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. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 59-1447420 - ------------------------- ----------------------------- (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) (941) 687-9226 - -------------------------------------------------------------------------------- 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 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 PART I - FINANCIAL INFORMATION Discount Auto Parts, Inc. Condensed Consolidated Balance Sheets (Unaudited) December 1 June 2 1998 1998 ------------------- ------------------ ASSETS (In thousands) Current assets: 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 Discount Auto Parts, Inc. Condensed Consolidated Statements of Income (Unaudited) 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) 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. 4 Discount Auto Parts, Inc. Condensed Consolidated Statements Of Cash Flows (Unaudited) Twenty-Six Twenty-Six Weeks Ended Weeks Ended -------------------------------------------- December 1 December 2 Operating activities 1998 1997 -------------------- ----------------- 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 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. 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)