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 November 30, 1999
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
_____________________________ _____________________________
(Address of principal executive offices) (zip code)
(863) 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 - 16,693,631 shares as of November 30, 1999
<PAGE>
Discount Auto Parts, Inc.
Index
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - November 30, 1999 and June 1, 1999.... 3
Condensed Consolidated Statements of Income - for the thirteen and
twenty-six weeks ended November 30, 1999 and December 1, 1998................. 4
Condensed Consolidated Statements of Cash Flows - for the twenty-six weeks
ended November 30, 1999 and December 1, 1998 ................................. 5
Notes to Condensed Consolidated Financial Statements...........................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations..................................................................8
Item 3. Quantitative and Qualitative Disclosures about Market Risk............11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................12
Item 4. Submission of Matters to a Vote of Security Holders ..................12
Item 6. Exhibits and Reports on Form 8-K..................................... 12
SIGNATURES .................................................................. 13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Discount Auto Parts, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
November 30 June 1
1999 1999
------------------- ------------------
ASSETS (In thousands)
Current assets:
<S> <C> <C>
Cash $ 7,275 $ 8,795
Inventories 225,270 209,028
Prepaid expenses and other current assets 18,490 22,773
------------------- ------------------
Total current assets 251,035 240,596
Property and equipment 494,588 457,994
Less allowances for depreciation and amortization (94,273) (83,417)
------------------- ------------------
400,315 374,577
Other assets 5,661 5,141
------------------- ------------------
Total assets $ 657,011 $ 620,314
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 66,338 $ 87,867
Other current liabilities 18,124 21,390
Current maturities of long-term debt 2,400 2,400
------------------- ------------------
Total current liabilities 86,862 111,657
Deferred income taxes 7,581 7,091
Long-term debt 272,397 224,800
Stockholders' equity:
Preferred stock
- -
Common stock 167 167
Additional paid-in capital 142,269 142,230
Retained earnings 147,735 134,369
------------------- ------------------
Total stockholders' equity 290,171 276,766
------------------- ------------------
Total liabilities and stockholders' equity $ 657,011 $ 620,314
=================== ==================
See accompanying notes.
</TABLE>
<PAGE>
Discount Auto Parts, Inc.
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
--------------- ---------------- --------------- ---------------
November 30 December 1 November 30 December 1
1999 1998 1999 1998
--------------- ---------------- --------------- ---------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net sales $ 142,643 $ 120,290 $ 286,268 $ 243,329
Cost of sales, including distribution costs 84,096 71,434 169,294 145,129
--------------- ---------------- --------------- ---------------
Gross profit 58,547 48,856 116,974 98,200
Selling, general and administrative expenses 45,003 36,776 88,697 71,845
--------------- ---------------- --------------- ---------------
Income from operations 13,544 12,080 28,277 26,355
Other income, net 173 107 811 131
Interest expense (4,157) (3,065) (7,808) (5,727)
--------------- ---------------- --------------- ---------------
Income before income taxes and cumulative effect of
change in accounting principle 9,560 9,122 21,280 20,759
Income taxes 3,540 3,521 7,914 8,013
--------------- ---------------- --------------- ---------------
Income before cumulative effect of change
in accounting principle 6,020 5,601 13,366 12,746
Cumulative effect of change in accounting principle, net
of income tax benefit - - - (8,245)
--------------- ---------------- --------------- ---------------
Net income $ 6,020 $ 5,601 $ 13,366 $ 4,501
=============== ================ =============== ===============
Net income per basic share from:
Income before cumulative effect of change
in accounting principle $ $ $ $
0.36 0.34 0.80 0.77
Cumulative effect of change in accounting principle - - -
(.50)
--------------- ---------------- --------------- ---------------
=============== ================ =============== ===============
Net income $ $ $ $
0.36 0.34 0.80 0.27
=============== ================ =============== ===============
Net income per diluted share from:
Income before cumulative effect of change
in accounting principle $ $ $ $
0.36 0.33 0.80 0.76
Cumulative effect of change in accounting principle - - -
(0.49)
--------------- ---------------- --------------- ---------------
Net income $ $ $ $
0.36 0.33 0.80 0.27
=============== ================ =============== ===============
Average common shares outstanding
16,693 16,641 16,692 16,638
Dilutive effect of stock options
- 161 58 177
--------------- ---------------- --------------- ---------------
Average common shares outstanding - assuming dilution
16,693 16,802 16,750 16,815
=============== ================ =============== ===============
See accompanying notes.
</TABLE>
<PAGE>
Discount Auto Parts, Inc.
