<PAGE> 1
FORM 10-Q/A
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 November 26, 1996
Commission file number 1-11276
DISCOUNT AUTO PARTS, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-1447420
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
4900 Frontage Road, South
Lakeland, Florida 33815
- --------------------------------------- -------------------------------
(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 - 16,580,014 shares as of November 26, 1996
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Discount Auto Parts, Inc.
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets - November 26, 1996 and May 28,1996.................4
Condensed Statements of Income - for the twenty-six and thirteen weeks
ended November 26, 1996 and November 28, 1995...............................5
Condensed Statements of Cash Flows - for the twenty-six weeks
ended November 26, 1996 and November 28, 1995...............................6
Notes to Condensed Financial Statements......................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................9
Item 6. Exhibits....................................................................11
SIGNATURES..........................................................................12
</TABLE>
2
<PAGE> 3
Explanatory Note
The following discussion incorporates certain revisions to historical financial
data and related descriptions but is not intended to update other information
presented in this report as originally filed except where specifically noted.
It also includes forward looking statements and other information included in
the original filing which have not been updated to address events occurring
subsequent to the date of the original filing, or changes in circumstances or
information that has come to light since the original filing of this report.
For an update on the matters addressed in this report, see Part I, Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operation and Part II, Item 1. Legal Proceedings set forth in the Company's
Form 10-Q report for the quarter March 4, 1997.
The registrant is amending Part I and the related financial data schedule of
its quarterly report on Form 10-Q for the quarter ended November 26, 1996
("Second Quarter 10-Q") to (i) reflect certain transactions as sales with
associated cost of goods sold rather than as fee income, (ii) provide more
detail with respect to comparable store sales (iii) to reflect certain accounts
receivable and an increase in the amount of long term indebtedness (current
maturities) based on certain timing of receipt and payment issues, and (iv)
make certain corresponding changes.
The principal effect of this amendment is to increase previously reported
second quarter net sales and cost of goods sold, accounts receivable, and
long-term indebtedness and to reflect an increase in the cash used in operating
activities. Although the Company believes that the accounting treatment
previously given to certain transactions associated with commercial sales of
freon may have been appropriate, it has been determined, after a further review
of the substance of these transactions by the Company together with its
advisors, that a different presentation may provide a clearer view of the
results of the Company's operations during the second quarter of fiscal 1997.
Accordingly, Part I of the Second Quarter 10-Q is hereby amended by deleting
the text thereof in its entirety and substituting the following revised Part I:
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
Discount Auto Parts, Inc.
Condensed Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
November 26 May 28
1996 1996
-------------------------
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,097 $ 4,552
Inventories 128,244 111,408
Accounts receivable 13,519 --
Prepaid expenses and other current assets 13,750 9,197
------------------------
Total current assets 159,610 125,157
Property, plant and equipment 282,369 247,021
Less allowances for depreciation
and amortization (44,416) (38,927)
------------------------
237,953 208,094
Other assets 854 1,013
------------------------
Total assets $ 398,417 $ 334,264
========================
Liabilities and stockholders' equity
Current liabilities:
Note payable to bank $ 5,000 $ 5,000
Trade accounts payable 45,184 49,056
Other current liabilities 11,120 8,900
Current maturities of long-term debt 15,900 2,400
------------------------
Total current liabilities 77,204 65,356
Deferred income taxes 2,462 2,462
Long-term debt 89,300 50,400
Stockholders' equity:
Preferred stock -- --
Common stock 166 166
Additional paid-in capital 140,339 140,245
Retained earnings 88,946 75,635
------------------------
Total stockholders' equity 229,451 216,046
------------------------
Total liabilities and stockholders' equity $ 398,417 $ 334,264
========================
</TABLE>
See accompanying notes.
4
<PAGE> 5
Discount Auto Parts, Inc.
