,242 | $ | 133,922 | ||||||
|
State
income taxes, net of federal
income
tax benefit
|
10,400 | 9,839 | 11,723 | |||||||||
|
Non-deductible
expenses
|
3,077 | 2,177 | 1,181 | |||||||||
|
Valuation
allowance
|
(614 | ) | 491 | 221 | ||||||||
|
Other,
net
|
(2,660 | ) | (3,095 | ) | (2,730 | ) | ||||||
|
|
$ | 161,282 | $ | 142,654 | $ | 144,317 | ||||||
Deferred Income Tax
Assets/(Liabilities)
Deferred
tax assets and liabilities are determined based on the differences between the
financial statements and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Deferred income taxes reflect the net income tax effect of temporary differences
between the basis of assets and liabilities for financial reporting purposes and
for income tax reporting purposes. Net deferred income tax balances are
comprised of the following:
|
January
2,
|
January
3,
|
|||||||
|
2010
|
2009
|
|||||||
|
Deferred
income tax assets
|
$ | 104,078 | $ | 100,177 | ||||
|
Valuation
allowance
|
(1,273 | ) | (1,887 | ) | ||||
|
Deferred
income tax liabilities
|
(209,658 | ) | (136,942 | ) | ||||
|
Net
deferred income tax liabilities
|
$ | (106,853 | ) | $ | (38,652 | ) | ||
At
January 2, 2010 and January 3, 2009, the Company had cumulative net deferred
income tax liabilities of $106,853 and $38,652, respectively. The deferred
income tax assets also include state net operating loss carry-forwards, or NOLs,
of approximately $2,057 and $2,581, respectively. These NOLs may be used to
reduce future taxable income and expire periodically through Fiscal 2027. Due to
uncertainties related to the realization of certain deferred tax assets for NOLs
in certain jurisdictions, the Company recorded a valuation allowance of $1,273
as of January 2, 2010 and $1,887 as of January 3, 2009. The amount of deferred
income tax assets realizable, however, could change in the future if projections
of future taxable income change.
Temporary
differences which give rise to significant deferred income tax assets
(liabilities) are as follows:
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
|
January
2,
|
January
3,
|
|||||||
|
2010
|
2009
|
|||||||
|
Current
deferred income tax assets (liabilities):
|
||||||||
|
Inventory
valuation differences
|
$ | (114,510 | ) | $ | (94,373 | ) | ||
|
Accrued
medical and workers compensation
|
30,015 | 28,527 | ||||||
|
Accrued
expenses not currently deductible for tax
|
26,674 | 28,394 | ||||||
|
Net
operating loss carryforwards
|
445 | 510 | ||||||
|
Other,
net
|
5,168 | 3,606 | ||||||
|
Total
current deferred income tax assets (liabilities)
|
$ | (52,208 | ) | $ | (33,336 | ) | ||
|
Long-term
deferred income tax assets (liabilities):
|
||||||||
|
Property
and equipment
|
(95,148 | ) | (42,569 | ) | ||||
|
Postretirement
benefit obligation
|
3,042 | 3,612 | ||||||
|
Share-based
compensation
|
19,872 | 17,562 | ||||||
|
Closed
store related
|
5,428 | - | ||||||
|
Net
operating loss carryforwards
|
1,612 | 2,071 | ||||||
|
Valuation
allowance
|
(1,273 | ) | (1,887 | ) | ||||
|
Other,
net
|
11,822 | 15,895 | ||||||
|
Total
long-term deferred income tax assets (liabilities)
|
$ | (54,645 | ) | $ | (5,316 | ) | ||
These
amounts are recorded in Other current liabilities and Other long-term
liabilities in the accompanying consolidated balance sheets, as
appropriate.
Unrecognized Tax Benefits
The
following table lists each category and summarizes the activity of the Company’s
gross unrecognized tax benefits for the fiscal years ended January 2, 2010,
January 3, 2009 and December 29, 2007:
|
January
2,
|
January
3,
|
December
29,
|
||||||||||
|
2010
|
2009
|
2007
|
||||||||||
|
Unrecognized
tax benefits, beginning of period
|
$ | 13,797 | $ | 14,145 | $ | 16,453 | ||||||
|
Increases
related to prior period tax positions
|
896 | 514 | 1,279 | |||||||||
|
Decreases
related to prior period tax positions
|
(711 | ) | (1,280 | ) | (1,853 | ) | ||||||
|
Increases
related to current period tax positions
|
1,475 | 1,882 | 5,340 | |||||||||
|
Settlements
|
(3,527 | ) | (317 | ) | (539 | ) | ||||||
|
Expiration
of statute of limitations
|
(817 | ) | (1,147 | ) | (271 | ) | ||||||
|
Unrecognized
tax benefits, end of period
|
$ | 11,113 | $ | 13,797 | $ | 20,409 | ||||||
As of
January 2, 2010, the entire amount of unrecognized tax benefits, if recognized,
would reduce the Company’s annual effective tax rate.
The
Company has chosen to provide for potential interest and penalties associated
with uncertain tax positions as a part of income tax expense. During Fiscal
2009, the Company recorded potential interest and penalties of $1,066 and $18,
respectively, related to these unrecognized tax benefits. During Fiscal 2008,
the Company recorded potential interest and penalties of $1,550 and $207,
respectively. During Fiscal 2007, the Company recorded potential interest and
penalties of $1,827 and $709. As of January 2, 2010, the Company had recorded a
liability for potential interest and penalties of $3,918 and $442, respectively.
As of January 3, 2009, the Company had recorded a liability for potential
interest and penalties of $5,022 and $1,743, respectively. As of December 29,
2007, the Company had recorded a liability for potential interest and penalties
of $4,421 and $1,843, respectively, which was included in the above table. The
Company has not provided for any penalties associated with tax contingencies
unless considered probable of assessment. The Company does not expect its
unrecognized tax benefits to change
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
significantly
over the next 12 months.
During
the next 12 months, it is possible the Company could conclude on approximately
$1,000 to $2,000 of the contingencies associated with unrecognized tax
uncertainties due mainly to the conclusion of audits and the expiration of
statutes of limitations. The majority of these resolutions would be achieved
through the completion of current income tax examinations.
The
Company files U.S. and state income tax returns in jurisdictions with varying
statutes of limitations. The Internal Revenue Service completed an examination
of the Company’s 2006 and 2007 tax return. The 2008 and 2009 tax years remain
open to exam by the Internal Revenue Service. The Company has no state
examinations open for tax years prior to 2005. With limited exceptions, the 2006
and subsequent years remain subject to examination by state tax
authorities.
16. Lease
Commitments:
At
January 2, 2010, future minimum lease payments due under non-cancelable
operating leases with lease terms ranging from 1 year to 30 years through the
year 2039 for all open stores are as follows:
|
Fiscal
Year
|
Amount
|
|||
|
2010
|
$ | 287,320 | ||
|
2011
|
250,396 | |||
|
2012
|
227,551 | |||
|
2013
|
202,104 | |||
|
2014
|
171,743 | |||
|
Thereafter
|
933,557 | |||
| $ | 2,072,671 | |||
The
Company anticipates its future minimum lease payments will be partially off-set
by future minimum sub-lease income. At January 2, 2010 and January 3, 2009,
future minimum sub-lease income to be received under non-cancelable operating
leases is $4,266 and $5,042, respectively.
Net Rent Expense
Net rent
expense for Fiscal 2009, 2008 and 2007 was as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Minimum
facility rentals
|
$ | 272,686 | $ | 261,315 | $ | 245,135 | ||||||
|
Contingent
facility rentals
|
729 | 642 | 730 | |||||||||
|
Equipment
rentals
|
4,738 | 4,338 | 5,490 | |||||||||
|
Vehicle
rentals
|
21,403 | 17,202 | 14,572 | |||||||||
| 299,556 | 283,497 | 265,927 | ||||||||||
|
Less: Sub-lease
income
|
(3,652 | ) | (3,940 | ) | (4,038 | ) | ||||||
| $ | 295,904 | $ | 279,557 | $ | 261,889 | |||||||
Rent
expense associated with closed locations is included in SG&A.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
17. Contingencies:
In the
case of all known contingencies, the Company accrues for an obligation,
including estimated legal costs, when it is probable and the amount is
reasonably estimable. As facts concerning contingencies become known to the
Company, the Company reassesses its position with respect to accrued liabilities
and other potential exposures. Estimates that are particularly sensitive to
future change include legal matters, which are subject to change as events
evolve, and as additional information becomes available during the
administrative and litigation process.