Condensed Consolidated Statements Of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
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November 30 December 1
1999 1998
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Operating activities (In thousands)
<S> <C> <C>
Net income $ 13,366 $ 4,501
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Cumulative effect of change in accounting principle - 8,245
Deferred income tax benefit 490 -
Depreciation and amortization 11,076 8,852
Gain on disposals of property and equipment (655) -
Changes in operating assets and liabilities:
Increase in inventories (16,242) (16,796)
Decrease (increase) in prepaid expenses and
other current assets 4,283 (3,515)
Increase in other assets (659) (214)
Decrease in trade accounts payable (21,529) (3,737)
(Decrease) increase in other current liabilities (3,266) 2,833
-------------------- -----------------
-------------------- -----------------
Net cash (used in) provided by operating activities (13,136) 169
Investing activities
Proceeds from sales of property and equipment 1,149 1,157
Purchases of property and equipment (37,169) (44,993)
Business acquisition - (8,225)
-------------------- -----------------
-------------------- -----------------
Net cash used in investing activities (36,020) (52,061)
Financing activities
Proceeds from short-term borrowings and long-term debt 60,751 68,503
Payments of short-term borrowings and long-term debt (13,154) (16,867)
Proceeds from other issuances of common stock 39 356
-------------------- -----------------
-------------------- -----------------
Net cash provided by financing activities 47,636 51,992
Net (decrease) increase in cash (1,520) 100
Cash at beginning of period 8,795 5,064
-------------------- -----------------
==================== =================
Cash at end of period $ 7,275 $ 5,164
==================== =================
See accompanying notes.
</TABLE>
Discount Auto Parts, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
November 30, 1999
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 1,
1999.
Operating results for the thirteen and twenty-six week periods ended November
30, 1999 are not necessarily indicative of the results that may be expected for
the entire fiscal year.
2. Long-Term Debt
Long-term debt consists of the following (in thousands):
November 30 June 1
1999 1999
-----------------------------
Revolving credit agreements $ 217,597 $ 170,000
Senior term notes 50,000 50,000
Senior secured notes 7,200 7,200
-----------------------------
274,797 227,200
Less current maturities (2,400) (2,400)
-----------------------------
$ 272,397 $ 224,800
Effective July 16, 1997, the Company entered into a three year $175 million
unsecured revolving credit agreement (the "Revolver") due in fiscal year 2001.
The rate of interest payable under the Revolver was a function of LIBOR or the
prime rate of the lead agent bank, at the option of the Company. During the term
of the Revolver, the Company was obligated to pay a fee of .125% per annum for
the unused portion of the Revolver.
Effective January 29, 1999, the Company entered into a separate $20 million
unsecured revolving credit agreement with a financial institution. The facility
was scheduled to mature September 1, 1999. The rate of interest payable under
the facility is a function of LIBOR.
Effective July 29, 1999, the Company entered into a new five year $265 million
unsecured revolving credit agreement (the "New Revolver"). The New Revolver
replaces both of the aforementioned revolving credit facilities. The rate of
interest payable under the New Revolver is a function of LIBOR or the prime rate
of the lead agent bank, at the option of the Company. During the term of the New
Revolver, the Company is also obligated to pay a fee, which fluctuates based on
the Company's debt-to-capitalization ratio, for the unused portion of the New
Revolver.
Effective August 8, 1997, the Company issued $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.
At November 30, 1999 and June 1, 1999, the Company's weighted average interest
rate on its borrowing under its revolving lines of credit was 6.6% and 5.3%,
respectively.
As of November 30, 1999, the Company had approximately $47.4 million of
available borrowings under the New Revolver.
The Company has issued two senior secured notes, each for an original principal
amount of $12 million, to an insurance company. The notes are collateralized by
a first mortgage on certain 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 30, 1999.
3. 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 south Florida, and a leased
warehouse facility in Miami, Florida. The acquisition involved the purchase of
inventory and furniture and equipment at these various locations and the
assumption of the respective leases. At November 30, 1999, 26 of the 39 Rose
retail locations were in operation. Consistent with its plan, Discount Auto
Parts has not continued 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. Goodwill of $2.7 million,
resulting from the acquisition, is being amortized over twenty years.
The pro forma impact of the acquired business on results of operation is not
material.
4. Accounting Change
During the fourth quarter of fiscal year 1999, the Company changed its method of
accounting for store inventories from the first-in, first-out retail inventory
method to the weighted average cost method. The new method for computing
inventories is preferable because it more accurately measures the cost of the
Company's merchandise and produces a better matching of revenues and expenses.
The second quarter and first six months of fiscal 1999 have been restated to
give effect to the change in the Company's method of accounting for inventories.
The effect of the change as of the beginning of fiscal 1999 (i.e. June 3, 1998)
has been presented as a cumulative effect of a change in accounting method, net
of a $5,190,000 income tax benefit, of $8,245,000, and has been recorded as of
such date. In addition, the effect of this change on operations for the second
quarter and first six months of fiscal year 1999 was to decrease income before
cumulative effect of change in accounting principle by $215,000 ($.01 per
diluted share), and $418,000 ($.02 per diluted share), respectively.
<PAGE>
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 30, 1999 Compared to Thirteen
Weeks and Twenty-Six Weeks Ended December 1, 1998
Total sales for the second quarter of fiscal 2000 increased 18.6% to a record
$142.6 million, as compared to $120.3 million a year earlier. Comparable store
sales increased 4.5% for the second quarter of fiscal 2000 as compared to the
second quarter of fiscal 1999. Total sales for the first six months of fiscal
2000 increased 17.6% to $286.3 million, from $243.3 million a year earlier.
