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 December 1, 1998
Commission file number 1-11276
DISCOUNT AUTO PARTS, INC.
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(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 Identification No.)
Incorporation or organization)
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 - 16,645,204 shares as of December 1, 1998
<PAGE>
Discount Auto Parts, Inc.
Index
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - December 1, 1998 and
June 2, 1998 .........................................................3
Condensed Consolidated Statements of Income - for the thirteen
and twenty-six weeks ended December 1, 1998 and
December 2, 1997....................................................4
Condensed Consolidated Statements of Cash Flows - for the
twenty-six weeks ended December 1,1998 and December 2,1997............5
Notes to Condensed Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations..........................................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................12
Item 4. Submission of Matters to a Vote of Security Holders...................13
Item 6. Exhibits and Reports on Form 8-K......................................13
SIGNATURES................................................................... 14
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
Discount Auto Parts, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
<CAPTION>
December 1 June 2
1998 1998
------------------- ------------------
ASSETS (In thousands)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5,164 $ 5,064
Inventories 196,909 172,027
Prepaid expenses and other current assets 21,172 17,657
------------------- ------------------
Total current assets 223,245 194,748
Property and equipment 424,206 379,991
Less allowances for depreciation and amortization (73,883) (65,472)
------------------- ------------------
350,323 314,519
Other assets 2,681 2,468
------------------- ------------------
Total assets $ 576,249 $ 511,735
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 63,346 $ 67,083
Other current liabilities 22,698 19,603
Current maturities of long-term debt 2,400 2,400
------------------- ------------------
Total current liabilities 88,444 89,086
Deferred income taxes 5,069 5,069
Long-term debt 212,331 160,695
Stockholders' equity:
Preferred stock - -
Common stock 166 166
Additional paid-in capital 141,519 141,163
Retained earnings 128,720 115,556
------------------- ------------------
Total stockholders' equity 270,405 256,885
------------------- ------------------
Total liabilities and stockholders' equity $ 576,249 $ 511,735
=================== ==================
See accompanying notes.
3
</TABLE>
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<TABLE>
Discount Auto Parts, Inc.
Condensed Consolidated Statements of Income (Unaudited)
<CAPTION>
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
-------------- --------------- --------------- -----------------
December 1 December 2 December 1 December 2
1998 1997 1998 1997
-------------- --------------- --------------- -----------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 120,290 $ 105,240 $ 243,329 $ 214,977
Cost of sales, including distribution costs 71,084 63,890 144,449 131,225
-------------- --------------- --------------- -----------------
Gross profit 49,206 41,350 98,880 83,752
Selling, general and administrative expenses 36,776 29,438 71,845 59,015
-------------- --------------- --------------- -----------------
Income from operations 12,430 11,912 27,035 24,737
Other income, net 107 592 131 316
Interest expense (3,065) (2,614) (5,727) (4,667)
-------------- --------------- --------------- -----------------
Income before income taxes 9,472 9,890 21,439 20,386
Income taxes 3,656 3,803 8,275 7,849
-------------- --------------- --------------- -----------------
Net income $ 5,816 $ 6,087 $ 13,164 $ 12,537
============== =============== =============== =================
Net income per share:
Basic net income per common share $ 0.35 $ 0.37 $ 0.79 $ 0.76
============== =============== =============== =================
Diluted net income per common share $ 0.35 $ 0.37 $ 0.78 $ 0.75
============== =============== =============== =================
Average common shares outstanding 16,641 16,601 16,638 16,597
Dilutive effect of stock options 161 74 177 65
-------------- --------------- --------------- -----------------
Average common shares outstanding -
assuming dilution 16,802 16,675 16,815 16,662
============== =============== =============== =================
See accompanying notes.
</TABLE>
4
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<TABLE>
Discount Auto Parts, Inc.
