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ADVANCE AUTO PARTS INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
[August 20, 2014]

ADVANCE AUTO PARTS INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


(Edgar Glimpses Via Acquire Media NewsEdge) AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements that appear elsewhere in this report. Our first quarter consists of 16 weeks divided into four equal periods. Our remaining three quarters consist of 12 weeks with each quarter divided into three equal periods. Unless the context otherwise requires, "Advance," "we," "us," "our," and similar terms refer to Advance Auto Parts, Inc., its predecessor, its subsidiaries and their respective operations.



Certain statements in this report are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act").

Forward-looking statements are usually identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "likely," "may," "plan," "position," "possible," "potential," "probable," "project," "projection," "should," "strategy," "will," or similar expressions.


We intend for any forward-looking statements to be covered by, and we claim the protection under, the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based upon assessments and assumptions of management in light of historical results and trends, current conditions and potential future developments that often involve judgments, estimates, assumptions and projections. Forward-looking statements reflect current views about our plans, strategies and prospects, which are based on information currently available.

Although we believe that our plans, intentions and expectations as reflected in or suggested by any forward-looking statements are reasonable, we do not guarantee or give assurance that such plans, intentions or expectations will be achieved. Actual results may differ materially from our anticipated results described or implied in our forward-looking statements, and such differences may be due to a variety of factors. Our business could also be affected by additional factors that are presently unknown to us or that we currently believe to be immaterial to our business.

Listed below and discussed in our Annual Report on Form 10-K for the year ended December 28, 2013 (filed with the Securities and Exchange Commission, or SEC, on February 25, 2014), which we refer to as our 2013 Form 10-K, are some important risks, uncertainties and contingencies which could cause our actual results, performance or achievements to be materially different from any forward-looking statements made or implied in this report. These include, but are not limited to, the following: • a decrease in demand for our products; • competitive pricing and other competitive pressures; • the risk that the anticipated benefits of the acquisition of General Parts International, Inc. ("GPI"), including synergies, may not be fully realized or may take longer to realize than expected, that we may experience difficulty integrating GPI's operations into our operations, or that management's attention may be diverted from our other businesses in association with the acquisition of GPI; • the possibility that the acquisition of GPI may not advance our business strategy or prove to be an accretive investment or may impact third-party relationships, including customers, wholesalers, independently-owned and jobber stores and suppliers; • the risk that the additional indebtedness from the new financing agreements in association with the acquisition of GPI may limit our operating flexibility or otherwise strain our liquidity and financial condition; • the risk that we may experience difficulty retaining key GPI employees; • our ability to implement our business strategy; • our ability to expand our business, including the location of available and suitable real estate for new store locations, the integration of any acquired businesses and the continued increase in supply chain capacity and efficiency; • our dependence on our suppliers to provide us with products that comply with safety and quality standards; • our ability to attract and retain qualified employees, or Team Members; • the potential for fluctuations in the market price of our common stock and the resulting exposure to securities class action litigations; • deterioration in general macro-economic conditions, including unemployment, inflation or deflation, consumer debt levels, high fuel and energy costs, higher tax rates or uncertain credit markets; • regulatory and legal risks, including being named as a defendant in administrative investigations or litigation, and the incurrence of legal fees and costs, the payment of fines or the payment of sums to settle litigation cases or administrative investigations or proceedings; 25-------------------------------------------------------------------------------- Table of Contents • a security breach or other cyber security incident; • business interruptions due to the occurrence of natural disasters, extended periods of unfavorable weather, computer system malfunction, wars or acts of terrorism; and • the impact of global climate change or legal and regulatory responses to such change.

We assume no obligations to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In evaluating forward-looking statements, you should consider these risks and uncertainties, together with the other risks described from time to time in our other reports and documents filed with the SEC and you should not place undue reliance on those statements.