Comparable store sales increased 2.4% for the first six months of fiscal 2000 as
compared to the first six months of fiscal 1999. Sales, as well as earnings, for
the second quarter and first six months of fiscal 2000 were negatively impacted
by the store closings resulting from Hurricanes Floyd and Irene. Fortunately,
the Company's stores suffered only minor physical damage from the hurricanes
that occurred during September and October. Comparable store sales results
include sales from the Company's commercial delivery program. The balance of the
increase in total sales for the second quarter and the first six months of
fiscal 2000 were attributable to net sales from new stores opened since the
beginning of the respective periods in fiscal 1999.
At November 30, 1999, the Company had 602 stores in operation, compared with
558 stores at June 1, 1999 and 518 stores at December 1, 1998.
Gross profit for the second quarter of fiscal 2000 increased 19.8% to $58.5
million as compared to $48.9 million for the second quarter of fiscal 1999. As a
percentage of sales, gross profit was 41.0% for the second quarter of fiscal
2000 as compared to 40.6% for the second quarter of fiscal 1999. Gross profit
for the first six months of fiscal 2000 increased 19.1% to $117.0 million as
compared to $98.2 million a year earlier. As a percentage of sales, gross profit
was 40.9% for the first six months of fiscal 2000 as compared to 40.4% a year
earlier. The increase is primarily the result of overall lower product cost.
Selling, general and administrative ("SG&A") expenses increased as a percentage
of sales from 30.6% in the second quarter of fiscal 1999 to 31.5% in the second
quarter of fiscal 2000. SG&A expenses increased as a percentage of sales from
29.5% for the first six months of fiscal 1999 to 31.0% for the first six months
of fiscal 2000. The increase is primarily due to the expenses incurred related
to the implementation and expansion of the Company's commercial delivery program
for the first six months of fiscal 2000 as compared to the first six months of
fiscal 1999.
Income from operations for the second quarter of fiscal 2000 increased 12.1% to
$13.5 million as compared to $12.1 million in the second quarter of fiscal 1999.
Income from operations for the fist six months of fiscal 2000 increased 7.3% to
$28.3 million as compared to $26.4 million for the first six months of fiscal
1999.
Operating margins for the second quarter of fiscal 2000 were 9.5% as compared to
10.0% for the second quarter of fiscal 1999. Operating margins for the first six
months of fiscal 2000 were 9.9% as compared to 10.8% for the first six months of
fiscal 1999. Operating income and the resulting margins for both the second
quarter and first six months of both fiscal 2000 and fiscal 1999 were negatively
impacted by expenses associated with the implementation and expansion of the
Company's commercial delivery program and some softness in sales growth in part
attributable to the store closings resulting from hurricanes. Excluding the
impact of the commercial delivery program, operating margins were approximately
10.9% for the second quarter of fiscal 2000 versus approximately 11.3% for the
second quarter of fiscal 1999 and approximately 11.2% for the first six months
of fiscal 2000 and approximately 11.8% for the first six months of fiscal 1999.
Interest expense for the second quarter of fiscal 2000 was $4.2 million as
compared to $3.1 million for the second quarter of fiscal 1999. Interest expense
for the first six months of fiscal 2000 was $7.8 million as compared to $5.7
million during the first six months of fiscal 1999. The increase was primarily
the result of increased borrowings associated with new store growth and higher
interest rates on the Company's floating rate debt.
Income before the cumulative effect of a change in accounting method for the
second quarter of fiscal 2000 was $6.0 million or $.36 per diluted share as
compared to $5.6 million or $.33 per diluted share reported for the second
quarter of fiscal 1999. Income before the cumulative effect of a change in
accounting method for the first six months of fiscal 2000 increased to $13.4
million or $.80 per diluted share as compared to $12.7 million or $.76 per
diluted share for the first six months of fiscal 1999.
During the fourth quarter of fiscal 1999, the Company implemented a change in
its method of accounting for store inventories from the first-in, first-out
method calculated using a form of the retail inventory method to the weighted
cost method. The Company believes the new method for computing inventory is
preferable because it provides for better matching of revenues and expenses. The
Company made this change in connection with new store-level perpetual inventory
systems installed throughout fiscal 1999. Accordingly, it is believed that the
new inventory valuation method will better correspond with the Company's current
operating practices for store inventory management. As a result of this change
in accounting method, the Company reported a non-cash, fiscal 1999 after tax
charge of $8.2 million, or $.49 per diluted share which is reflected as of the
beginning of the first quarter of fiscal 1999 and which represents the beginning
of the 1999 fiscal year impact of the change in accounting method.
The Company's effective tax rate for the second quarter of fiscal 2000 was 37.0%
as compared to 38.6% for the second quarter fiscal 1999. The Company's effective
tax rate for the first six months of fiscal 2000 was 37.2% as compared to 38.6%
for the first six months of fiscal 1999. The lower tax rate primarily is
reflective of estimated reductions anticipated as a result of state tax planning
and restructuring initiatives, which were implemented as of the end of the
second quarter of fiscal 2000.
Taking into account all of the above described factors, the Company reported net
income for the second quarter of fiscal 2000 of $6.0 million or $.36 per diluted
share as compared to $5.6 million of $.33 per diluted share for second quarter
of fiscal 1999. Net income for the first six months of fiscal 2000 was $13.4
million or $.80 per diluted share as compared to $4.5 million or $.27 per
diluted share for the first six months of fiscal 1999.