The
Company’s Western Auto subsidiary, together with other defendants including
automobile manufacturers, automotive parts manufacturers and other retailers,
has been named as a defendant in lawsuits alleging injury as a result of
exposure to asbestos-containing products. The Company and some of its
subsidiaries also have been named as defendants in many of these lawsuits. The
plaintiffs have alleged that these products were manufactured, distributed
and/or sold by the various defendants. To date, these products have included
brake and clutch parts and roofing materials. Many of the cases pending against
the Company or its subsidiaries are in the early stages of litigation. The
damages claimed against the defendants in some of these proceedings are
substantial. Additionally, some of the automotive parts manufacturers named as
defendants in these lawsuits have declared bankruptcy, which will limit
plaintiffs’ ability to recover monetary damages from those defendants. Although
the Company diligently defends against these claims, the Company may enter into
discussions regarding settlement of these and other lawsuits, and may enter into
settlement agreements, if it believes settlement is in the best interests of the
Company’s shareholders. The Company believes that most of these claims are at
least partially covered by insurance. Based on discovery to date, the Company
does not believe the cases currently pending will have a material adverse effect
on the Company’s operating results, financial position or liquidity. However, if
the Company was to incur an adverse verdict in one or more of these claims and
was ordered to pay damages that were not covered by insurance, these claims
could have a material adverse affect on its operating results, financial
position and liquidity. If the number of claims filed against the Company or any
of its subsidiaries alleging injury as a result of exposure to
asbestos-containing products increases substantially, the costs associated with
concluding these claims, including damages resulting from any adverse verdicts,
could have a material adverse effect on its operating results, financial
position or liquidity in future periods.
The
Company is involved in various types of legal proceedings arising from claims of
employment discrimination or other types of employment matters as a result of
claims by current and former employees. The damages claimed against
the Company in some of these proceedings are substantial. Because of the
uncertainty of the outcome of such legal matters and because the Company’s
liability, if any, could vary widely, including the size of any damages awarded
if plaintiffs are successful in litigation or any negotiated settlement, the
Company cannot reasonably estimate the possible loss or range of loss which may
arise. The Company is also involved in various other claims
and legal proceedings arising in the normal course of business. Although the
final outcome of these legal matters cannot be determined, based on the facts
presently known, it is management’s opinion that the final outcome of such
claims and lawsuits will not have a material adverse effect on the Company’s
financial position, results of operations or liquidity.
The
Company has entered into employment agreements with certain Team Members that
provide severance pay benefits under certain circumstances, including
termination of employment of the Team Member by the Company. The maximum
contingent liability under these employment agreements is approximately $12,872
and $11,850 at January 2, 2010 and January 3, 2009, respectively, for which no
amount has been accrued.
18. Benefit
Plans:
401(k)
Plan
The
Company maintains a defined contribution Team Member benefit plan, which covers
substantially all Team Members after one year of service and who have attained
the age of 21. The plan allows for Team Member salary deferrals, which are
matched at the Company’s discretion. Company contributions were $9,277, $9,117
and $8,234 in Fiscal 2009, 2008 and 2007, respectively.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
Deferred
Compensation
The
Company maintains a non-qualified deferred compensation plan for certain Team
Members. This plan provides for a minimum and maximum deferral percentage of the
Team Member’s base salary and bonus, as determined by the Retirement Plan
Committee. The Company establishes and maintains a deferred compensation
liability for this plan. At January 2, 2010 and January 3, 2009 these
liabilities were $6,966 and $4,097, respectively.
Postretirement
Plan
The
Company provides certain health and life insurance benefits for eligible retired
Team Members through a postretirement plan, or Plan. These benefits are subject
to deductibles, co-payment provisions and other limitations. The Plan has no
assets and is funded on a cash basis as benefits are paid.
Funded Status of Benefit
Obligations
The
following table provides a reconciliation of the accrued postretirement benefit
obligation recorded, included in Other long-term liabilities in the accompanying
consolidated balance sheets, and the funded status of the Plan as of January 2,
2010 and January 3, 2009:
|
2009
|
2008
|
|||||||
|
Change
in benefit obligation:
|
||||||||
|
Benefit
obligation at beginning of the year
|
$ | 7,750 | $ | 8,763 | ||||
|
Interest
cost
|
456 | 581 | ||||||
|
Benefits
paid
|
(1,047 | ) | (767 | ) | ||||
|
Actuarial
gain
|
(47 | ) | (827 | ) | ||||
|
Benefit
obligation at end of the year
|
7,112 | 7,750 | ||||||
|
Change
in plan assets:
|
||||||||
|
Fair
value of plan assets at beginning of the year
|
- | - | ||||||
|
Employer
contributions
|
1,047 | 767 | ||||||
|
Participant
contributions
|
743 | 868 | ||||||
|
Benefits
paid
|
(1,790 | ) | (1,635 | ) | ||||
|
Fair
value of plan assets at end of year
|
- | - | ||||||
|
Funded
status of plan
|
$ | (7,112 | ) | $ | (7,750 | ) | ||
Net
periodic postretirement benefit cost is as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Service
cost
|
$ | - | $ | - | $ | - | ||||||
|
Interest
cost
|
456 | 581 | 550 | |||||||||
|
Amortization
of the prior service cost
|
(581 | ) | (677 | ) | (581 | ) | ||||||
|
Amortization
of recognized net gains
|
(96 | ) | (16 | ) | - | |||||||
| $ | (221 | ) | $ | (112 | ) | $ | (31 | ) | ||||
The
health care cost trend rate was assumed to be 9.1% for 2010, 8.7% for 2011, 8.4%
for 2012, 8.0% for 2013, 7.7% for 2014, 7.3% for 2015 and 6.9% to 4.5% for 2016
and thereafter. If the health care cost were increased 1% for all future years
the accumulated postretirement benefit obligation would have increased by $161
as of January 2, 2010. The effect of this change on the combined service and
interest cost would have been an increase of $11 for Fiscal 2009. If the health
care cost were decreased 1% for all future years the accumulated postretirement
benefit obligation would have decreased by $146 as of January 2, 2010. The
effect of this change on the combined service
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
and
interest cost would have been a decrease of $10 for Fiscal 2009.
The
postretirement benefit obligation and net periodic postretirement benefit cost
was computed using the following weighted average discount rates as determined
by the Company’s actuaries for each applicable year:
|
2009
|
2008
|
||
|
Postretirement
benefit obligation
|
6.25%
|
6.00%
|
|
|
Net
periodic postretirement benefit cost
|
5.00%
|
6.25%
|
The
Company expects plan contributions to completely offset benefits paid. The
following table summarizes the Company's expected benefit payments (net of
retiree contributions) to be paid for each of the following fiscal
years:
|
Amount
|
||
|
2010
|
$ 789
|
|
|
2011
|
811
|
|
|
2012
|
816
|
|
|
2013
|
806
|
|
|
2014
|
819
|
|
|
2015-2019
|
2,931
|
At
January 2, 2010, the net unrealized gain on the Plan consists of an unrealized
gain of $4,112 related to prior service cost and an unrealized net gain of
$1,799 related to actuarial gains. Approximately $581 of the unrealized gain
related to prior service cost and $103 related to the actuarial gain are
expected to be recognized as a component of Net periodic postretirement benefit
cost in Fiscal 2010.
The
Company reserves the right to change or terminate the employee benefits or Plan
contributions at any time. Any changes in the Plan or revisions to assumptions
that affect the amount of expected future benefits may have a material impact on
the amount of the reported obligation, annual expense and projected benefit
payments.
19. Share-Based
Compensation:
Overview
The
Company grants share-based compensation awards to its employees and members of
its Board of Directors as provided for under the Company’s 2004 Long-Term
Incentive Plan, or LTIP. Prior to Fiscal 2007, the Company granted equity
compensation to its employees in the form of fixed stock options and deferred
stock units, or DSUs, that vested over time. Beginning in Fiscal 2007, the
Company phased out the granting of stock options by primarily granting stock
appreciation rights, or SARs, and restricted stock (considered nonvested stock
under ASC Topic 718), which also vest over time.
During
the fourth quarter of Fiscal 2008, the Company shifted its annual LTIP grant
cycle from the first quarter to the fourth quarter of the fiscal year, which
will enable performance targets and awards to be put in place prior to the
commencement of the performance period. Therefore, the Company made two annual
share-based grants during Fiscal 2008.
General Terms of
Awards
Time
Vested Awards
The terms
of the SARs granted are similar in several respects to the stock options
previously granted. The SARs generally vest over a three-year period in equal
annual installments beginning on the first anniversary of the grant date, with
the exception of SARs granted to the Company’s Chief Executive
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
Officer,
or CEO, and Chief Financial Officer, or CFO, hired in early Fiscal 2008. The
2008 grants to the Company’s CEO and CFO awarded at their initial date of
employment provide for 25% of the SARs to vest immediately with exercise
restrictions during the first year, and the remainder of the award to vest in
equal installments over a three-year period, consistent with all other Company
SARs granted. All SARs granted are non-qualified, terminate on the seventh
anniversary of the grant date and contain no post-vesting restrictions other
than normal trading black-out periods prescribed by the Company’s corporate
governance policies.