Introduction We are the largest automotive aftermarket parts provider in North America, serving both "do-it-yourself", or DIY, and "do-it-for me", or Commercial, customers in the automotive aftermarket. At July 12, 2014, we operated a total of 5,289 stores and 106 distribution branches. We operated primarily within the United States, with additional locations in Canada, Puerto Rico and the Virgin Islands. Our stores operate primarily under the trade names "Advance Auto Parts", "Autopart International" and "Carquest" and our distribution branches operate under the "Worldpac" trade name. In addition, we serve approximately 1,400 independently owned Carquest stores. We acquired the Carquest and Worldpac operations as part of our acquisition of GPI on January 2, 2014.

Our stores and branches offer a broad selection of brand name, original equipment manufacturer ("OEM") and private label automotive replacement parts, accessories, batteries and maintenance items for domestic and imported cars and light trucks. Through our integrated operating approach, we serve our DIY and Commercial customers from our store locations, branches and online at www.AdvanceAutoParts.com, www.Carquest.com and www.Worldpac.com. Our online websites allow our DIY customers to pick up merchandise at a conveniently located store or have their purchases shipped directly to their homes. Our Commercial customers consist primarily of delivery customers for whom we deliver products from our locations to our Commercial customers' places of business, including independent garages, service stations and auto dealers. Our Commercial customers can conveniently place their orders online.

Management Overview We generated earnings per diluted share, or diluted EPS, of $1.89 during our twelve weeks ended July 12, 2014 (or the second quarter of Fiscal 2014) compared to $1.59 for the comparable period of Fiscal 2013. The increase in our diluted EPS was driven by the acquired GPI operations along with a solid performance by our Advance Auto Parts business driven by a comparable store sales increase of 2.6% and new store growth. Negatively impacting diluted EPS were $9.4 million of GPI integration costs, amortization expense of $9.9 million related to the acquired intangible assets from GPI and $2.8 million of expenses associated with the ongoing integration of B.W.P. Distributors, Inc. ("BWP"). Our diluted EPS for the second quarter of Fiscal 2013 included $1.4 million of BWP integration costs.

Our sales momentum continued into the second quarter from earlier in the year.

While our DIY sales slowed from the first quarter in part due to lower demand in seasonal categories, our Commercial sales accelerated in several of our larger markets which drove our comparable store sales increase of 2.6%. Operating income for the second quarter of 2014 increased to $240.7 million, a 23.6% increase compared to the second quarter of 2013. While the acquired GPI operations drove the majority of the increase in our operating income, our base business also contributed to our operating income growth primarily resulting from the solid comparable sales increase. Throughout our business, we remain focused on investments in those areas that will drive our sales growth, customer service excellence and profits. We used available cash generated from operations to invest in initiatives to support our two key strategies, Superior Availability and Service Leadership, which are discussed later in "Business and Industry Update." On January 2, 2014, we acquired GPI in an all-cash transaction for $2.08 billion. GPI, formerly a privately-held company, is a leading distributor and supplier of original equipment and aftermarket replacement products for commercial markets operating under the Carquest and Worldpac brands. As of the acquisition date, GPI operated 1,233 Carquest stores and 103 Worldpac branches located in 45 states and Canada and served approximately 1,400 independently-owned Carquest stores. We believe the acquisition of GPI will allow us to expand our geographic presence, Commercial capabilities and overall scale to better serve customers. For additional information on the GPI acquisition, refer to Note 3, "Acquisition," in the Notes to our Condensed Consolidated Financial Statements.

26-------------------------------------------------------------------------------- Table of Contents Summary of Second Quarter Financial Results A high-level summary of our financial results for the second quarter of Fiscal 2014 is included below: • Total sales during the second quarter of Fiscal 2014 were $2,347.7 million, an increase of 51.5% as compared to the second quarter of Fiscal 2013. This increase was primarily driven by the acquisition of GPI, a comparable store sales increase of 2.6% and new stores opened during the past 12 months.