Liquidity and Capital Resources
For the twenty-six weeks ended November 30, 1999, net cash of $13.1 million was
used in the Company's operations versus $169,000 provided by the Company's
operations for the comparable twenty-six week period of fiscal 1999. During the
twenty-six weeks ended November 30, 1999, this net use of cash was due primarily
to a reduction in trade accounts payable (which was largely a result of fiscal
1999 year-end extended vendor terms coming due), and an increase in inventories
resulting primarily from new store growth and additional inventory added to
commercial designated stores. These uses of cash were offset in part by current
period earnings and depreciation. The variance between the net cash used in
operations for fiscal 2000 and the new cash provided by operations for the
fiscal 1999 period is primarily due to the larger decrease in accounts payable
for the fiscal 2000 period. This change is primarily due to timing of payments,
and the implementation of the Company's excess inventory redistribution plan
implemented with respect to its stores. Such plan takes excess inventory from
selected stores and redistributes such inventory to those stores that are in
need of the inventory in lieu of purchasing additional inventory from the
Company's vendors. While this program tends to impact inventory management
levels favorably, because of timing issues, it has a more immediate impact
(reduction) on accounts payable.
Capital expenditures for the twenty-six weeks ended November 30, 1999 were $37.2
million. The majority of the capital expenditures related to the 44 stores
opened during that period. For all of fiscal 2000, the Company expects to open
approximately 80 to 90 new stores.
The Company is currently in the process of planning and developing a second
distribution center. The new distribution center is expected to be opened and
operational in the fall of calendar year 2000. Capital expenditures associated
with the second distribution center are still being finalized, but are expected
to be approximately $20 million to $30 million.
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 requires 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.
The Company anticipates that total capital expenditures for all of fiscal 2000
including the costs associated with the addition of 80 to 90 new stores, initial
construction of the second distribution center and the working capital costs
associated with the continued expansion of the commercial delivery service, will
be in the range of $70 million to $75 million.
As of November 30, 1999, the Company had $47.4 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 much of 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 (renewals and replacements thereof), and as to equipment and fixtures,
primarily through cash flow from operations. In addition, the Company is
exploring options to utilize sale/leaseback arrangements and synthetic leases to
secure additional liquidity and to address new store growth.
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 some 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 the capital and
liquidity needs of the Company through the fall of 2000. The Company expects
that by the fall of 2000 additional funding sources, such as sale/leaseback
arrangements, will need to have been put in place to supplement the new
revolving credit facility.
Inflation and Seasonality
The Company does not believe its operations have been materially affected by
inflation. The Company has been successful, in many cases, in reducing the
effects of merchandise cost increases principally by taking advantage of vendor
incentive programs, economies of scale resulting from increased volumes or
purchases, and selective forward buying.
Although sales have historically been somewhat higher in the Company's fourth
quarter (March through May), the Company does not consider its business to be
seasonal.
Year 2000 Issue
Based on a review and evaluation of the Company operations over the first
several days of calendar year 2000, the Company has not experienced, and does
not expect to experience, any material negative impact from what had been
identified and designated as the Year 2000 issue. Furthermore, the aggregate
costs incurred by the Company in addressing its Year 2000 issues were not
material and were well within the estimates previously reported by the Company.
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, but are not limited to,
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 implement the commercial delivery service, credit risk associated
with the commercial delivery service, environmental risks, availability of
expanded and extended credit facilities, expenses associated with investigations
concerning freon matters, potential for liability with respect to these matters
and other risks.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to changes in interest rates, primarily from its
long-term revolving credit agreement. The Company also has long term debt that
bears a fixed rate. There is a risk that market rates will decline and the
required payments will exceed those based on current market rates on the
long-term debt.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently involved in litigation with its insurance carrier
pursuant to which the Company is seeking recovery under its insurance policy of
certain amounts incurred in connection with the previously reported Airgas, Inc.
litigation and the settlement thereof. Recently, the separate motions for
summary judgment by the Company and by the insurance carrier were denied and the
litigation is proceeding. The ultimate outcome of such litigation or an estimate
of the amount of potential insurance recoveries, if any, cannot be determined at
this time. No benefit for any recovery, which may result, has been reflected in
the Company's fiscal year 2000 financial statements.
Discount Auto Parts is not a party to any other legal proceedings, other than
various claims and lawsuits arising in the normal course of the Company's
business. The Company does not believe that such claims and lawsuits,
individually or in the aggregate, will have a material adverse effect on its
financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on October 5, 1999.
There were 16,690,555 shares of Common Stock entitled to vote. The following
matters were voted at the meeting.
Charles W. Webster was elected to fill a Class I director seat for a three-year
term, with 15,261,241 votes for his election and 78,532 withheld. David P.
Walling was elected to fill a Class I director seat for a three-year term with
15,260,242 votes for his election and 79,531 withheld. Directors continuing to
serve are Peter J. Fontaine, William C. Perkins and E.E. Wardlow. Effective
November 1, 1999, Warren Shatzer resigned from the Board of Directors as a
result of increased time commitments demanded by other business interests that
Mr. Shatzer has been pursuing. The vacancy remains unfilled at this time.
A proposal to approve the 1999 Amendment of the Amended and Restated 1995 Stock
Option Plan was approved and adopted, with 11,174,232 votes for the proposal,
4,158,225 against the proposal and 7,316 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.19 Indemnification Agreement for Charles W. Webster, Jr.