Restricted
stock granted during Fiscal 2007 vests at the end of a three-year period. During
this period, holders of restricted stock are entitled to receive dividends and
voting rights. The shares are restricted until they vest and cannot be sold by
the recipient until the restriction has lapsed at the end of the three-year
period. Beginning in Fiscal 2008, all restricted stock generally granted vests
over a three-year period in equal annual installments beginning on the first
anniversary of the grant date (with the exception of certain shares of
restricted stock granted to the Company’s CEO and CFO hired in early Fiscal
2008, which vest at the end of a three-year period following the grant
date).
Performance-Based
Awards
Beginnin
in the fourth quarter of Fiscal 2008, each grant of share-based compensation is
comprised of SARs and restricted stock, including a 75% time-service portion and
25% performance-based portion which collectively represent the target award.
Each performance award may vest following a three-year period subject to the
Company’s achievement of certain financial goals. The performance restricted
stock awards do not have dividend equivalent rights and do not have voting
rights until earned and issued following the end of the applicable performance
period. Depending on
the Company’s results during the three-year performance period, the actual
number of shares vesting at the end of the period may range from 0% to 200% of
the target shares.
Share-Based Compensation
Expense & Cash
Flows
The
expense the Company has incurred annually related to the issuance of share-based
compensation is included in SG&A. The Company receives cash upon the
exercise of stock options, as well as when employees purchase stock under the
employee stock purchase plan, or ESPP. Total share-based compensation expense
and cash received included in the Company’s consolidated statements of
operations and consolidated statement of cash flows, respectively, are reflected
in the table below, including the related income tax benefits, for fiscal years
ended January 2, 2010, January 3, 2009 and December 29, 2007 as
follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Share-based
compensation expense
|
$ | 19,682 | $ | 17,707 | $ | 18,096 | ||||||
|
Deferred
income tax benefit
|
7,361 | 6,640 | 6,822 | |||||||||
|
Cash
received upon exercise and from ESPP
|
35,402 | 35,220 | 42,547 | |||||||||
|
Excess
tax benefit share-based compensation
|
3,219 | 9,047 | 11,841 | |||||||||
As of
January 2, 2010, there was $29,180 of unrecognized compensation expense related
to all share-based awards that is expected to be recognized over a weighted
average period of 2.0 years.
Time-Based Share
Awards
Stock
Appreciation Rights and Stock Options
The fair
value of each SAR and stock option was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
|
Black-Scholes
Option Valuation Assumptions (1)
|
2009
|
2008
|
2007
|
|||
|
Risk-free
interest rate (2)
|
1.6%
|
2.5%
|
4.8%
|
|||
|
Expected
dividend yield
|
0.6%
|
0.8%
|
0.6%
|
|||
|
Expected
stock price volatility (3)
|
39.2%
|
32.3%
|
29.0%
|
|||
|
Expected
life of awards (in months) (4)
|
50
|
50
|
51
|
|
(1)
|
Forfeitures
are based on historical experience.
|
|
(2)
|
The
risk-free interest rate is based on a U.S. Treasury constant maturity
interest rate whose term is consistent with the expected life of the
Company’s awards.
|
|
(3)
|
Expected
volatility is based on the historical volatility of the Company’s common
stock for the period consistent with the expected life of the Company’s
awards.
|
|
(4)
|
The
expected life of the Company’s awards represents the estimated period of
time until exercise and is based on historical experience of previously
granted awards.
|
The
following table summarizes the time-vested fixed stock option and time-vested
SARs activity for the fiscal year ended January 2, 2010:
|
Number
of
Awards
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term
(in years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Outstanding
at January 3, 2009
|
6,254 | $ | 33.95 | |||||||||||||
|
Granted
|
519 | 40.79 | ||||||||||||||
|
Exercised
|
(1,249 | ) | 31.38 | |||||||||||||
|
Forfeited
|
(248 | ) | 33.96 | |||||||||||||
|
Outstanding
at January 2, 2010
|
5,276 | $ | 35.20 | 4.33 | $ | 28,313 | ||||||||||
|
Vested
and expected to vest
|
5,076 | $ | 35.22 | 4.26 | $ | 27,098 | ||||||||||
|
Outstanding
and exercisable
|
3,132 | $ | 35.60 | 3.47 | $ | 15,379 | ||||||||||
The
weighted average fair value of SARs and stock options granted during the fiscal
years ended January 2, 2010, January 3, 2009 and December 29, 2007, was $12.98,
$8.66 and $11.39 per share, respectively. The aggregate intrinsic value
reflected in the table is based on the Company’s closing stock price of $40.48
as of the last trading day of the period ended January 2, 2010. The aggregate
intrinsic value of options and SARs (the amount by which the market price of the
stock on the date of exercise exceeded the exercise price) exercised during the
fiscal years ended January 2, 2010, January 3, 2009 and December 29, 2007, was
$12,704, $25,890 and $33,179, respectively.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
Restricted
Stock
The
following table summarizes the restricted stock activity for the fiscal year
ended January 2, 2010:
|
Number
of
Awards
|
Weighted-
Average
Grant
Date
Fair Value
|
|
|
|||||||||||||
|
Nonvested
at January 3, 2009
|
555 | $ | 33.28 | |||||||||||||
|
Granted
|
148 | 39.53 | ||||||||||||||
|
Vested
|
(107 | ) | 37.86 | |||||||||||||
|
Forfeited
|
(37 | ) | 34.50 | |||||||||||||
|
Nonvested
at January 2, 2010
|
559 | $ | 35.40 |
|
||||||||||||
The fair
value of each share of restricted stock is determined based on the market price
of the Company’s common stock on the date of grant. The weighted average fair
value of shares granted during Fiscal 2009 and 2008 was $39.53 and $32.21 per
share, respectively. The total grant date fair value of shares vested during
Fiscal 2009 and 2008 was approximately $3,238 and $53,
respectively.
Performance-Based
Awards
Performance-Based
SARs
The
following table summarizes the performance-based SARs activity for the fiscal
year ended January 2, 2010:
|
Number
of
Awards
|
Weighted-
Average
Grant
Date
Fair Value
|
Weighted-
Average
Remaining
Contractual
Terms
(in years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Outstanding at
January 3, 2009
|
271 | $ | 25.81 | |||||||||||||
|
Granted
|
172 | 40.79 | ||||||||||||||
| Change in units based on performance | 842 | 25.87 | ||||||||||||||
|
Vested
|
- | - | ||||||||||||||
|
Forfeited
|
(74 | ) | 26.29 | |||||||||||||
|
Outstanding
at January 2, 2010
|
1,211 | $ | 29.13 | 6.06 | $ | 14,946 | ||||||||||
| Expected to vest | 824 | $ | 27.56 | 5.95 | $ | 10,852 | ||||||||||
The
weighted average fair value of performance-based SARs granted during the fiscal
years ended January 2, 2010 and January 3, 2009 was $12.98 and $8.66 per share,
respectively. There were no exercisable performance SARs at January 2,
2010.
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
The fair
value of performance-based SARs was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
|
Black-Scholes
Option Valuation Assumptions (1)
|
2009
|
|
|
Risk-free
interest rate (2)
|
1.6%
|
|
|
Expected
dividend yield
|
0.6%
|
|
|
Expected
stock price volatility (3)
|
39.2%
|
|
|
Expected
life of awards (in months) (4)
|
50
|
|
(1)
|
Forfeitures
are based on historical experience.
|
|
(2)
|
The
risk-free interest rate is based on a U.S. Treasury constant maturity
interest rate whose term is consistent with the expected life of the
Company’s performance-based SARs.
|
|
(3)
|
Expected
volatility is based on the historical volatility of the Company’s common
stock for the period consistent with the expected life of the Company’s
performance-based SARs.
|
|
(4)
|
The
expected life of the Company’s performance-based SARs represents the
estimated period of time until exercise and is based on historical
experience of previously granted
awards.
|
Performance-Based
Restricted Stock
The following table summarizes the
performance-based restricted stock activity for the fiscal year ended January 2,
2010:
|
Number
of
Awards
|
Weighted-
Average
Grant
Date
Fair Value
|
|
|
|||||||||||||
|
Nonvested
at January 3, 2009
|
49 | $ | 25.81 | |||||||||||||
|
Granted
|
35 | 40.52 | ||||||||||||||
| Change in units based on performance | 183 | 26.07 | ||||||||||||||
|
Vested
|
- | - | ||||||||||||||
|
Forfeited
|
(13 | ) | 26.71 | |||||||||||||
|
Nonvested
at January 2, 2010
|
254 | $ | 29.08 |
|
||||||||||||
Compensation
expense associated with performance-based SARs and performance-based restricted
stock for Fiscal 2009 and 2008 was calculated using management’s current
estimate of performance targets under its 2004 Plan. During Fiscal 2008, the
Company did not recognize compensation expense for performance-based awards
since vesting was not considered probable as of January 3, 2009. Compensation
expense for anticipated performance-based awards based on results achieved
versus performance goals was $4,276 in Fiscal 2009.