Condensed Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Twenty-Six weeks Thirteen weeks
ended ended
-------------------------- ---------------------------
November 26 November 28 November 26 November 28
1996 1995 1996 1995
-------------------------- ---------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 195,889 $ 145,119 $ 105,788 $ 73,765
Cost of sales, including
distribution costs 125,215 88,286 69,062 44,658
--------- --------- --------- --------
Gross profit 70,674 56,833 36,726 29,107
Selling, general and
administrative expenses 46,427 37,672 23,938 19,431
--------- --------- --------- --------
Income from operations 24,247 19,161 12,788 9,676
Other income (expense) (79) 697 (101) 660
Interest expense (2,539) (3,157) (1,471) (1,302)
--------- --------- --------- --------
Income before income taxes 21,629 16,701 11,216 9,034
Income taxes 8,318 6,445 4,318 3,474
--------- --------- --------- --------
Net income $ 13,311 $ 10,256 $ 6,898 $ 5,560
========= ========= ========= ========
Net income per share $ .80 $ .70 $ .42 $ .36
========= ========= ========= ========
Weighted average number of shares 16,576 14,723 16,578 15,533
========= ========= ========= ========
</TABLE>
See accompanying notes.
5
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Discount Auto Parts, Inc.
Condensed Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Twenty - Six weeks
ended
--------------------------
November 26 November 28
1996 1995
--------------------------
Operating activities: (In thousands)
<S> <C> <C>
Net income $ 13,311 $ 10,256
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,867 4,509
Changes in operating assets and liabilities:
(Increase) in inventories (16,836) (2,357)
(Increase) in accounts receivable (13,519) --
(Increase) in prepaid expenses and
other current assets (4,553) (1,125)
Decrease (increase) in other assets 106 (90)
Decrease in trade accounts payable (3,872) (11,411)
Increase (decrease) in other current liabilities 2,220 (1,080)
-------- --------
Net cash used in operating activities (17,276) (1,298)
Investing activities:
Purchases of property, plant and equipment (35,673) (20,009)
-------- --------
Net cash used in investing activities (35,673) (20,009)
Financing activities:
Proceeds from short-term borrowings and long-term debt 53,600 21,000
Payments of short-term borrowings and long-term debt (1,200) (75,940)
Proceeds from issuances of common stock 94 75,561
-------- --------
Net cash provided by financing activities 52,494 20,621
Net increase (decrease) in cash and cash equivalents (455) (686)
Cash and cash equivalents at beginning of period 4,552 5,329
-------- --------
Cash and cash equivalents at end of period $ 4,097 $ 4,643
======== ========
</TABLE>
See accompanying notes.
6
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Discount Auto Parts, Inc.
Notes to Condensed Financial Statements (Unaudited)
November 26, 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 and twenty-six week periods ended
November 26, 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 expired in December
1996 and was repaid at expiration. The line of credit was not renewed.
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
November 26 May 28
1996 1996
-----------------------
<S> <C> <C>
Unsecured revolving loan $ 5,000 $ 5,000
Real estate acquisition and
construction lines of credit 85,800 32,200
Senior secured notes 14,400 15,600
-----------------------
105,200 52,800
Less current maturities (15,900) (2,400)
-----------------------
$ 89,300 $ 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 or 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.
7
<PAGE> 8
At November 26, 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 November 26, 1996, the Company had approximately $59.2 million of
available borrowings under its revolving loan agreement and real estate
acquisition and construction 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 November 26, 1996.
8
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Thirteen Weeks and Twenty-Six Weeks Ended November 26, 1996
Compared to Thirteen Weeks and Twenty-Six Weeks Ended November 28, 1995
Net sales for the thirteen weeks ended November 26, 1996 increased $32.0
million, or 43.4% over net sales for the comparable period ended November 28,
1995. Of this increase, $21.4 million represented commercial sales of R-12
freon (there having been no significant level of commercial freon sales in the
comparable period ended November 28, 1995). Net sales for the thirteen weeks
ended November 26, 1996 from the Company's core retail store operations
increased $10.6 million or 14.3% over the comparable period ended November 28,
1995. Comparable store sales increased by 24.8% when including commercial sales
of R-12 freon in the sales figures; comparable store sales from the Company's
core retail store operations decreased by 4.7% for the quarter. The decrease in
comparable store sales from the Company's core retail operations was more than
offset by net sales from new stores opened since the beginning of fiscal 1996.