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 November 30, 1999.
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, 2000 By: /s/ Peter J. Fontaine
---------------- ---------------------
Peter J. Fontaine
Chief Executive Officer
(Principal Executive Officer)
Date: January 14, 2000 By: /s/ C. Michael Moore
---------------- --------------------
C. Michael Moore
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
Exhibit 10.19
Indemnification Agreement for Charles W. Webster, Jr.
THIS INDEMNIFICATION AGREEMENT is made and entered into this 8th day of
November, 1999, but effective as of October 5, 1999, by and between CHARLES W.
WEBSTER, JR. (the "Indemnified Party") and DISCOUNT AUTO PARTS, INC., a Florida
corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and/or Executive Officers the most capable persons available; and
WHEREAS, the substantial increase in corporate litigation subjects
directors and officers to expensive litigation risks at the same time that the
availability of directors' and officers' liability insurance has been severely
limited; and
WHEREAS, in addition, the statutory indemnification provisions of the
Florida Business Corporations Act and Article VI of the bylaws of the
Corporation (the "Article") expressly provide that they are non-exclusive; and
WHEREAS, the Indemnified Party does not regard the protection available
under the Article and insurance, if any, as adequate in the present
circumstances, and considers it necessary and desirable to his service as a
Director and/or Executive Officer to have adequate protection, and the
Corporation desires the Indemnified Party to serve in such capacity have such
protection; and
WHEREAS, the Florida Business Corporations Act and the Article provide
that indemnification of Directors and Executive Officers of the Corporation may
be authorized by agreement, and thereby contemplates that contracts of this
nature may be entered into between the Corporation and the Indemnified Party
with respect to indemnification of the Indemnified Party as a Director and/or
Executive Officer of the Corporation.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained in this Agreement, it is hereby agreed as follows:
INDEMNIFICATION GENERALLY.
Grant of Indemnity. Subject to and upon the terms and conditions
of this Agreement, the Corporation hereby agrees to indemnify the Indemnified
Party in respect of any and all claims, losses, damages and expenses which may
be incurred by the Indemnified Party as a result of or arising out of:
<PAGE>
any threatened, pending, or completed action, suit or
proceeding, whether brought by or in the right of the Corporation
or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Indemnified Party may be or
may have been involved as a party or otherwise, arising out of
the fact that the Indemnified Party is or was a director,
officer, employee, agent or stockholder of the Corporation or any
of its "Affiliates" (as such term is defined in the rules and
regulations promulgated by the Securities and Exchange Commission
under the Securities Act of 1933), or served as a director,
officer, stockholder, agent, employee, salesman, independent
contractor, partner, franchisor or joint venturer in or for any
person, firm, partnership, corporation or other entity at the
request of the Corporation (including without limitation service
in any capacity for or in connection with any employee benefit
plan maintained by the Corporation or on behalf of the
Corporation's employees).
any attempt (regardless of its success) by any person to
charge or cause the Indemnified Party to be charged with
wrongdoing or with financial responsibility for damages arising
out of or incurred in connection with the matters indemnified
against in this Agreement; or
any expense, assessment, fine, tax, judgment or settlement
payment arising out of or incident to any of the matters
indemnified against in this Agreement including reasonable fees
and disbursements of counsel (before and at trial and in
appellate proceedings).
Claims for Indemnification Whenever any claims shall arise for
indemnification under this Agreement, the Indemnified Party shall notify the
Corporation promptly and in any event within 30 days after the Indemnified Party
has actual knowledge of the facts constituting the basis for such claim. The
notice shall specify all facts known to the Indemnified Party giving rise to
such indemnification right and the amount or an estimate of the amount of
liability (including estimated expenses) arising therefrom.
Any indemnification under this Agreement shall be made no
later than 30 days after receipt by the
Corporation of the written notification specified in Section 1(b)(i), unless a
determination is made within such 30 day period by (X) the Board of Directors by
a majority vote of a quorum consisting of directors who were not parties to the
matter described in the notice or (Y) independent legal counsel, agreed to by
the Corporation, in a written opinion (which counsel shall be appointed if such
a quorum is not obtainable), that the Indemnified Party has not met the relevant
standards for indemnification under this Agreement.
<PAGE>
Rights to Defend or Settle; Third Party Claims, etc. If the facts
giving rise to any indemnification right under this Agreement shall involve any
actual or threatened claim or demand against the Indemnified Party, or any
possible claim by the Indemnified Party against any third party, such claim
shall be referred to as a "Third Party Claim." If the Corporation provides the
Indemnified Party with an agreement in writing in form and substance
satisfactory to the Indemnified Party and his counsel, agreeing to indemnify and
hold the Indemnified Party harmless from all costs and liability arising from
any Third Party Claim (an "Agreement of Indemnity"), and demonstrating to the
satisfaction of the Indemnified Party the financial wherewithal to accomplish
such indemnification, the Corporation may at its own expense undertake full
responsibility for the defense or prosecution of such Third Party Claim. The
Corporation may contest or settle any such Third Party Claim for money damages
on such terms and conditions as it deems appropriate but shall be obligated to
consult in good faith with the Indemnified Party and not to contest or settle
any Third Party Claim involving injunctive or equitable relief against or
affecting the Indemnified Party or his properties or assets without the prior
written consent of the Indemnified Party, such consent not to be withheld
unreasonably. The Indemnified Party may participate at his own expense and with
his own counsel in defense or prosecution of a Third Party Claim pursuant to
this Section 1(c)(i), and such participation shall not relieve the Corporation
of its obligation to indemnify the Indemnified Party under this Agreement.