Condensed Consolidated Statements Of Cash Flows (Unaudited)
<CAPTION>
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
--------------------------------------------
December 1 December 2
Operating activities 1998 1997
-------------------- -----------------
<S> <C> <C>
Net income $ 13,164 $ 12,537
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 8,852 7,348
Deferred income taxes - 8,190
(Gain) on sales of property and equipment - (609)
Changes in operating assets and liabilities:
(Increase) in inventories (17,476) (11,369)
(Increase) in prepaid expenses and other
current assets (3,515) (2,368)
(Increase) in other assets (214) (1,835)
(Decrease) in trade accounts payable (3,737) (11,635)
(Decrease) in litigation settlement - (20,400)
Increase in other current liabilities 3,095 1,687
-------------------- -----------------
Net cash provided by (used in) operating activities 169 (18,454)
Investing activities
Proceeds from sales of property and equipment 1,157 853
Purchases of property and equipment (44,993) (25,679)
Business acquisition (8,225) -
-------------------- -----------------
Net cash used in investing activities (52,061) (24,826)
Financing activities
Proceeds from short-term borrowings and long-term debt 68,503 162,000
Payments of short-term borrowings and long-term debt (16,867) (118,955)
Proceeds from issuance of common stock 356 188
-------------------- -----------------
Net cash provided by financing activities 51,992 43,233
Net increase (decrease) in cash and cash equivalents 100 (47)
Cash and cash equivalents at beginning of period 5,064 6,409
-------------------- -----------------
Cash and cash equivalents at end of period $ 5,164 $ 6,362
==================== =================
See accompanying notes.
5
</TABLE>
<PAGE>
Discount Auto Parts, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 1, 1998
1. Basis of Presentation
The accompanying unaudited condensed consolidated 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 June 2,
1998.
Operating results for the thirteen and twenty-six week periods ended December 1,
1998 are not necessarily indicative of the results that may be expected for the
entire fiscal year.
2. Net Income Per Share
In 1997, the Financial Accounting Standards Board Issued Statement 128,
"Earnings Per Share." Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share. All
earnings per share amounts for all periods presented have been restated to
conform to the Statement 128 requirements.
3. Long-Term Debt
Long-term debt consists of the following (in thousands):
December 1 June 2
1998 1998
Revolving credit agreement $ 155,131 $ 103,495
Senior term notes 50,000 50,000
Senior secured notes 9,600 9,600
-------------------------------------
214,731 163,095
Less current maturities (2,400) (2,400)
-------------------------------------
$ 212,331 $ 160,695
=============================================
Effective July 16, 1997, the Company entered into a three year $175 million
unsecured revolving credit agreement (the "Revolver"). The rate of interest
payable under the Revolver is a function of LIBOR or the prime rate of the lead
agent bank, at the option of the Company. The Company may increase the amount of
the facility to $200 million with the consent of the syndication of banks.
During the term of the Revolver, the Company is obligated to pay a fee of .125%
per annum for the unused portion of the Revolver.
Effective August 8, 1997, the Company completed the placement of a separate $50
million senior term notes facility (the "Notes"). The Notes provide for interest
at a fixed rate of 7.46%, payable semi-annually, with semi-annual principal
payments of $7.1 million, beginning on July 15, 2004. The net proceeds from the
Notes were used to reduce the Company's indebtedness under the Revolver.
At December 1, 1998, the Company's weighted average interest rate on its
borrowing under the Revolver was 5.7% and at June 2, 1998, the Company's
weighted average interest rate on its borrowing under the Revolver was 6.0%.
As of December 1, 1998, the Company had approximately $19.9 million of available
borrowings under the Revolver.
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 December 1, 1998.
4. Business Acquisition
Effective September 28, 1998, the Company acquired, pursuant to a definitive
purchase agreement dated September 21, 1998, all the Rose Auto Parts stores
through an asset purchase from Eastern Automotive Warehouse, Inc., a
wholly-owned subsidiary of National Auto Parts Warehouse, Inc. The total
purchase price was approximately $8.2 million. The acquisition included 39
leased retail store locations, primarily located in southeast Florida, and a
leased warehouse facility in Miami. The acquisition involved the purchase of
inventory and furniture and equipment at these various locations and the
assumption of the respective leases. At December 1, 1998, 26 of the 39 Rose
retail locations were in operation. Consistent with its plan, Discount Auto
Parts does not expect to continue operations in any of the remaining 13 stores.
The acquisition has been accounted for using the purchase method of accounting,
and, accordingly, the purchase price has been allocated to the assets purchased
and the liabilities assumed based upon the fair values at the date of
acquisition. Operating results of the acquired business have been included in
operations since the date of the acquisition.
The pro forma impact of the acquired business on results of operation is not
material.
5. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"), which is effective for
years beginning after December 15, 1997. Statement 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. Statement 131 is effective
for financial statements for fiscal years beginning after December 15, 1997, and
therefore the Company will adopt the new disclosure requirements retroactively
in fiscal 1999. Management has not completed its review of Statement 131, but
does not anticipate that the adoption of this statement will have a significant
effect on the Company's financial statements.
In June 1997, the FASB issued Statement 130, Reporting Comprehensive Income
("Statement 130"). Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components. The Company adopted the
provisions of Statement 130 effective June 3, 1998; however, Statement 130 had
no impact on the Company's financial position or results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of OperationsResults of OperationsThirteen Weeks and Twenty-Six Weeks
Ended December 1, 1998 Compared to Thirteen and Twenty-Six Weeks Ended December
2, 1997
Total sales for the second quarter of fiscal 1999 were $120.3 million as
compared to $105.2 million a year earlier. Comparable store sales (which include
sales under the Company's commercial delivery program) increased 2.0% for the
second quarter of fiscal 1999 as compared to the second quarter of fiscal 1998.
The balance of the increase in total sales for the fiscal 1999 second quarter
was attributable to net sales from new stores opened since the beginning of
fiscal 1998, as well as sales associated with the Rose Auto Parts stores which
were acquired effective September 28, 1998.
Total sales for the first six months of fiscal 1999 were $243.3 million as
compared to $215.0 million a year earlier. Comparable store sales (which include
sales under the Company's commercial delivery program) increased 2.2% for the
first six months of fiscal 1999 as compared to the first six months of fiscal
1998. The balance of the increase in total sales for the first six months of
fiscal 1999 was attributable to net sales from new stores opened since the
beginning of fiscal 1998, as well as sales associated with the Rose Auto Parts
stores which were acquired effective September 28, 1998.
At December 1, 1998, the Company had 518 stores in operation, compared with 452
stores at June 2, 1998 and 421 stores at December 2, 1997.
Gross profit for the second quarter of fiscal 1999 increased to $49.2 million,
or 40.9% of net sales, as compared to $41.4 million, or 39.3% of net sales, for
the comparable period of fiscal 1998. Gross profit for the first six months of
fiscal 1999 increased to $98.9 million, or 40.6% of net sales, as compared to
$83.8 million, or 39.0% of net sales, for the first six months of fiscal 1998.
The improvement in gross margins for the second quarter and first six months of
fiscal 1999 was due in part to overall lower product cost, a shift in
merchandising strategies to promote higher gross margin product offerings, and a
shift in vendor cooperative advertising allowances to direct product cost
reductions.
Selling, general and administrative (SG&A) expenses increased as a percentage of
sales from 28.0% in the second quarter of fiscal 1998 to 30.6% in the second
quarter of fiscal 1999. SG&A expenses increased as a percentage of sales from
27.5% for the first six months of fiscal 1998 to 29.5% for the first six months
of fiscal 1999. The increase is primarily due to the expenses incurred related
to the implementation of the Company's commercial delivery program and the shift
in cooperative advertising credits to direct product purchase price reductions.
In addition, sales and SG&A expenses as a percentage of sales were negatively
impacted during the second quarter of fiscal 1999 by the ramifications of
Hurricane Georges in late September 1998. As a result of mandatory and voluntary
evacuations, approximately 140 of the Company's stores were closed for periods
of up to three days.
Income from operations for the second quarter of fiscal 1999 increased 4.3% to
$12.4 million as compared to $11.9 million in the second quarter of fiscal 1998.
Income from operations for the first six months of fiscal 1999 increased 9.3% to
$27.0 million as compared to $24.7 million for the first six months of fiscal
1998. Operating margins for the second quarter of fiscal 1999 were 10.3% as
compared to 11.3% for the second quarter of fiscal 1998. Operating margins for
the first six months of fiscal 1999 were 11.1% as compared to 11.5% for the
first six months of fiscal 1998. Operating margins for the both the second
quarter and first six months of fiscal 1999 were somewhat negatively impacted by
the implementation of the Company's commercial delivery program and the
temporary store closings occasioned by Hurricane Georges. Excluding the impact
of the commercial delivery program, operating margins were 11.5% for the second
quarter of fiscal 1999 and 12.0% for the first six months of fiscal 1999.