Deferred Stock
Units
The
Company grants share-based awards annually to its Board of Directors in
connection with its annual meeting of stockholders. The Company grants DSUs as
provided for in the Advance Auto Parts, Inc. Deferred Stock Unit Plan for
Non-Employee Directors and Selected Executives, or the DSU Plan. Each DSU is
equivalent to one share of common stock of the Company. The DSUs vest evenly
over a twelve-month period following the grant date. Prior to Fiscal
2009, the DSUs vested immediately upon issuance. The DSUs are held on
behalf of the director until he or she ceases to be a director. The DSUs are
then distributed to the director following his or her last date of service.
Additionally, the DSU Plan provides for the deferral of compensation as earned
in the form of (i) an annual retainer for directors, and (ii) wages for certain
highly compensated employees of the Company. These deferred stock units are
settled in common stock with the participants at a future date, or over a
specified time period
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
as
elected by the participants in accordance with the DSU Plan.
The
Company granted 19 DSUs in Fiscal 2009. The weighted average fair value of DSUs
granted during Fiscal 2009, 2008, and 2007 was $44.18, $38.94, and $41.64,
respectively. The DSUs are awarded at a price equal to the market price of the
Company’s underlying stock on the date of the grant. For Fiscal 2009, 2008, and
2007, respectively, the Company recognized a total of $850, $480, and $344 on a
pre-tax basis, in compensation expense for these DSU grants.
LTIP
Availability
At
January 2, 2010, there were 2,252 shares of common stock currently available for
future issuance under the 2004 Plan. The Company issues new shares of common
stock upon exercise of stock options and SARs.
Employee Stock Purchase
Plan
The
Company also offers an ESPP. Eligible Team Members may purchase the Company’s
common stock at 95% of its fair market value on the date of purchase. There are
annual limitations on Team Member elections of either $25 per Team Member or ten
percent of compensation, whichever is less. Under the plan, Team Members
acquired 51, 80 and 53 shares in Fiscal 2009, 2008 and 2007, respectively. At
January 2, 2010, there were 1,277 shares available to be issued under the
plan.
20. Accumulated
Other Comprehensive Income (Loss):
Comprehensive
income is computed as net earnings plus certain other items that are recorded
directly to shareholders’ equity during the accounting period. In addition to
net earnings, comprehensive income also includes changes in unrealized gains or
losses on hedge arrangements and postretirement plan benefits, net of tax.
Accumulated other comprehensive income (loss), net of tax, for Fiscal 2007, 2008
and 2009 consisted of the following:
|
Unrealized
Gain (Loss) on
Hedging |
Unrealized
Gain (Loss) on Postretirement |
Accumulated Other |
||||||||||
|
Balance,
December 30, 2006
|
$ | 156 | $ | 3,316 | $ | 3,472 | ||||||
|
Fiscal
2007 activity
|
(4,809 | ) | 636 | (4,173 | ) | |||||||
|
Balance,
December 29, 2007
|
$ | (4,653 | ) | $ | 3,952 | $ | (701 | ) | ||||
|
Fiscal
2008 activity
|
(8,729 | ) | 81 | (8,648 | ) | |||||||
|
Balance,
January 3, 2009
|
$ | (13,382 | ) | $ | 4,033 | $ | (9,349 | ) | ||||
|
Fiscal
2009 activity
|
3,034 | (384 | ) | 2,650 | ||||||||
|
Balance,
January 2, 2010
|
$ | (10,348 | ) | $ | 3,649 | $ | (6,699 | ) | ||||
21. Segment
and Related Information:
The
Company has the following two reportable segments: AAP and AI. The AAP segment
is comprised of store operations within the United States, Puerto Rico and the
Virgin Islands which operate 3,264 stores under the trade names “Advance Auto
Parts,” “Advance Discount Auto Parts” and “Western Auto.” These stores offer a
broad selection of brand name and proprietary automotive replacement parts,
accessories and maintenance items for domestic and imported cars and light
trucks.
The AI
segment consists solely of the operations of Autopart International, which
operates as an independent, wholly-owned subsidiary and operates stores under
the “Autopart International” trade name. AI mainly serves the Commercial market
from its 156 store locations primarily throughout the Northeast and Mid-Atlantic
regions. In
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
addition,
its North American Sales Division services warehouse distributors and jobbers
throughout North America.
The
Company evaluates each of its segment’s financial performance-based on net sales
and operating profit for purposes of allocating resources and assessing
performance. The accounting policies of the reportable segments are the same as
those described in the summary of significant accounting policies in Note
2.
The
following table summarizes financial information for each of the Company's
business segments for the years ended January 2, 2010 and January 3, 2009,
respectively.
|
2009
|
2008
|
2007
|
||||||||||
|
Net
Sales
|
||||||||||||
|
AAP
|
$ | 5,218,317 | $ | 4,976,603 | $ | 4,709,390 | ||||||
|
AI
|
202,575 | 165,652 | 135,014 | |||||||||
|
Eliminations
(1)
|
(8,269 | ) | - | - | ||||||||
|
Total
net sales
|
$ | 5,412,623 | $ | 5,142,255 | $ | 4,844,404 | ||||||
|
Percentage
of Sales, by Product Group
|
||||||||||||
|
in
AAP Segment (2)
|
||||||||||||
|
Parts
and Batteries
|
60% | 58% | 57% | |||||||||
|
Accessories
|
15% | 17% | 18% | |||||||||
|
Chemicals
|
11% | 12% | 12% | |||||||||
|
Oil
|
10% | 9% | 9% | |||||||||
|
Other
|
4% | 4% | 4% | |||||||||
|
Total
|
100% | 100% | 100% | |||||||||
|
Income
(loss) before provision (benefit) for
|
||||||||||||
|
income
taxes
|
||||||||||||
|
AAP
|
$ | 424,075 | $ | 376,464 | $ | 383,392 | ||||||
|
AI
|
7,580 | 4,228 | (758 | ) | ||||||||
|
Total
income (loss) before provision (benefit) for
|
||||||||||||
|
income
taxes
|
$ | 431,655 | $ | 380,692 | $ | 382,634 | ||||||
|
Provision
(benefit) for income taxes
|
||||||||||||
|
AAP
|
$ | 158,386 | $ | 140,838 | $ | 144,579 | ||||||
|
AI
|
2,896 | 1,816 | (262 | ) | ||||||||
|
Total
provision (benefit) for income taxes
|
$ | 161,282 | $ | 142,654 | $ | 144,317 | ||||||
|
Segment
assets
|
||||||||||||
|
AAP
|
$ | 2,902,646 | $ | 2,807,486 | $ | 2,663,791 | ||||||
|
AI
|
170,317 | 156,579 | 141,775 | |||||||||
|
Total
segment assets
|
$ | 3,072,963 | $ | 2,964,065 | $ | 2,805,566 | ||||||
|
Depreciation
and amortization
|
||||||||||||
|
AAP
|
$ | 145,506 | $ | 141,202 | $ | 142,194 | ||||||
|
AI
|
5,411 | 5,378 | 5,070 | |||||||||
|
Total
depreciation and amortization
|
$ | 150,917 | $ | 146,580 | $ | 147,264 | ||||||
|
Capital
expenditures
|
||||||||||||
|
AAP
|
$ | 186,607 | $ | 180,623 | $ | 203,486 | ||||||
|
AI
|
6,327 | 4,363 | 7,114 | |||||||||
|
Total
capital expenditures
|
$ | 192,934 | $ | 184,986 | $ | 210,600 | ||||||
ADVANCE AUTO PARTS, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
January 2, 2010, January 3, 2009 and
December 29, 2007
(in thousands, except per share
data)
|
(1)
|
For
Fiscal 2009, eliminations represent net sales of $3,764 from AAP to AI and
$4,505 from AI to AAP.
|
|
(2)
|
Sales
by product group are not available for the AI
segment.
|
22.