If the Corporation fails to deliver a satisfactory Agreement of Indemnity
and evidence of financial wherewithal within 10 days after receipt of notice
pursuant to Section 1(b), the Indemnified Party may contest or settle the Third
Party Claim on such terms as it sees fit but shall not reach a settlement with
respect to the payment of money damages without consulting in good faith with
the Corporation. The Corporation may participate at its own expense and with its
own counsel in defense or prosecution of a Third Party Claim pursuant to this
Section 1(c)(ii), but any such participation shall not relieve the Corporation
of its obligations to indemnify the Indemnified Party under this Agreement. All
expenses (including attorneys' fees) incurred in defending or prosecuting any
Third Party Claim shall be paid promptly by the Corporation as the suit or other
matter is proceeding, upon the submission of bills therefor or other
satisfactory evidence of such expenditures during the pendency of any matter as
to which indemnification is available under this Agreement. The failure to make
such payments within 30 days after submission shall constitute a breach of a
material obligation of the Corporation under this Agreement.
If by reason of any Third Party Claim a lien, attachment, garnishment or
execution is placed upon any of the property or assets of the Indemnified Party,
the Corporation shall promptly furnish a satisfactory indemnity bond to obtain
the prompt release of such lien, attachment, garnishment or execution.
The Indemnified Party shall cooperate in the defense of any Third Party
Claim which is controlled by the Corporation, but the Indemnified Party shall
continue to be entitled to indemnification and reimbursement for all costs and
expenses incurred by him in connection therewith as provided in this Agreement.
<PAGE>
Cooperation. The parties to this Agreement shall execute such
powers of attorney as may be necessary or appropriate to permit participation of
counsel selected by any party hereto and, as may be reasonably related to any
such claim or action, shall provide to the counsel, accountants and other
representatives of each party access during normal business hours to all
properties, personnel, books, records, contracts, commitments and all other
business records of such other party and will furnish to such other party copies
of all such documents as may be reasonably requested (certified, if requested).
Choice of Counsel. In all matters as to which indemnification is
available to the Indemnified Party under this Agreement, the Indemnified Party
shall be free to choose and retain counsel, provided that the Indemnified Party
shall consult in good faith with the Corporation regarding such choice.
Consultation. If the Indemnified Party desires to retain the
services of an attorney prior to the determination by the Corporation as to
whether it will undertake the defense or prosecution of the Third Party Claim as
provided in Section 1(c), the Indemnified Party shall notify the Corporation of
such desire in the notice delivered pursuant to Section 1(b)(i), and such notice
shall identify the counsel to be retained. The Corporation shall then have 10
days within which to advise the Indemnified Party whether it will assume the
defense or prosecution of the Third Party Claim in accordance with Section
1(c)(i). If the Indemnified Party does not receive an affirmative response
within such 10 day period, he shall be free to retain counsel of his choice, and
the indemnity provided in Section 1(a) shall apply to the reasonable fees and
disbursements of such counsel incurred after the expiration of such 10 day
period. Any fees or disbursements incurred prior to the expiration of such 10
day period shall not be covered by the indemnity of Section 1(a).
Repayment. Notwithstanding the other provisions of this Agreement
to the contrary, if the Corporation has incurred any cost, damage or expense
under this Agreement paid to or for the benefit of the Indemnified Party and it
is determined by a court of competent jurisdiction from which no appeal may be
taken that the Indemnified Party has engaged in "Nonindemnifiable Conduct" as
that terms is defined in Section 1(g)(ii), the Indemnified Party shall reimburse
the Corporation for any and all such amounts previously paid to or for the
benefit of the Indemnified Party.
For these purposes, "Nonindemnifiable Conduct" shall mean actions or
omissions of the Indemnified Party material to the cause of action to which the
indemnification under this Agreement related determined to involve:
a violation of the criminal law, unless the Indemnified
Party had reasonable cause to believe his conduct was lawful and
no reasonable cause to believe his conduct was unlawful;
a transaction in which the Indemnified Party derived an improper personal
benefit;
<PAGE>
if the Indemnified Party is a director of the Corporation,
a circumstance under which the liability provisions of Section
607.0834 (or any successor or similar statute) are applicable;
willful misconduct or a conscious disregard for the best
interests of the Corporation in a proceeding by or in the right
of the Corporation to procure a judgment in favor of the
Corporation or in a proceeding by or in the right of a
stockholder; or
conduct pursuant to then applicable law that prohibits such
indemnification.
TERM.
This Agreement shall be effective upon its execution by all
parties and shall continue in full force and effect until the date five years
after the date of this Agreement, or five years after the termination of the
Indemnified Party's employment or term of office, whichever is later, provided
that such term shall be extended by any period of time during which the
Corporation is in breach of a material obligation to the Indemnified Party, plus
ninety days. Such term shall also be extended with respect to each Third Party
Claim then pending and as to which notice under Section 1(b) has theretofore
been given by the Indemnified Party to the Corporation, and this Agreement shall
continue to be applicable to each such Third Party Claim.
