<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended August 27, 1996
Commission file number 1-11276
DISCOUNT AUTO PARTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-1447420
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
4900 Frontage Road, South
Lakeland, Florida 33815
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(Address of principal executive offices) (zip code)
(941) 687-9226
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Registrant's telephone number, including area code
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 periods 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
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock $.01 Par Value - 16,575,224 shares as of August 27, 1996
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DISCOUNT AUTO PARTS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
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<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets - August 27, 1996 and May 28, 1996 . . . . 3
Condensed Statements of Income - for the thirteen weeks
ended August 27, 1996 and August 29, 1995 . . . . . . . . . . . . . 4
Condensed Statements of Cash Flows - for the thirteen weeks
ended August 27, 1996 and August 29, 1995 . . . . . . . . . . . . . 5
Notes to Condensed Financial Statements . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
DISCOUNT AUTO PARTS, INC.
CONDENSED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 27 MAY 28
1996 1996
-------------------------
Assets (In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,091 $ 4,552
Inventories 117,930 111,408
Prepaid expenses and other current assets 14,504 9,197
-------------------------
Total current assets 135,525 125,157
Property, plant and equipment 265,010 247,021
Less allowances for depreciation
and amortization (41,645) (38,927)
-------------------------
223,365 208,094
Other assets 954 1,013
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Total assets $ 359,844 $ 334,264
=========================
Liabilities and stockholders' equity
Current liabilities:
Note payable to bank $ 5,000 $ 5,000
Trade accounts payable 43,915 49,056
Other current liabilities 13,405 8,900
Current maturities of long-term debt 2,400 2,400
-------------------------
Total current liabilities 64,720 65,356
Deferred income taxes 2,462 2,462
Long-term debt 70,200 50,400
Stockholders' equity:
Preferred stock - -
Common stock 166 166
Additional paid-in capital 140,247 140,245
Retained earnings 82,049 75,635
-------------------------
Total stockholders' equity 222,462 216,046
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Total liabilities and stockholders' equity $ 359,844 $ 334,264
=========================
</TABLE>
See accompanying notes.
3
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Discount Auto Parts, Inc.
Condensed Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Thirteen weeks
ended
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August 27 August 29
1996 1995
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(In thousands, except per share amounts)
<S> <C> <C>
Net sales $ 90,101 $ 71,354
Cost of sales, including
distribution costs 56,153 43,627
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Gross profit 33,948 27,727
Selling, general and
administrative expenses 22,489 18,242
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Income from operations 11,459 9,485
Interest and other income 23 37
Interest expense (1,068) (1,855)
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Income before income taxes 10,414 7,667
Income taxes 4,000 2,971
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Net income $ 6,414 $ 4,696
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Net income per share $ .39 $ .34
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Weighted average number of shares 16,575 13,913
======== ========
</TABLE>
See accompanying notes.
4
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Discount Auto Parts, Inc.
Condensed Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Thirteen weeks
ended
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August 27 August 29
1996 1995
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Operating activities: (In thousands)
<S> <C> <C>
Net income $ 6,414 $ 4,696
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,758 2,177
Deferred income taxes
Changes in operating assets and liabilities:
(Increase) in inventories (6,522) (1,734)
(Increase) decrease in prepaid expenses and
other current assets (5,307) 318
(Increase) decrease in other assets 33 (68)
(Decrease) in trade accounts payable (5,141) (9,986)
Increase in other current liabilities 4,505 3,853
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Net cash used in operating activities (3,260) (744)
Investing activities:
Purchases of property, plant and equipment (18,003) (9,361)
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Net cash used in investing activities (18,003) (9,361)
Financing activities:
Proceeds from short-term borrowings and long-term debt 21,000 13,000
Payments of short-term borrowings and long-term debt (1,200) (4,876)
Proceeds from issuances of common stock 2 -
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Net cash provided by financing activities 19,802 8,124
Net decrease in cash and cash equivalents (1,461) (1,981)
Cash and cash equivalents at beginning of period 4,552 5,329
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Cash and cash equivalents at end of period $ 3,091 $ 3,348
======== =======
</TABLE>
See accompanying notes.
5
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DISCOUNT AUTO PARTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
AUGUST 27, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Discount Auto
Parts, Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended May 28,
1996.
Operating results for the thirteen-week period ended August 27, 1996 are not
necessarily indicative of the results that may be expected for the entire
fiscal year.
2. STOCKHOLDERS' EQUITY
In October 1995, the Company consummated a secondary public offering of
approximately 2,650,000 shares of its common stock. From the offering, the
Company realized net proceeds (after offering expenses) of approximately $75.4
million. Proceeds from the offering were used to repay certain indebtedness of
approximately $71.1 million. The balance of the net proceeds were used for
general corporate purposes.
3. NOTE PAYABLE AND LONG-TERM DEBT
The note payable to a bank consists of borrowings outstanding under a maximum
$10 million unsecured working capital line of credit which expires in December
1996. Interest is payable monthly and is a function of the prime rate or LIBOR
(5.9% at August 27, 1996).