Interest expense for the second quarter of fiscal 1999 was $3.1 million,
compared to $2.6 million for the second quarter of fiscal 1998. Interest expense
for the first six months of fiscal 1999 was $5.7 million as compared to $4.7
million during the first six months of fiscal 1998. The increase in interest
expense was primarily the result of increased borrowings associated with new
store growth and the costs associated with the expansion of the Company's
existing distribution center. Borrowings under the Company's revolving credit
line were used to fund the Rose Auto Parts acquisition, which was completed
subsequent to the first quarter of fiscal 1999. These additional borrowings will
necessarily result in an increase in interest expense in the third quarter of
fiscal 1999 and thereafter. The increase in interest expense was partially
offset by overall lower interest rates.
The Company's effective tax rate for the second quarter and first six months of
fiscal 1999 was 38.6% as compared to 38.5% for the second quarter and first six
months of fiscal 1998.
As a result of the above factors, net income was $5.8 million or $.35 per
diluted share for the second quarter of fiscal 1999 as compared to net income of
$6.1 million or $.37 per diluted share for the second quarter of fiscal 1998.
Net income for the first six months of fiscal 1999 increased to $13.2 million or
$.78 per diluted share as compared to $12.5 million or $.75 per diluted share
for the first six months of fiscal 1998.
Liquidity and Capital Resources
For the twenty-six weeks ended December 1, 1998, net cash of $0.2 million was
provided by the Company's operations versus $18.5 million used by the Company's
operations for the comparable twenty-six week period of fiscal 1998. The primary
reason for the change between periods was the funding of the $20.4 million
litigation settlement accrual, which occurred in the first six months of fiscal
1998. Inventories for the twenty-six week period ended December 1, 1998,
increased primarily as a result of additional stores added during the period.
Capital expenditures for the twenty-six weeks ended December 1, 1998 were $45.0
million. The majority of the capital expenditures related to the 40 stores
(excluding the 26 Rose Auto Parts stores) opened during that period and costs
associated with the expansion of the Company's distribution center. For all of
fiscal 1999, the Company expects to add approximately 100 new stores, of which
66 had been added as of December 1, 1998.
In July 1998, the Company completed the expansion of its distribution center to
double its size. The expanded distribution center, which comprises approximately
600,000 square feet, should be capable of serving approximately 675 stores.
Additional office space, support facilities and extension of the merchandising
handling systems were also substantially completed during the second quarter of
fiscal 1999. The expanded distribution center will also provide service to the
Company's express warehouses, and will be utilized to support the commercial
delivery program.
The Company also continued the roll-out of a commercial delivery service, which
began in the third quarter of fiscal 1998. The Company's commercial delivery
service consists of a program whereby commercial customers (such as auto service
centers, commercial mechanics, garages and the like) establish commercial
accounts with the Company and order automotive parts from the Company and such
parts will be delivered from, or can be picked up from, nearby Discount Auto
Parts stores. The commercial delivery program can be expected to require the
Company to extend trade credit to certain of the commercial account customers as
part of the ordinary course of business. The extension of such trade credit will
increase the capital requirements associated with the roll-out of the program
and will expose the Company to credit risk from uncollectible accounts. The
Company has established systems to manage and control such credit risk. The
amount of capital that is needed to cover extension of trade credit will be
dependent in large part upon the success of the commercial delivery service
roll-out and how quickly the commercial business develops. Because this is a
relatively new aspect of the auto parts supply business for the Company, there
are risks associated with the Company's entry into this new aspect of the
business and there can be no assurance as to if or when the commercial delivery
service business will be profitable or as to whether the Company will experience
any financial or other challenges in managing and controlling the credit risk.
As further discussed in Note 4 of the Notes to Condensed Consolidated Financial
Statements, effective September 28, 1998, the Company acquired substantially all
of the assets of Rose Auto Parts stores for approximately $8.2 million. Funding
for the acquisition was provided from available borrowings under the Company's
revolving line of credit.
The Company anticipates that total capital expenditures for all of fiscal 1999
including the costs associated with the Rose Auto Parts acquisition and the
distribution center expansion and the working capital costs associated with the
roll-out of the commercial delivery service, will be in the range of $78 million
to $88 million.