REPRESENTATIONS AND AGREEMENTS OF THE CORPORATION.
Authority. The Corporation represents, covenants and agrees that
it has the corporate power and authority to enter into this Agreement and to
carry out its obligations under this Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by the Board of
Directors of the Corporation. This Agreement is a valid and binding obligation
of the Corporation and is enforceable against the Corporation in accordance with
its terms.
The Corporation's Insurance and Indemnification. The Corporation
represents, covenants and agrees that during the term of this Agreement, it will
use its best efforts to maintain a policy or policies of officers' and
directors' liability insurance providing coverage to the Indemnified Party in
respect of his service as an officer, director and/or employee of the
Corporation, which policy at all times shall be in an amount and shall contain
terms and conditions no less favorable than the policy in effect at such time
for the Corporation's other officers and directors.
<PAGE>
During the term of this Agreement, to the fullest extent permitted by law,
the Corporation will cause those sections of its bylaws regarding
indemnification of directors and officers currently in effect to remain in full
force and effect, and it and its directors will act in good faith and in
accordance with the procedures and spirit of such bylaws.
Noncontestability. The Corporation represents, covenants and
agrees that it will not initiate, and that it will use its best efforts to cause
any of its Affiliates not to initiate, any action, suit or proceeding
challenging the validity or enforceability of this Agreement.
Good Faith Judgment. The Corporation represents, covenants and
agrees that it will exercise good faith judgment in determining the entitlement
of the Indemnified Party to indemnification under this Agreement.
RELATIONSHIP OF THIS AGREEMENT TO OTHER INDEMNITIES.
Nonexclusivity. This Agreement and all rights granted to the Indemnified
Party under this Agreement are in addition to and are not deemed to be exclusive
with or of any other rights that may be available to the Indemnified Party under
any Articles of Incorporation, bylaw, statute, agreement, or otherwise.
Availability, Contribution, Etc. The availability or nonavailability of
indemnification by way of insurance policy, Articles of Incorporation, bylaw,
vote of stockholders, or otherwise from the Corporation to the Indemnified Party
shall not affect the right of the Indemnified Party to indemnification under
this Agreement, provided that all rights under this Agreement shall be subject
to applicable statutory provisions in effect from time to time.
Any funds received by the Indemnified Party by way of indemnification or
payment from any source other than from the Corporation under this Agreement
shall reduce any amount otherwise payable to the Indemnified Party under this
Agreement.
If the Indemnified Party is entitled under any provision of this Agreement
to indemnification by the Corporation for some claims, issues or matters, but
not as to other claims, issues or matters, or for some or a portion of the
expenses, judgments, fines or penalties actually and reasonably incurred by him
or amounts actually and reasonably paid in settlement by him in the
investigation, defense, appeal or settlement of any matter for which
indemnification is sought under this Agreement, but not for the total amount
thereof, the Corporation shall nevertheless indemnify the Indemnified Party for
the portion of such claims, issues or matters or expenses, judgments, fines,
penalties or amounts paid in settlement to which the Indemnified Party is
entitled.
<PAGE>
If for any reason a court of competent jurisdiction from which no appeal
can be taken rules that the indemnity provided under this Agreement is
unavailable, or if for any reason the indemnity under this Agreement is
insufficient to hold the Indemnified Party harmless as provided in this
Agreement, then in either event, the Corporation shall contribute to the amounts
paid or payable by the Indemnified Party in such proportion as equitably
reflects the relative benefits received by, and fault of the Indemnified Party
and the Corporation and its Affiliates.
Allowance for Compliance with SEC Requirements. The Indemnified Party
acknowledges that the Securities and Exchange Commission ("SEC") has expressed
the opinion that indemnification of directors and officers from liabilities
under the Securities Act of 1933 (the "1933 Act") is against public policy as
expressed in the 1933 Act and, is therefore, unenforceable. The Indemnified
Party hereby agrees that it will not be a breach of this Agreement for the
Corporation to undertake with the Commission in connection with the registration
for sale of any stock or other securities of the Corporation from time to time
that, in the event a claim for indemnification against such liabilities (other
than the payment by the Corporation of expenses incurred or paid by a director
or officer of the Corporation in the successful defense of any action, suit or
proceeding) is asserted in connection with such stock or other securities being
registered, the Corporation will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of competent
jurisdiction on the question of whether or not such indemnification by it is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue. The Indemnified Party further agrees that such
submission to a court of competent jurisdiction shall not be a breach of this
Agreement.
MISCELLANEOUS.
Notices. All notices, requests, demands and other communications
which are required or which may be given under this Agreement shall be in
writing and shall be deemed to have been duly given if personally delivered or
mailed, first class mail, postage prepaid to:
If to the Indemni-
fied Party: Charles W. Webster, Jr.
1505 Florida Avenue
Tampa, Florida 33602
If to the
Corporation: Discount Auto Parts, Inc.