Quarterly Financial Data (unaudited):
The
following table summarizes quarterly financial data for Fiscal 2009 and
2008:
|
2009
|
First
|
Second
|
Third
|
Fourth
|
||||||||||||
|
(16
weeks)
|
(12
weeks)
|
(12
weeks)
|
(12
weeks)
|
|||||||||||||
|
Net
sales
|
$ | 1,683,636 | $ | 1,322,844 | $ | 1,262,576 | $ | 1,143,567 | ||||||||
|
Gross
profit
|
821,988 | 652,650 | 621,459 | 548,129 | ||||||||||||
|
Net
income
|
93,585 | 80,330 | 61,979 | 34,479 | ||||||||||||
|
Basic
earnings per share
|
0.99 | 0.84 | 0.65 | 0.37 | ||||||||||||
|
Diluted
earnings per share
|
0.98 | 0.83 | 0.65 | 0.36 | ||||||||||||
|
2008
|
First
|
Second
|
Third
|
Fourth
|
||||||||||||
|
(16
weeks)
|
(12
weeks)
|
(12
weeks)
|
(13
weeks)
|
|||||||||||||
|
Net
sales
|
$ | 1,526,132 | $ | 1,235,783 | $ | 1,187,952 | $ | 1,192,388 | ||||||||
|
Gross
profit (1)
|
724,854 | 586,282 | 562,175 | 525,813 | ||||||||||||
|
Net
income
|
82,086 | 75,386 | 56,155 | 24,411 | ||||||||||||
|
Basic
earnings per share
|
0.86 | 0.79 | 0.59 | 0.26 | ||||||||||||
|
Diluted
earnings per share (2)
|
0.86 | 0.78 | 0.58 | 0.26 | ||||||||||||
|
(1)
|
Effective
first quarter 2009, the Company implemented a change in accounting
principle for costs included in inventory. Accordingly, the Company has
retrospectively applied the change in accounting principle to all prior
periods presented herein related to gross profit. Refer to Footnote 3 of
the Company’s consolidated financial statements for further discussion of
this change.
|
|
(2)
|
The
Company’s diluted earnings per share reported for the second and third
quarters of Fiscal 2008 have been reduced by $0.01, respectively, as a
result of the adoption of the two-class method. Refer to Footnote 14 of
the Company’s consolidated financial statements for further discussion of
this adoption.
|
Note: Quarterly
and year-to-date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the
quarters may not round to per share amounts for the year.
To the
Board of Directors and Stockholders of
Advance
Auto Parts, Inc. and Subsidiaries
Roanoke,
Virginia
We have
audited the consolidated financial statements of Advance Auto Parts, Inc. and
subsidiaries (the "Company") as of January 2, 2010 and January 3, 2009, and for
each of the three years in the period ended January 2, 2010, and the Company's
internal control over financial reporting as of January 2, 2010, and have issued
our reports thereon dated March 2, 2010 (which expressed an unqualified opinion
on those financial statements and includes an explanatory paragraph regarding
the Company’s adoption of new accounting standards and change in accounting
principle for costs included in inventory); such consolidated financial
statements and reports are included elsewhere in this Form 10-K. These
consolidated financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such consolidated financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
/s/ Deloitte & Touche
LLP
Richmond,
Virginia
March 2,
2010
SCHEDULE I - CONDENSED FINANCIAL
INFORMATION OF THE REGISTRANT
Condensed
Parent Company Balance Sheets
January
2, 2010 and January 3, 2009
(in
thousands, except per share data)
|
January
2,
|
January
3,
|
|||||||
|
2010
|
2009
|
|||||||
|
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 23 | $ | 23 | ||||
|
Other
current assets
|
6,321 | - | ||||||
|
Property
and equipment, net of accumulated depreciation
|
8 | 37 | ||||||
|
Other
assets, net
|
1,086 | 5 | ||||||
|
Investment
in subsidiary
|
2,212,221 | 1,927,219 | ||||||
|
Total
assets
|
$ | 2,219,659 | $ | 1,927,284 | ||||
|
Liabilities
and stockholders' equity
|
||||||||
|
Accrued
expenses
|
$ | 8,107 | $ | 120 | ||||
|
Dividends
payable
|
5,587 | 5,657 | ||||||
|
Intercompany
payable, net
|
923,600 | 846,341 | ||||||
|
Total
liabilities
|
937,294 | 852,118 | ||||||
|
Stockholders'
equity
|
||||||||
|
Preferred
stock, nonvoting, $0.0001 par value,
|
||||||||
|
10,000
shares authorized; no shares issued or outstanding
|
- | - | ||||||
|
Common
stock, voting $0.0001 par value; 200,000
|
||||||||
|
shares
authorized; 104,251 shares issued and 93,623 outstanding
|
||||||||
|
in
2009 and 103,000 issued and 94,852 outstanding in 2008
|
10 | 10 | ||||||
|
Additional
paid-in capital
|
392,962 | 335,991 | ||||||
|
Treasury
stock, at cost, 10,628 and 8,148 shares
|
(391,176 | ) | (291,114 | ) | ||||
|
Accumulated
other comprehensive loss
|
(6,699 | ) | (9,349 | ) | ||||
|
Retained
earnings
|
1,287,268 | 1,039,628 | ||||||
|
Total
stockholders' equity
|
1,282,365 | 1,075,166 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 2,219,659 | $ | 1,927,284 | ||||
The
accompanying notes to the condensed parent company financial
information
are an
integral part of this schedule.
ADVANCE AUTO PARTS,
INC.
SCHEDULE I - CONDENSED FINANCIAL
INFORMATION OF THE REGISTRANT
Condensed
Parent Company Statements of Operations
For
the Years Ended January 2, 2010, January 3, 2009 and December 29,
2007
(in
thousands, except per share data)
|
Fiscal
Years
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(52
Weeks)
|
(53
Weeks)
|
(52
Weeks)
|
||||||||||
|
Selling,
general and administrative expenses
|
$ | 30,228 | $ | 23,761 | $ | 166 | ||||||
|
Other
income, net
|
31,438 | 24,551 | - | |||||||||
|
Income
(loss) before (benefit) provision for income taxes
|
1,210 | 790 | (166 | ) | ||||||||
|
Income
tax (benefit) provision
|
(208 | ) | 714 | (60 | ) | |||||||
|
Income
(loss) before equity in earnings of subsidiaries
|
1,418 | 76 | (106 | ) | ||||||||
|
Equity
in earnings of subsidiaries
|
268,955 | 237,962 | 238,423 | |||||||||
|
Net
income
|
$ | 270,373 | $ | 238,038 | $ | 238,317 | ||||||
|
Basic
earnings per share
|
$ | 2.85 | $ | 2.51 | $ | 2.29 | ||||||
|
Diluted
earnings per share
|
$ | 2.83 | $ | 2.49 | $ | 2.28 | ||||||
|
Average
common shares outstanding
|
94,459 | 94,655 | 103,826 | |||||||||
|
Average
common shares outstanding - assuming dilution
|
95,113 | 95,205 | 104,637 | |||||||||
The
accompanying notes to the condensed parent company financial
information
are an
integral part of this schedule.
ADVANCE AUTO PARTS,
INC.
SCHEDULE I - CONDENSED FINANCIAL
INFORMATION OF THE REGISTRANT
Condensed
Parent Company Statements of Cash Flows
For
the Years Ended January 2, 2010, January 3, 2009 and December 29,
2007
(in
thousands)
|
Fiscal
Years
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(52
Weeks)
|
(53
Weeks)
|
(52
Weeks)
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income
|
$ | 270,373 | $ | 238,038 | $ | 238,317 | ||||||
|
Adjustments
to reconcile net income to net cash
|
||||||||||||
|
provided (used in) by operations:
|
||||||||||||
|
Equity
in earnings of subsidiary
|
(268,955 | ) | (237,962 | ) | (238,423 | ) | ||||||
|
Depreciation
|
29 | 30 | - | |||||||||
|
Net
decrease (increase) in working capital
|
585 | 85 | (24 | ) | ||||||||
|
Net
cash provided by (used in) operating activities
|
2,032 | 191 | (130 | ) | ||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Change
in net intercompany with subsidiaries
|
(2,032 | ) | (191 | ) | 130 | |||||||
|
Net
cash (used in) provided by investing activities
|
(2,032 | ) | (191 | ) | 130 | |||||||
|
Cash
flows from financing activities:
|
- | - | - | |||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
- | - | - | |||||||||
|
Cash
and cash equivalents, beginning of year
|
23 | 23 | 23 | |||||||||
|
Cash
and cash equivalents, end of year
|
$ | 23 | $ | 23 | $ | 23 | ||||||
|
Supplemental
cash flow information:
|
||||||||||||
|
Interest
paid
|
$ | - | $ | - | $ | - | ||||||
|
Income
taxes paid, net
|
- | - | - | |||||||||
|
Noncash
transactions:
|
||||||||||||
|
Repurchase
of Parent's common stock by Stores
|
$ | 100,062 | $ | 219,429 | $ | 282,910 | ||||||
|
Retirement
of common stock
|
- | - | 211,225 | |||||||||
|
Proceeds
received by Stores from stock transactions under the
|
||||||||||||
|
Parent's
stock subscription plan and Stores' stock option plan
|
35,402 | 35,220 | 42,547 | |||||||||
|
Cash
dividends paid by Stores on behalf of Parent
|
22,803 | 23,181 | 25,152 | |||||||||
|
Declared
but unpaid cash dividends
|
5,587 | 5,657 | 5,957 | |||||||||
|
Changes
in other comprehensive income (loss)
|
2,650 | (8,648 | ) | (4,173 | ) | |||||||
|
Adoption
of unrecognized tax position guidance
|
- | - | 2,275 | |||||||||
The
accompanying notes to the condensed parent company financial
information
are an
integral part of this schedule.