As of December 1, 1998, the Company had $19.9 million of additional availability
under its existing financing agreements.
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. 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 (including renewals and replacements thereof), and as to equipment and
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 partially finance new store inventories 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 a portion 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 in large part 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 short term and
long term capital and liquidity needs of the Company. Particularly in light of
the use of available borrowings to fund the recently completed Rose Auto Parts
stores acquisition, availability under the existing financing agreements is not
expected to be sufficient to support the new store growth capital needs for all
of fiscal year 1999. The Company is currently in the process of securing
additional interim funding. Although there can be no assurance, the Company
believes that it will be able to secure expanded borrowing facilities or
establish other financing programs to fund its long term capital needs for store
growth.
Year 2000 Issue
The Year 2000 issue results from computer programs and electronic circuitry that
do not differentiate between the year 1900 and the year 2000 because they are
written using two rather than four digit dates to define the applicable year. If
not corrected, many computer applications and date-sensitive devices could fail
or produce erroneous results when processing dates after December 31, 1999. The
Year 2000 issue affects virtually all companies and organizations, including the
Company.
The Company employs a number of information technology systems in its
operations, including, without limitation, computer networking systems,
financial systems and other similar systems, some of which are internally
developed and others are licensed from outside vendors. A number of these
systems have been recently implemented by the Company and thus most of these
recently implemented systems are believed to be Year 2000 compliant. Management
developed and has been pursing a plan to modify the Company's other information
technology systems and has begun the process of converting these other critical
data processing systems. Management currently expects this plan to be
substantially complete by May 1999.
Throughout its operations, the Company also employs electronic equipment such as
building security, product handling and other devices containing embedded
electronic circuits. The Company is in the process of identifying and
prioritizing any embedded technology devices which may be deemed to be mission
critical or that tend to have a more significant impact on normal operations. A
team of internal staff and management that has been identified to manage the
Company's Year 2000 initiative will develop a separate plan to upgrade these
higher priority embedded technology devices. Management currently expects these
activities to be substantially complete by summer 1999.
The Company anticipates spending less than $250,000 to address Year 2000 issues.
This includes the estimated costs of all equipment upgrades, software
modifications, the salaries of employees, and the fees of consultants addressing
the issues. The majority of these funds will be spent January through June 1999.
The funds to pay for addressing Year 2000 issues will be from available funds
currently on hand. The Company believes that the cost of addressing the Year
2000 issues will not have a material effect on the Company's consolidated
financial position or results of operations.
The Company is also in the process of evaluating and managing the potential risk
posed by the impact of the Year 2000 issue on its major suppliers and vendors.
Formal and informal communications with these major suppliers and vendors have
been initiated, with an expectation and plan to substantially complete an
assessment in this regard by April 1999. However, it may be difficult to
determine with any certainty whether such suppliers and vendors will be able to
successfully address the Year 2000 issue with respect to their own systems and
thus be able to process purchase orders immediately following January 1, 2000.
Should the Company or any third party with whom the Company has a significant
business relationship have a systems failure due to the century change, the
Company believes that the most significant impact would likely be the inability,
with respect to a store or group of stores, to conduct operations due to a power
failure, to timely deliver inventory, to receive certain products from vendors,
or to electronically process sales to the customer at the store level. The
Company does not expect any such event to have a significant effect on its
overall operations. However, the Company's initiatives with respect to the Year
2000 issue are subject to a variety of risks and uncertainties, some of which
are beyond the Company's control. The failure of the Company or any of its major
suppliers or vendors to achieve Year 2000 readiness could have adverse impacts
on the Company's business operations not currently anticipated, which in turn
could have an adverse effect on the Company's future financial results.
Accordingly, the Company is in the process of developing contingency plans for
such events and estimates such plans will be finalized by approximately June 30,
1999.
Forward Looking Statements
The Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this quarterly report contain forward looking
statements that are based on the current expectations, estimates and projections
about the industry in which the Company operates, management's beliefs and the
assumptions made by management. These statements include the words
"anticipates", "expects", "expected", "should", and "believes", variations of
such words, and similar expressions which are intended to identify such forward
looking statements. These forward looking statements are subject to potential
risks and uncertainties that could cause actual results to differ materially
from historical results or those currently anticipated.