Net sales for the twenty-six weeks ended November 26, 1996 increased $50.8
million, or 35.0% over net sales for the comparable period ended November 28,
1995. Of this increase $28.2 million represented commercial sales of R-12 freon
(there having been no significant level of commercial freon sales in the
comparable period ended November 28, 1995). Net sales for the twenty-six weeks
ended November 26, 1996 from the Company's core retail store operations
increased $22.6 million or 15.5% over the comparable period ended November 28,
1995. Comparable store sales increased by 16.9% when including commercial sales
of R-12 freon in the sales figures; comparable store sales from the Company's
core retail store operations decreased by 3.1% for the twenty-six week period.
The decrease in comparable store sales from the Company's core retail store
operations was more than offset by net sales from new stores opened since the
beginning of fiscal 1996.
At November 26, 1996, the Company had 360 stores in operation, compared with
314 stores at May 28, 1996 and 277 stores at November 28, 1995.
As indicated above, comparable store sales for both the second quarter and the
first six months of fiscal 1997 include commercial sales of air conditioning
products, such as R-12 freon. These commercial sales have been the driving
force behind the Company's ability to achieve positive comparable store sales
for both of these periods. Although there can be no assurance, commercial sales
of R-12 freon, which comprised the majority of the increase in commercial
sales, were, as of the date of the original filing of this report, anticipated
to continue for the next 4 to 6 fiscal quarters. Subsequent to the original
filing of this report, the Company determined and announced that it did not
expect to make any significant sales of R-12 freon during the third and fourth
quarters of fiscal 1997.
In both the second quarter and the first six months of fiscal 1997, the more
traditional DIY comparable store sales continued to be 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 in time will be substantially offset by its ability to
leverage costs such as advertising, transportation and store management
expenses. The Company also believes that this strategy responds to its
customers' desire for shopping convenience. In addition, comparable store sales
for the second quarter and the first six months of fiscal 1997 are being
compared to a comparable store sales increase of 8.1% for the same periods a
year ago.
9
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Gross profit for the thirteen weeks ended November 26, 1996 was $36.7 million,
or 34.7% of net sales, compared with $29.1 million, or 39.5% of net sales, for
the comparable period of fiscal 1996. Gross profit for the twenty-six weeks
ended November 26, 1996 was $70.7 million, or 36.1% of net sales, compared with
$56.8 million, or 39.2% of net sales, for the comparable period of fiscal 1996.
The significant reduction in gross profit percentage for both periods was
primarily the result of the increased sales of R-12 freon, which generally tend
to have a lower gross margin because of the product's commodity nature. As
anticipated, the gross profit percentage on sales from the core retail store
operations was lower in these current periods as compared to the comparable
periods in the prior fiscal year primarily due to the continuing effects of
decreases in retail pricing which occurred in the fourth quarter of fiscal
1996.
Selling, general and administrative (SG&A) expenses as a percentage of sales
decreased during the second quarter of fiscal 1997 to 22.6% from 26.3% a year
earlier. SG&A expenses as a percentage of sales decreased during the twenty-six
weeks ended November 26, 1996 to 23.7% from 26.0% a year earlier. The decrease
was primarily a result of the increased commercial sales of R-12 freon, which
have only nominal SG&A expenses, and cost leveraging from new store growth. The
decrease was offset in part by increased team member benefits, including
continued increased emphasis in training and increased advertising expenses and
by the additional depreciation expense attributable to new store growth.
Interest expense for the thirteen weeks ended November 26, 1996 was $1.5
million, compared to $1.3 million for the thirteen weeks ended November 28,
1995. The increase in interest expense was the result of additional borrowings
in connection with new store growth and other working capital needs and was
offset in part from lower average interest rates.