ADVANCE AUTO PARTS,
INC.
SCHEDULE I - CONDENSED FINANCIAL
INFORMATION OF THE REGISTRANT
Notes
to the Condensed Parent Company Statements
January
2, 2010 and January 3, 2009
(in
thousands, except per share data)
1. Presentation
These
condensed financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in annual financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to those rules and regulations,
although management believes that the disclosures made are adequate to make the
information presented not misleading.
2.
Organization
Advance
Auto Parts, Inc. (“the Company”) is a holding company, which is the 100%
shareholder of Advance Stores Company, Incorporated and its subsidiaries
("Stores") during the periods presented. The parent/subsidiary relationship
between the Company and Stores includes certain related party transactions.
These transactions consist primarily of interest on intercompany advances,
dividends, capital contributions and allocations of certain costs. Deferred
income taxes have not been provided for financial reporting and tax basis
differences on the undistributed earnings of the subsidiaries. Effective Fiscal
2008, the Company and its subsidiaries realigned duties and responsibilities
within its overall organization that resulted in certain operating expenses
being included in and recognized at the parent company level.
The
Company fully and unconditionally guarantees the term loan and revolving credit
facility of Stores. These debt agreements do not contain restrictions on the
payment of dividends, loans or advances between the Company and Stores and
Stores’ subsidiaries. Therefore, there are no such restrictions as of January 2,
2010 and January 3, 2009.
3.
Summary of Significant Accounting Policies
Accounting
Period
The
Company's fiscal year ends on the Saturday nearest the end of December, which
results in an extra week every several years. Accordingly, our fiscal year ended
January 3, 2009, or Fiscal 2008, included 53 weeks of operations. All other
fiscal years presented included 52 weeks of operations.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ materially from those
estimates.
|
Cash
and Cash Equivalents
|
Cash and
cash equivalents consist of cash in banks and money market funds with original
maturities of three months or less.
Share-Based
Payments
The
Company provides share-based compensation to its employees and board of
directors. The Company is required to exercise judgment and make estimates when
determining the projected (i) fair value of each award granted and (ii) number
of awards expected to vest. The Company uses the Black-Scholes option-pricing
model to value all share-based awards at the date of grant and the straight-line
method to amortize this fair value as compensation cost over the requisite
service period.
See Notes to
the Consolidated Financial Statements for Additional Disclosures.
ADVANCE AUTO PARTS,
INC.
SCHEDULE I - CONDENSED FINANCIAL
INFORMATION OF THE REGISTRANT
Notes
to the Condensed Parent Company Statements
January
2, 2010 and January 3, 2009
(in
thousands, except per share data)
Accumulated
Other Comprehensive Income (Loss)
The
purpose of reporting Accumulated comprehensive income (loss) is to report a
measure of all changes in equity of an enterprise that result from transactions and other economic events of the period. The changes in
accumulated comprehensive income are reported as other comprehensive income and refer to revenues,
expenses, gains, and losses that are included in other comprehensive income but
excluded from net income.
The
Company’s Accumulated other comprehensive loss is comprised of the effective
portion of fair value adjustments of interest rate swap transactions and the net
unrealized gain associated with the Company’s postretirement benefit
plan.
Earnings
per Share
The
Company adopted FASB Staff Position, or FSP, EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities,” effective January 4, 2009 (now included in overall earnings per
share guidance under ASC Topic 260). FSP EITF 03-6-1 addresses whether
instruments granted in share-based payment awards are participating securities
prior to vesting, and therefore, need to be included in the earnings allocation
when computing earnings per share under the two-class method. Unvested
share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method. 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.
Accordingly,
earnings per share is determined using the two-class method and is computed by
dividing net income attributable to the Company’s common shareholders by the
weighted-average common shares outstanding during the period. The
two-class method is an earnings allocation formula that determines income
per share for each class of common stock and participating security according to
dividends declared and participation rights in undistributed earnings. Diluted
income per common share reflects the more dilutive earnings per share amount
calculated using the treasury stock method or the
two-class method.
Basic
earnings per share of common stock has been computed based on the
weighted-average number of common shares outstanding during the period, which is
reduced by stock held in treasury and shares of nonvested restricted stock.
Diluted earnings per share of common stock reflects the weighted-average number
of shares of common stock outstanding, outstanding deferred stock units and the
impact of outstanding stock options, and stock appreciation rights (collectively
“share-based awards”). Diluted earnings per share are calculated by
including the effect of dilutive securities.
Property
and Equipment
Property
and equipment are stated at cost, less accumulated depreciation. Expenditures
for maintenance and repairs are charged directly to expense when incurred; major
improvements are capitalized. When items are sold or retired, the related cost
and accumulated depreciation are removed from the account balances, with any
gain or loss reflected in the consolidated statements of
operations.
Depreciation
of land improvements, buildings, furniture, fixtures and equipment, and vehicles
is provided over the estimated useful lives, which range from 2 to 30 years, of
the respective assets using the straight-line method. Depreciation of building
and leasehold improvements is provided over the shorter of the original useful
lives of the respective assets or the term of the lease using the straight-line
method. The term of the lease is generally the initial term of the lease unless
external economic factors exist such that renewals are reasonably assured, in
which case the renewal period would be included in the lease term for purposes
of establishing an amortization period.
See Notes to
the Consolidated Financial Statements for Additional Disclosures.
ADVANCE AUTO PARTS,
INC.
SCHEDULE I - CONDENSED FINANCIAL
INFORMATION OF THE REGISTRANT
Notes
to the Condensed Parent Company Statements
January
2, 2010 and January 3, 2009
(in
thousands, except per share data)
New
Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board, or FASB, approved the FASB
Accounting Standards Codification, or ASC, as the single source of authoritative
nongovernmental GAAP. All existing accounting standard guidance issued by the
FASB, American Institute of Certified Public Accountants, Emerging Issues Task
Force and related literature, excluding guidance from the Securities and
Exchange Commission, or SEC, has been superseded by the ASC. All other
non-grandfathered, non-SEC accounting literature not included in the ASC has
become non-authoritative. The ASC did not change GAAP, but instead introduced a
new structure that combines all authoritative standards into a comprehensive,
topically organized online database. The ASC was effective for interim or annual
periods ending after September 15, 2009.
Accordingly,
the Company adopted the ASC as of October 10, 2009 as provided by Accounting
Standards Update, or ASU, No. 2009-01, “Topic 105 – Generally Accepted
Accounting Principles – amendments based on Statement of Financial Accounting
Standards No. 168, The FASB
Accounting Standards Codification TM and the Hierarchy of Generally
Accepted Accounting Principles.” As a result of this adoption, previous
references to new accounting standards and literature are no longer applicable.
In the current quarter financial statements, the Company has provided references
to both new and old guidance to assist in understanding the impacts of recently
adopted accounting literature, particularly for guidance adopted since the
beginning of the current fiscal year but prior to the ASC.
Effective
October 10, 2009, the Company adopted ASU No. 2009-05, “Fair Value
Measurements and Disclosures (ASC Topic 820): Measuring Liabilities at Fair
Value.” This ASU provides amendments to ASC Topic 820-10, “Fair Value
Measurements and Disclosures – Overall,” for the fair value measurement of
liabilities. It provides clarification that in circumstances in which a quoted
price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using (a) a valuation
technique that uses the quoted price of the identical liability when traded as
an asset or quoted prices for similar liabilities and/or (b) an income
approach valuation technique or a market approach valuation technique,
consistent with the principles of ASC Topic 820. The adoption did not
have a significant impact on the Company’s consolidated financial
statements.
Effective
July 18, 2009 (the Company’s second quarter), the Company adopted FSP No.
FAS 157-4, “Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly” (currently included in ASC Topic
820-10-65-4). This FSP provides guidance for estimating the fair value of an
asset or liability when the volume and level of activity for the asset or
liability have significantly decreased, as well as guidance on identifying
circumstances that indicate a transaction is not orderly. It also requires
disclosure in interim and annual periods of the inputs and valuation techniques
used to measure fair value and a discussion of changes in valuation techniques
and related inputs, if any, during the period. The adoption had no significant
impact on the Company’s consolidated financial statements.
Effective
July 18, 2009 (the Company’s second quarter), the Company adopted FSP No.
FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of
Financial Instruments” (currently included in ASC Topic 825-10-65-1). This FSP
amends SFAS No. 107, “Disclosures about Fair Value of Financial
Instruments,” to require disclosures about fair value of financial instruments
for interim reporting periods as well as in annual financial statements. This
FSP also requires disclosure about the methods and significant assumptions used
to estimate the fair value of financial instruments and changes in those methods
and significant assumptions, if any, during the period. The adoption had no
impact on the Company’s consolidated financial statements other than the
additional disclosures.