These potential risks and uncertainties include increased competition, extent of
the market demand for auto parts, availability of inventory supply, propriety of
inventory mix, adequacy and perception of customer service, product quality and
defect experience, availability of and ability to take advantage of vendor
pricing programs and incentives, sourcing availability, rate of new store
openings, cannibalization of store sites, mix and types of merchandise sold,
governmental regulation of products, new store development and the like,
performance of information systems, effectiveness of deliveries from the
distribution center, ability to hire, train and retain qualified team members,
availability of quality store sites, ability to successfully roll-out the
commercial delivery service, credit risk associated with the commercial delivery
service, environmental risks, availability of expanded and extended credit
facilities, legal expenses associated with disputes and investigations
concerning freon matters, potential for liability with respect to these matters
and other risks.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Dexter Carson, et. al. vs. Discount Auto Parts, Inc., et. al., United States
District Court for the Southern District of Florida, Case No.
96-08833-CIV-HURLEY, Southern District of Florida
This action involves a lawsuit which was filed in the United States
District Court for the Southern District of Florida arising out of the
employment of the Plaintiffs and alleged incidents which occurred at various
Discount Auto Parts stores. The action seeks damages and other relief as a
result of alleged discrimination under both federal and state laws, violations
of the Florida Whistleblower law, negligent misrepresentations, fraudulent
misrepresentations, negligence-personal injuries and gross negligence-personal
injuries. The Company filed numerous motions, including a Motion to Dismiss and
a Motion to Strike. On May 19, 1998, the court entered an Order Granting in Part
the Company's Motion to Dismiss and Severing Plaintiffs From Case And Dismissing
Selected Claims Without Prejudice. The order dismissed nine of the eleven
plaintiffs and left only Carson and Williamson's case remaining. The plaintiffs
filed a notice to appeal the judge's order, which they subsequently voluntarily
dismissed.
In October 1998, the remaining case with Carson and Williamson was
settled, with all amounts paid to resolve the case being fully reflected as an
expense in the Company's second quarter income statement and having an
immaterial impact on the Company's results of operations. Of the plaintiffs
whose cases were dismissed, three have separately filed actions against the
Company in individual lawsuits and four have filed a new joint action against
the Company. These cases assert common law claims and certain federal civil
rights claims. The Company views each of these four cases as litigation that may
ordinarily and routinely be experienced by companies such as Discount Auto
Parts. These cases, neither individually nor collectively, are viewed as being
material legal proceedings or as being likely to give rise to any material
liability.
Automotive Supply Company vs. Discount Auto Parts et al., United States District
Court for the Central District of California, Case No. CV 98-0275 CAS (VAPx).
On or about December 9, 1997, a complaint was filed in California
against the Company by Automotive Supply Company alleging, among other things,
breach of contract, account stated, breach of implied covenant of good faith and
fair dealing, fraud and negligent misrepresentation, all in connection with the
supply by Automotive Supply Company of rotating electrical parts to the Company.
Although the complaint was initially filed in Superior Court, the Company
successfully removed the action to federal district court. The complaint seeks
compensatory damages in excess of $16,000,000 as well as punitive and exemplary
damages. The Company believes the claims in the complaint are without merit and
intends to defend the action vigorously. The Company has filed an answer denying
the essential allegations in the complaint and, by way of a counterclaim, is
seeking to recover amounts the Company asserts it is owed by Automotive Supply
Company as well as amounts representing other damages the Company has suffered
as a result of Automotive Supply Company's own actions. Discovery has commenced
and is continuing.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on October 6, 1998.
There were 16,637,937 shares of Common Stock entitled to vote. The following
matters were voted at the meeting.
Peter J. Fontaine was elected to fill a Class III director seat for a three-year
term, with 15,966,435 votes for his election and 170,582 withheld. William C.
Perkins was elected to fill a Class III director seat for a three-year term with
15,966,505 votes for his election and 170,512 withheld. Directors continuing to
serve are Warren Shatzer, E.E. Wardlow, A Gordon Tunstall, and David P.
Walling.
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 December 1, 1998.
<PAGE>
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: January 14, 1999 By: /s/ Peter J. Fontaine
---------------------
Peter J. Fontaine
Chief Executive Officer
(Principal Executive Officer)
Date: January 14, 1999 By: /s/ C. Michael Moore
--------------------
C. Michael Moore
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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