Interest expense for the twenty-six weeks ended November 26, 1996 was $2.5
million, compared to $3.2 million for the twenty-six weeks ended November 28,
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
application of net proceeds received from the Company's secondary stock
offering in October 1995. The reduction in borrowings as the 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 November 26, 1996
was 38.5% as compared with 38.5% for the same period a year ago. The Company's
effective tax rate for the twenty-six weeks ended November 26, 1996 was 38.5%
as compared to 38.6% for the same period a year ago.
As a result of the above factors, net income increased to $6.9 million for the
thirteen weeks ended November 26, 1996 as compared to $5.6 million for the
comparable period ended November 28, 1995, and, net income increased to $13.3
million for the twenty-six weeks ended November 26, 1996 as compared to $10.3
million for the comparable period ended November 28, 1995.
Liquidity and Capital Resources
For the twenty-six weeks ended November 26, 1996, net cash of $17.3 million was
used in the Company's operations versus $1.3 million for the comparable period
of fiscal year 1996. The significant increase in the use of cash was primarily
a result of an increase in accounts receivable from the sale of R-12 freon.
Accounts receivable in the amount of approximately $13.5 million were collected
shortly following the end of the quarter and such collections were immediately
used to reduce the balance of the Company's long-term debt.
During the first six months of fiscal 1997, cash flow from operating activities
was positively impacted primarily by current period earnings, deprecation and
an increase in other liabilities.
10
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These positive impacts were more than offset by the aforementioned accounts
receivable, increases in inventories including those 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 the
need to pay certain accounts payable relating to certain extended vendor payment
terms granted at the end of fiscal 1996 coming due. Prepaid expenses and other
current assets primarily increased due to the timing of amounts earned and
collections on certain vendors incentive programs.
Capital expenditures for the twenty-six weeks ended November 26, 1996 were
$35.7 million. The majority of the capital expenditures related to the 46
stores opened during the first six months of fiscal 1997. The Company
anticipates that capital expenditures for all of fiscal 1997 will total $65 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 also
expects to begin the expansion of its existing distribution center from 300,000
square feet to 600,000 square feet in the spring of 1997, with completion
expected near the end of fiscal 1998. Total cost of the expansion is estimated
to be approximately $15 million.
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 November 26, 1996, the Company had $59.2 million of
additional availability under its existing financing arrangements.
Nevertheless, because shortly following the end of the quarter, $13.5 million
in accounts receivable was paid and the proceeds were used to pay down the
outstanding long-term indebtedness, the availability under its existing
financing arrangements was effectively increased so as to make such $13.5
million available under the Company's financing arrangements.
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 and fixtures, primarily
through cash flow from operations. Financing for the distribution center
expansion is expected to be provided through more permanent type financing.
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.
Item 6. Exhibits
(a) Exhibits
27 Financial Data Schedule (For SEC Use Only)
11
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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 : April 17, 1997 By: /s/ Peter J. Fontaine
-------------- ---------------------
Peter J. Fontaine
Chief Executive Officer
(Principal Executive Officer)
Date : April 17, 1997 By: /s/ C. Michael Moore
-------------- ---------------------
C. Michael Moore
Chief Financial Officer
(Principal Financial and Accounting
Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY>U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-03-1997
<PERIOD-START> MAY-29-1996
<PERIOD-END> NOV-26-1996
<EXCHANGE-RATE> 1
<CASH> 4,097
<SECURITIES> 0
<RECEIVABLES> 13,519
<ALLOWANCES> 0
<INVENTORY> 128,244
<CURRENT-ASSETS> 159,610
<PP&E> 282,369
<DEPRECIATION> 44,416
<TOTAL-ASSETS> 398,417
<CURRENT-LIABILITIES> 77,204
<BONDS> 89,300
0
0
<COMMON> 166
<OTHER-SE> 229,285
<TOTAL-LIABILITY-AND-EQUITY> 398,417
<SALES> 195,889
<TOTAL-REVENUES> 195,889
<CGS> 125,215
<TOTAL-COSTS> 125,215
<OTHER-EXPENSES> 46,506
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,539
<INCOME-PRETAX> 21,629
<INCOME-TAX> 8,318
<INCOME-CONTINUING> 13,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,311
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