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
August 27 May 28
1996 1996
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<S> <C> <C>
Unsecured revolving loan $ 5,000 $ 5,000
Real estate acquisition and
construction lines of credit 53,200 32,200
Senior secured notes 14,400 15,600
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72,600 52,800
Less current maturities (2,400) (2,400)
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$ 70,200 $ 50,400
=======================
</TABLE>
In February 1995, the Company entered into an unsecured revolving loan
agreement with a bank. The agreement provides for maximum borrowings of $20
million, including up to $1 million for letters of credit. Interest is payable
monthly and is a function of the prime rate of LIBOR. The agreement is
renewable annually with principal becoming due six months after the agreement
is not renewed. The scheduled maturity date of the agreement is October 1997.
The Company's real estate acquisition and construction lines of credit provide
for maximum aggregate borrowings of $130 million for the acquisition and
construction of properties. Interest is payable monthly and is a function of
the prime rate or LIBOR. The line of credit agreements, which are unsecured,
expire at various dates through December 1997, but are expected to be renewed
prior to their expirations.
6
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At August 27, 1996, the Company's weighted average interest rate on its
revolving loan agreement and real estate acquisition and construction lines of
credit was 6.0%.
As of August 27, 1996, the Company has approximately $96.8 million of available
borrowings under its various working capital and real estate acquisition lines
of credit.
The Company has issued two senior secured notes, each for an original principal
amount of $12 million, with an insurance company. The notes are collateralized
by a first mortgage on certain retail store properties, equipment and fixtures.
The agreements provide for interest at fixed rates of 10.11% and 9.8%, payable
quarterly, with annual principal payments of $1.2 million on each December 15
and May 31.
The Company's debt agreements contain various restrictions, including the
maintenance of certain financial ratios and restrictions on dividends, with
which the Company was in compliance as of August 27, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED AUGUST 27, 1996 COMPARED TO THIRTEEN WEEKS ENDED AUGUST
29, 1995
Net sales for the thirteen weeks ended August 27, 1996 increased $18.7 million,
or 26.3% over net sales for the comparable period ended August 29, 1995. The
increase was a result of (1) an increase in net sales of $12.6 million
attributable to stores opened since the beginning of fiscal 1996 and (2) a
comparable store sales increase of 8.7%. Comparable store sales for the first
quarter of fiscal 1997 include commercial sales of air conditioning products,
such as freon. Such sales accounted for substantially all of the increase in
comparable store sales. At August 27, 1996, the Company had 335 stores in
operation, compared with 314 stores at May 28, 1996 and 258 stores at August
29, 1995.
In the first quarter of fiscal 1997, the more traditional DIY comparable store
sales were impacted by the Company's strategy of opening new stores that are in
proximity to existing Discount Auto Parts stores. The Company believes the
negative impact on comparable store sales will be substantially offset by its
ability to leverage costs such as advertising, transportation and store
management expenses. The Company also believes this strategy responds to its
customers' desire for shopping convenience. In addition, comparable store sales
for the first quarter of fiscal 1997 are being compared to the comparable store
sales increase of 8.3% in the first quarter of fiscal 1996.
Gross profit for the thirteen weeks ended August 27, 1996 was $33.9 million, or
37.7% of net sales, compared with $27.7 million, or 38.9% of net sales, for the
comparable period of fiscal 1996. The reduction in gross profit percentage was
in large part the result of the increased sales of freon, which generally tend
to have a lower gross margin because of the product's commodity nature.
Selling, general and administrative (SG&A) expenses as a percentage of sales
decreased during the first quarter of fiscal 1997 to 25.0% from 25.6% a year
earlier. The decrease was primarily a result of lower SG&A expenses associated
with commercial freon sales and cost leveraging from new store growth. The
decrease was offset in part by increased team member benefits, including
continued emphasis in training and advertising expenses.
7
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Interest expense for the thirteen weeks ended August 27, 1996 was $1.1 million,
compared to $1.9 million for the thirteen weeks ended August 29, 1995. The
decrease in interest expense was the result of lower average interest rates and
the overall reduction in average borrowings as a result of the net proceeds
received from the Company's secondary stock offering in October 1995. The
reduction in borrowings as a result of the secondary offering, was partially
offset by subsequent borrowings for new store additions and other working
capital needs.
The Company's effective tax rate for the thirteen weeks ended August 27, 1996
was 38.4% as compared with 38.3% for the same period a year ago.
As a result of the above factors, net income increased to $6.4 million for the
thirteen weeks ended August 27, 1996 as compared to $4.7 million for the
comparable period in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
For the thirteen weeks ended August 27, 1996, net cash of $3.3 million was used
in the Company's operations versus $744 thousand for the comparable period of
fiscal year 1996. During the first quarter of fiscal 1997, operating cash was
provided primarily from earnings, depreciation and an increase in other
liabilities. These positive impacts were offset by an increase in inventories
resulting from new store growth, a decrease in trade accounts payable and an
increase in prepaid expenses and other current assets. Trade accounts payable
decreased as a result of certain extended vendor payment terms becoming due.