4900 Frontage Road South
Lakeland, Florida 33801
Construction and Interpretation. This Agreement shall be
construed pursuant to and governed by the substantive laws of the State of
Florida (and any provision of Florida law shall not apply if the law of a state
or jurisdiction other than Florida would otherwise apply).
<PAGE>
The headings of the various sections in this Agreement are inserted for the
convenience of the parties and shall not affect the meaning, construction or
interpretation of this Agreement.
Any provision of this Agreement which is determined by a court of competent
jurisdiction to be prohibited, unenforceable or not authorized in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition, unenforceability or non-authorization without invalidating the
remaining provisions hereof or affecting the validity, enforceability or
legality of such provision in any other jurisdiction. In any such case, such
determination shall not affect any other provision of this Agreement, and the
remaining provisions of this Agreement shall remain in full force and effect. If
any provision or term of this Agreement is susceptible to two or more
constructions or interpretations, one or more of which would render the
provision or term void or unenforceable, the parties agree that a construction
or interpretation which renders the term or provision valid shall be favored.
Entire Agreement. Except as otherwise expressly provided herein,
this Agreement constitutes the entire Agreement, and supersedes all prior
agreements and understandings, oral and written, among the parties to this
Agreement with respect to the subject matter hereof.
Specific Enforcement. The parties agree and acknowledge that in
the event of a breach by the Corporation of its obligation promptly to indemnify
the Indemnified Party as provided in this Agreement, or breach of any other
material provision of this Agreement, damages at law will be an insufficient
remedy to the Indemnified Party. Accordingly, the parties agree that, in
addition to any other remedies or rights that may be available to the
Indemnified Party, the Indemnified Party shall also be entitled, upon
application to a court of competent jurisdiction, to obtain temporary or
permanent injunctions to compel specific performance of the obligations of the
Corporation under this Agreement.
There shall exist in such action a rebuttable presumption that the
Indemnified Party has met the applicable standard(s) of conduct and is therefore
entitled to indemnification pursuant to this Agreement, and the burden of
proving that the relevant standards have not been met by the Indemnified Party
shall be on the Corporation. Neither the failure of the Corporation (including
its Board of Directors or independent legal counsel) prior to the commencement
of such action to have made a determination that indemnification is proper in
the circumstances because the Indemnified Party has met the applicable standard
of conduct, nor an actual determination by the Corporation (including its Board
of Directors or independent legal counsel) that the Indemnified Party has not
met such applicable standard of conduct, shall (X) constitute a defense to the
action, (Y) create a presumption that the Indemnified Party has not met the
applicable standard of conduct, or (Z) otherwise alter the presumption in favor
of the Indemnified Party referred to in the preceding sentence.
<PAGE>
Cost of Enforcement; Interest. If the Indemnified Party engages
the services of an attorney or any other third party or in any way initiates
legal action to enforce his rights under this Agreement, including but not
limited to the collection of monies due from the Corporation to the Indemnified
Party, the prevailing party shall be entitled to recover all reasonable costs
and expenses (including reasonable attorneys' fees before and at trial and in
appellate proceedings). Should the Indemnified Party prevail, such costs and
expenses shall be in addition to monies otherwise due him under this Agreement.
If any monies shall be due the Indemnified Party from the Corporation under
this Agreement and shall not be paid within 30 days from the date of written
request for payment, interest shall accrue on such unpaid amount at the rate of
1% per annum in excess of the prime rate announced from time to time by Sun
Bank, National Association, Orlando, Florida, or such lower rate as may be
required to comply with applicable law.
Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the successors in interest and assigns, heirs and personal
representatives, as the case may be, of the parties.
Further Assurances. The parties to this Agreement will execute
and deliver, or cause to be executed and delivered, such additional or further
documents, agreements or instruments and shall cooperate with one another in all
respects for the purpose of carrying out the transactions contemplated by this
Agreement.
Venue; Process. The parties to this Agreement agree that
jurisdiction and venue in any action brought pursuant to this Agreement to
enforce its terms or otherwise with respect to the relationships between the
parties shall properly lie in the Circuit Court of the Tenth Judicial Circuit of
the State of Florida in and for Polk County or in the United States District
Court for the Middle District of Florida, Tampa Division. Such jurisdiction and
venue are merely permissive; jurisdiction and venue shall also continue to lie
in any court where jurisdiction and venue would otherwise be proper. The parties
agree that they will not object that any action commenced in the foregoing
jurisdictions is commenced in a forum non conveniens. The parties further agree
that the mailing by certified or registered mail, return receipt requested, of
any process required by any such court shall constitute valid and lawful service
of process against them, without the necessity for service by any other means
provided by statute or rule of court.
Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be considered an original, but all of which together shall
constitute one and the same instrument.
Waiver and Delay. No waiver or delay in enforcing the terms of
this Agreement shall be construed as a waiver of any subsequent breach. No
action taken by the Indemnified Party shall constitute a waiver of his rights
under this Agreement.
<PAGE>
2
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
DISCOUNT AUTO PARTS, INC.
WITNESSES:
/s/ By: /s/ William Perkins
William Perkins, President
/s/ /s/ Charles W.Webster
Charles W. Webster, Jr.
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<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> May-30-2000
<PERIOD-START> Jun-2-1999
<PERIOD-END> Nov-30-1999
<EXCHANGE-RATE> 1
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<PP&E> 494,588
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