Effective
July 18, 2009 (the Company’s second quarter), the Company adopted SFAS No. 165,
“Subsequent Events” (currently ASC Topic 855-10). This statement sets
forth general standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are
issued. The Company evaluated
See Notes to
the Consolidated Financial Statements for Additional Disclosures.
ADVANCE AUTO PARTS,
INC.
SCHEDULE I - CONDENSED FINANCIAL
INFORMATION OF THE REGISTRANT
Notes
to the Condensed Parent Company Statements
January
2, 2010 and January 3, 2009
(in
thousands, except per share data)
all
activity through March 2, 2010 (the issuance date of the financial statements)
and concluded that no subsequent events have occurred, other than the Company’s
subsequent repurchase of its common stock, that would require recognition in the
consolidated financial statements or disclosure in the related notes to the
consolidated financial statements.
In June
2008, the FASB Issued EITF No. 08-3, “Accounting by Lessees for
Nonrefundable Maintenance Deposits” (currently ASC Topic 840). EITF 08-3
requires that nonrefundable maintenance deposits paid by a lessee under an
arrangement accounted for as a lease be accounted for as a deposit asset until
the underlying maintenance is performed. When the underlying maintenance is
performed, the deposit may be expensed or capitalized in accordance with the
lessee’s maintenance accounting policy. Upon adoption entities must recognize
the effect of the change as a change in accounting principle. The adoption of
EITF 08-3 had no impact on the Company’s consolidated financial
statements.
In
April 2008, the FASB issued FASB Staff Position No. FAS 142-3,
“Determination of the Useful Life of Intangible Assets” (currently ASC Topic
350), which amends the factors that must be considered in developing renewal or
extension assumptions used to determine the useful life over which to amortize
the cost of a recognized intangible asset under SFAS 142, “Goodwill and Other
Intangible Assets.” The FSP requires an entity to consider its own assumptions
about renewal or extension of the term of the arrangement, consistent with its
expected use of the asset, and is an attempt to improve consistency between the
useful life of a recognized intangible asset under SFAS 142 and the period of
expected cash flows used to measure the
fair value of the asset under SFAS 141, “Business Combinations”
(collectively now under ASC Topic 805). The Company adopted the provisions of
FSP FAS 142-3 effective January 4, 2009. The adoption of the FSP had no impact
on the Company’s consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations”
(collectively now under ASC Topic 805), which replaces SFAS No. 141, “Business
Combinations.” SFAS No. 141R, among other things, establishes principles
and requirements for how an acquirer entity recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed
and any controlling interests in the acquired entity; recognizes and measures
the goodwill acquired in the business combination or a gain from a bargain
purchase; and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. Costs of the acquisition will be recognized separately
from the business combination. SFAS No. 141R applies to business combinations
for fiscal years beginning after December 15, 2008. The Company will consider
this standard when evaluating potential future transactions to which it would
apply.
In
December 2009, the FASB issued ASU No. 2009-16, “Transfers and Servicing (Topic
860) Accounting for Transfers of Financial Assets,” which amends the ASC for the
issuance of SFAS No. 166, “Accounting for Transfers of Financial Assets – an
amendment of FASB Statement No. 140.” The amendments in this ASU clarifies the
requirements for isolation and limitations on portions of financial assets that
are eligible for sale accounting and requires enhanced disclosures about the
risks that a transferor continues to be exposed to because of its continuing
involvement in transferred financial assets. ASU 2009-16 is effective for the
Company’s fiscal year beginning after November 15, 2009. The Company does not
expect the adoption to have a material impact on its consolidated financial
statements.
See Notes to
the Consolidated Financial Statements for Additional
Disclosures.
|
Allowance
for doubtful accounts receivable:
|
Balance
at
Beginning of
Period
|
Charges
to
Expenses
|
Deductions
|
Other
|
Balance
at
End
of
Period
|
||||||||||||||||
|
December
29, 2007
|
$ | 4,640 | $ | 996 | $ | (1,649 | ) | (1) | $ | - | $ | 3,987 | |||||||||
|
January
3, 2009
|
3,987 | 3,340 | (2,297 | ) | (1) | - | 5,030 | ||||||||||||||
|
January
2, 2010
|
5,030 | 3,444 | (2,838 | ) | (1) | - | 5,636 | ||||||||||||||
____________________________________
|
(1)
|
Accounts
written off during the period. These amounts did not impact the Company’s
statement of operations for any year
presented.
|
Note: Other valuation
and qualifying accounts have not been reported in this schedule because they are
either not applicable or because the information has been included elsewhere in
this report.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
| Dated: March 2, 2010 | |||
| |
|
ADVANCE
AUTO PARTS, INC.
|
|
| By: |
/s/
Michael A. Norona
|
||
|
Michael A.
Norona
Executive
Vice President and Chief Financial Officer
|
|||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|
|
/s/
Darren R. Jackson
|
Chief
Executive Officer
|
March
2, 2010
|
|
|
Darren
R. Jackson
|
and
Director (Principal
|
||
|
Executive
Officer)
|
|||
|
/s/
Michael A. Norona
|
Executive
Vice President and Chief
|
March
2, 2010
|
|
|
Michael
A. Norona
|
Financial
Officer (Principal
|
||
|
Financial
and Accounting Officer)
|
|||
|
/s/
John C. Brouillard
|
Chairman
and Director
|
March
2, 2010
|
|
|
John
C. Brouillard
|
|||
|
/s/
John F. Bergstrom
|
Director
|
March
2, 2010
|
|
|
John
F. Bergstrom
|
|||
|
/s/
Fiona Dias
|
Director
|
March
2, 2010
|
|
|
Fiona
Dias
|
|||
|
/s/
Frances X. Frei
|
Director
|
March
2, 2010
|
|
|
Frances
X. Frei
|
|||
|
/s/
William S. Oglesby
|
Director
|
March
2, 2010
|
|
|
William
S. Oglesby
|
|||
|
/s/
Gilbert T. Ray
|
Director
|
March
2, 2010
|
|
|
Gilbert
T. Ray
|
|||
| /s/ J. Paul Raines | Director |
March
2, 2010
|
|
| J. Paul Raines | |||
|
/s/
Carlos A. Saladrigas
|
Director
|
March
2, 2010
|
|
|
Carlos
A. Saladrigas
|
|||
|
/s/
Francesca Spinelli
|
Director
|
March
2, 2010
|
|
|
Francesca
Spinelli
|
|||
EXHIBIT
INDEX
|
Exhibit
Number
|
Description
|
|
3.1(6)
|
Restated
Certificate of Incorporation of Advance Auto Parts, Inc. (“Advance
Auto”)(as amended on May 19, 2004).
|
|
3.2
(14)
|
Amended
and Restated Bylaws of Advance Auto. (effective August 12,
2009).
|
|
10.1(11)
|
Credit
Agreement dated as of October 5, 2006 among Advance Auto, Advance Stores
Company, Incorporated (“Advance Stores”), as borrower, the lenders party
hereto and JPMorgan Chase Bank, N.A., as administrative
agent.
|
|
10.2(11)
|
Guarantee
Agreement dated as of October 5, 2006 among Advance Auto and JP Morgan
Chase Bank N.A., as administrative agent.
|
|
10.3(3)
|
Indemnity,
Subrogation and Contribution Agreement dated as of November 28, 2001 among
Advance Auto, Advance Stores, the Guarantors listed therein and JP Morgan
Chase, as collateral agent.
|
| 10.4(1) |
Lease
Agreement dated as of January 1, 1997 between Nicholas F. Taubman and
Advance Stores for the distribution center located at 1835 Blue Hills
Drive, N.E., Roanoke, Virginia, as amended.
|
|
10.5(2)
|
Advance
Auto 2001 Senior Executive Stock Option Plan.
|
|
10.6(2)
|
Form
of Advance Auto 2001 Senior Executive Stock Option
Agreement.
|
|
10.7(2)
|
Advance
Auto 2001 Executive Stock Option Plan.
|
|
10.8(2)
|
Form
of Advance Auto 2001 Stock Option Agreement.
|
|
10.9(6)
|
Form
of Indemnity Agreement between each of the directors of Advance Auto and
Advance Auto, as successor in interest to Advance
Holding.
|
|
10.10(2)
|
Form
of Advance Auto 2001 Stock Option Agreement for holders of Discount Auto
Parts, Inc. (“Discount”) fully converted options.
|
|
10.11(2)
|
Purchase
Agreement dated as of October 31, 2001 among Advance Stores, Advance
Trucking Corporation, LARALEV, INC., Western Auto Supply Company, J.P.