Capital expenditures for the thirteen weeks ended August 27, 1996 were $18.0
million. The majority of the capital expenditures related to the 21 stores
opened during the quarter. The Company anticipates that capital expenditures
for all of fiscal 1997 will total $65 million to $70 million. The Company
expects to open 85 to 90 stores during fiscal 1997, as well as replacing or
expanding an additional 10 to 20 stores. The Company has historically been able
to finance most of its new store growth through unsecured lines of credit and
medium and longer term mortgage financing provided by banks and other
institutional lenders, and through cash flow from operations. As of August 27,
1996, the Company had approximately $58.2 million of borrowings outstanding and
had $96.8 million of additional availability under its various financing
agreements. Consistent with its historical practice, the Company expects to
finance both its short and long-term liquidity needs for new store growth, as
to land and buildings, primarily through these lines of credit and mortgage
financing (and renewals and replacements thereof), and as to equipment,
fixtures, primarily through cash flow from operations.
The Company's new store development program also requires significant working
capital, principally for inventories. The Company has historically used trade
credit to finance a portion of its inventory expansion and has been successful
in negotiating extended payment terms and incentives from many suppliers
through volume purchases. The Company believes that it will be able to continue
financing much of its inventory growth through the extension of favorable
payment terms and incentives from its vendors, but there can be no assurance
that the Company will be successful in doing so. The additional funding for
inventory expansion has been provided and is expected to continue to be
provided from cash flow from operations.
The Company believes that the expected cash flows from operations, available
bank borrowings and trade credit, will be sufficient to fund both the capital
and liquidity needs of the Company for the near term.
8
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A.E.W., Inc. d/b/a DAPS Discount Auto Parts Stores vs. Discount Auto Parts,
Inc., United States District Court for the Northern District of Florida, Civil
Division, Civil Action 94-30073-CIV-LAC.
On or about January 31, 1994, a complaint was originally filed against the
Company by A.E.W., Inc. d/b/a DAPS Discount Auto Parts Stores in the Circuit
Court in and for Escambia County, Florida (Case 94-0166-CA-01). A.E.W., which
operates several retail auto parts stores in Escambia County, Florida, Fort
Walton Beach, Florida, Mobile, Alabama, and Pascagoula and Gulfport,
Mississippi, sought to enjoin, under several different counts, the Company's
use of the trade names "Discount Auto Parts" and "DAP" without an accompanying
identifier to the extent such use was likely to create confusion with A.E.W.'s
business, and to recover, under several different counts, compensatory and
punitive damages and attorney's fees. No specific dollar amount of damages was
alleged in the complaint. A motion for preliminary injunction was also filed by
A.E.W. The Company sought to remove the case to federal court and also moved to
dismiss several counts or portions thereof and to strike certain references in
the complaint. In February 1994, the Company was able to remove the case to
federal court. A.E.W.'s motion for preliminary injunction was denied as was its
motion for reconsideration of the ruling. The Company's motions to dismiss, and
to strike were granted as to certain counts and denied as to all other counts.
Discovery requests have been exchanged by the parties and such discovery is
proceeding. Management of the Company believes that the claims in the complaint
that have survived the motions to dismiss and to strike are without any
substantial merit and intends to continue to defend the action vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (For SEC Use Only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the thirteen-week
period ended August 27, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DISCOUNT AUTO PARTS, INC.
Date : September 30, 1996 By: /s/ Peter J. Fontaine
-------------------------------------
Peter J. Fontaine
Chief Executive Officer and President
(Principal Executive Officer)
Date : September 30, 1996 By: /s/ C. Michael Moore
-------------------------------------
C. Michael Moore
Chief Financial Officer
(Principal Financial and Accounting
Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DISCOUNT AUTO PARTS, INC. FOR THE TWO MONTHS ENDED
AUGUST 27, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-03-1997
<PERIOD-START> MAY-29-1996
<PERIOD-END> AUG-27-1996
<CASH> 3,091
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 117,930
<CURRENT-ASSETS> 135,525
<PP&E> 265,010
<DEPRECIATION> 41,645
<TOTAL-ASSETS> 359,844
<CURRENT-LIABILITIES> 64,720
<BONDS> 70,200
0
0
<COMMON> 166
<OTHER-SE> 222,296
<TOTAL-LIABILITY-AND-EQUITY> 359,844
<SALES> 90,101
<TOTAL-REVENUES> 90,101
<CGS> 56,153
<TOTAL-COSTS> 56,153
<OTHER-EXPENSES> 22,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,068
<INCOME-PRETAX> 10,414
<INCOME-TAX> 4,000
<INCOME-CONTINUING> 6,414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,414
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