Morgan Securities Inc., Credit Suisse First Boston Corporation and Lehman
Brothers Inc.
|
|
10.12(3)
|
Joinder
to the Purchase Agreement dated as of November 28, 2001 by and among
Advance Aircraft Company, Inc., Advance Merchandising Company, Inc., WASCO
Insurance Agency, Inc., Western Auto of Puerto Rico, Inc., Western Auto of
St. Thomas, Inc., Discount, DAP Acceptance Corporation, J.P. Morgan
Securities, Inc., Credit Suisse First Boston Corporation and Lehman
Brothers Inc.
|
|
10.13(4)
|
Form
of Master Lease dated as of February 27, 2001 by and between Dapper
Properties I, II and III, LLC and Discount.
|
|
10.14(3)
|
Form
of Amendment to Master Lease dated as of December 28, 2001 between Dapper
Properties I, II and III, LLC and Discount.
|
|
10.15(4)
|
Form
of Sale-Leaseback Agreement dated as of February 27, 2001 by and between
Dapper Properties I, II and III, LLC and
Discount.
|
|
10.16(3)
|
Substitution
Agreement dated as of November 28, 2001 by and among GE Capital Franchise
Finance Corporation, Washington Mutual Bank, FA, Dapper Properties I, II
and III, LLC, Autopar Remainder I, II and III, LLC, Discount and Advance
Stores.
|
|
10.17(3)
|
First
Amendment to Substitution Agreement dated as of December 28, 2001 by and
among GE Capital Franchise Finance Corporation, Washington Mutual Bank,
FA, Dapper Properties I, II and III, LLC, Autopar Remainder I, II and III,
LLC, Discount, Advance Stores and Western Auto Supply
Company.
|
|
10.18(7)
|
Reaffirmation
Agreement dated as of November 3, 2004 among Advance Auto, Advance Stores,
the lenders party thereto and JP Morgan Chase, as administrative agent and
collateral agent.
|
| 10.19(17) |
Advance
Auto Parts, Inc. 2004 Long-Term Incentive Plan (as amended April 17,
2008).
|
| 10.20(5) |
Form
of Advance Auto Parts, Inc. 2004 Long-Term Incentive Plan Stock Option
Agreement.
|
| 10.21(5) |
Form
of Advance Auto Parts, Inc. 2004 Long-Term Incentive Plan Award
Notice.
|
| 10.22(16) |
Advance
Auto Parts, Inc. Deferred Stock Unit Plan for Non-Employee Directors and
Selected Executives (as amended January 1, 2008).
|
|
10.23(8)
|
Amended
Advance Auto Parts, Inc. Employee Stock Purchase
Plan.
|
| 10.24(16) |
Advance
Auto Parts, Inc. Deferred Compensation Plan (as amended January 1,
2008).
|
|
10.25(8)
|
Advance
Auto Parts, Inc. 2006 Executive Bonus Plan.
|
|
10.26(9)
|
Form
of Employment Agreement among Advance Auto and Advance Stores and Michael
N. Coppola, Paul W. Klasing, Michael O. Moore and David B.
Mueller.
|
|
Exhibit
Number
|
Description
|
|
10.27(10)
|
Release and
Termination Agreement dated as of October 5, 2006, among Advance
Auto, Advance Stores Company, Incorporated and JPMorgan Chase Bank, N.A.,
as administrative agent.
|
|
10.28(11)
|
Form
of Advance Auto Parts, Inc. 2007 Restricted Stock
Award.
|
|
10.29(11)
|
Form
of Advance Auto Parts, Inc. 2007 Stock Appreciation Right
Award.
|
| 10.30(12) |
Term
Loan Credit Agreement dated as of December 4, 2007 among Advance Auto
Parts, Inc., Advance Stores Company, Incorporated, as borrower, the
lenders party hereto and JPMorgan Chase Bank, N.A. as administrative
agent.
|
| 10.31(12) |
Guarantee
Agreement dated as of December 4, 2007 among Advance Auto Parts, Inc. and
JPMorgan Chase Bank, N.A., as administrative agent for the
lenders.
|
| 10.32(13) |
Employment
Agreement effective January 7, 2008 between Advance Auto Parts, Inc., and
Darren R. Jackson (as amended on June 4, 2008).
|
| 10.33(15) |
Advance
Auto Parts, Inc. Executive Incentive Plan.
|
| 10.34(13) |
Form
of Employment Agreement effective June 4, 2008 between Advance Auto Parts,
Inc., and Kevin P. Freeland, Elwyn G. Murray III, Michael A. Norona, and
Jimmie L. Wade.
|
| 10.35(13) |
Attachment
C to Employment effective June 4, 2008 between Advance Auto Parts, Inc.,
and Kevin P. Freeland.
|
| 10.36(13) |
Attachment
C to Employment Agreement effective June 4, 2008 between Advance Auto
Parts, Inc., and Michael A. Norona.
|
| 10.37(13) |
Attachment
C to Employment Agreement effective June 4, 2008 between Advance Auto
Parts, Inc., and Jimmie L. Wade.
|
| 10.38(18) |
Form
of Senior Vice President Loyalty Agreements.
|
| 10.39(19) |
Form
of Advance Auto Parts, Inc. Stock Appreciation Rights Award Agreement
dated November 17, 2008.
|
| 10.40(19) |
Form
of Advance Auto Parts, Inc. Restricted Stock Award Agreement dated
November 17, 2008.
|
| 10.41 | First Amendment to the Advance Auto Parts, Inc. Deferred Compensation Plan (as amended and restated effective as of January 1, 2009). |
| 10.42 | First Amendment to the Advance Auto Parts, Inc. Deferred Stock Unit Plan for Non-Employee Directors and Selected Executives (as amended and restated effective as of January 1, 2009). |
| 18(20) | Letter regarding change in accounting principles. |
|
21.1
|
Subsidiaries
of Advance Auto.
|
|
23.1
|
Consent
of Deloitte & Touche LLP.
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
32.1
|
Certifications
of Chief Executive Officer and Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of
2002.
|
| (1) |
Filed
on June 4, 1998 as an exhibit to Registration Statement on Form S-4 (No.
333-56013) of Advance Stores Company, Incorporated.
|
|
(2)
|
Furnished
on November 6, 2001 as an exhibit to Amendment No. 2 to Registration
Statement on Form S-4 (No. 333-68858) of Advance Auto Parts,
Inc.
|
|
(3)
|
Filed
on January 22, 2002 as an exhibit to Registration Statement on Form S-4
(No. 333-81180) of Advance Stores Company,
Incorporated.
|
|
(4)
|
Filed
on April 2, 2001 as an exhibit to the Quarterly Report on Form 10-Q of
Discount.
|
|
(5)
|
Filed
on August 16, 2004 as an exhibit to the Quarterly Report on Form 10-Q of
Advance Auto Parts, Inc.
|
|
(6)
|
Filed
on May 20, 2004 as an exhibit to Current Report on Form 8-K of Advance
Auto Parts, Inc.
|
|
(7)
|
Filed
on November 9, 2004 as an exhibit to Current Report on Form 8-K of Advance
Auto Parts, Inc.
|
|
(8)
|
Filed
on March 16, 2006 as an exhibit to the Annual Report on Form 10-K of
Advance Auto Parts, Inc.
|
|
(9)
|
Filed
on April 6, 2006 as an exhibit to the Annual Report on Form 8-K of Advance
Auto Parts, Inc.
|
|
(10)
|
Filed
on October 12, 2006 as an exhibit to Current Report on Form 8-K of Advance
Auto Parts, Inc.
|
|
(11)
|
Filed
on February 26, 2007 as an exhibit to Current Report on Form 8-K of
Advance Auto Parts, Inc.
|
| (12) |
Filed
on December 10, 2007 as an exhibit to Current Report on Form 8-K of
Advance Auto Parts, Inc.
|
| (13) |
Filed
on June 4, 2008 as an exhibit to Current Report on Form 8-K of Advance
Auto Parts, Inc.
|
| (14) |
Filed
on August 17, 2009 as an exhibit to Current Report on Form 8-K of Advance
Auto Parts, Inc.
|
| (15) |
Filed
on April 11, 2007 as an exhibit to the Definitive Proxy Statement of
Advance Auto Parts, Inc.
|
| (16) |
Filed
on February 27, 2008 as an exhibit to the Annual Report on Form 10-K of
Advance Auto Parts, Inc.
|
| (17) |
Filed
on May 29, 2008 as an exhibit to the Quarterly Report on Form 10-Q of
Advance Auto Parts,
Inc.
|
| (18) |
Filed
on November 12, 2008 as an exhibit to the Quarterly Report on Form 10-Q of
Advance Auto Parts, Inc.
|
| (19) |
Filed
on November 21, 2008 as an exhibit to Current Report on Form 8-K of
Advance Auto Parts, Inc.
|
| (20) | Filed on June 4, 2009 as an exhibit to the Quarterly Report on Form 10-Q of Advance Auto Parts, Inc. |