• Our operating income for the second quarter of Fiscal 2014 was $240.7 million, an increase of $46.0 million from the comparable period of Fiscal 2013. As a percentage of total sales, operating income was 10.3%, a decrease of 231 basis points, due to a lower gross profit rate partially offset by a favorable SG&A rate.

• Our inventory balance as of July 12, 2014 increased $1,528.1 million, or 63.5%, over our inventory balance as of July 13, 2013, driven mainly by the GPI acquisition, inventory upgrades and increases in new stores and HUB stores.

• We generated operating cash flow of $320.6 million during the twenty-eight weeks ended July 12, 2014, an increase of 3.4% from the comparable period in Fiscal 2013, primarily due to an increase in net income. This was partially offset by an increase in accounts receivable and inventory growth, net of accounts payable.

Refer to the "Results of Operations" and "Liquidity and Capital Resources" sections for further details of our income statement and cash flow results, respectively.

Business and Industry Update In 2014, we have two essential priorities - (i) deliver results by executing under our key strategies of Superior Availability and Service Leadership and (ii) successfully achieve the first year goals of the multi-year GPI integration plan. Our key strategies remain consistent with 2013. Superior Availability is aimed at product availability and maximizing the speed, reliability and efficiency of our supply chain. Service Leadership leverages our product availability in addition to more consistent execution of customer-facing initiatives to strengthen our integrated operating approach of serving our customers in our stores and on-line. Through these two key strategies and the integration of GPI, we believe we can continue to build on the initiatives discussed below to produce favorable financial results over the long term. Sales to Commercial customers remain the biggest opportunity for us to increase our overall market share in the automotive aftermarket industry. Our Commercial sales, as a percentage of total sales, increased to 57% for the second quarter of Fiscal 2014 compared to 40% for the same period in Fiscal 2013. This increase is primarily due to the contribution of the acquired GPI and BWP operations which are significantly more heavily weighted in Commercial than our Advance Auto Parts stores. In addition, our comparable store sales growth has been driven primarily by sales to Commercial customers.

We continue to make progress in our strategic priorities, which include: • Growing our Commercial business through improved delivery speed and reliability, increased customer retention, increased volume with national and regional accounts, and the integrations of BWP and GPI; • Improving localized parts availability through the continued increase in the number of our larger HUB stores, an increased focus on in-store availability enabled by rolling out a second source network between store brands, and leveraging the advancement of our supply chain infrastructure, which began with our Remington, IN, distribution center and is expanding to other distribution centers; • Maintaining a steady new store growth rate including new markets utilizing both Advance Auto Parts and Carquest brands; and • Continuing our focus on store execution through more effective scheduling, increased productivity and simplification, improved product on-hand accuracy, expanded sales training and continued measurement of customer satisfaction.

The automotive aftermarket industry is influenced by a number of general macroeconomic factors similar to those affecting the overall retail and distribution industry. These factors include, but are not limited to, fuel costs, unemployment rates, consumer confidence and spending habits, and competition. We believe the two key drivers of demand within the automotive aftermarket are (i) the number of miles driven and (ii) the number and average age of vehicles on the road.

Favorable industry dynamics include: • an increase in the number and average age of vehicles; • a long-term expectation that miles driven will continue to increase based on historical trends; and • steady improvement in consumer confidence and less volatility in gas prices.

Conversely, the factors negatively affecting the automotive aftermarket industry include: 27 -------------------------------------------------------------------------------- Table of Contents • deferral of elective automotive maintenance in the near term as more consumers contemplate new automobile purchases; and • longer maintenance and part failure intervals on newer cars due to improved quality.

We remain encouraged by (i) the long-term fundamentals of the automotive aftermarket industry and (ii) initiatives that we have underway to support our key strategies. Our teams are focused on the importance of driving consistent sales outcomes for our customers and building on the comparable store sales momentum generated over the past two quarters. We expect to continue building on our operational and execution achievements and continue our investments in those areas that will drive our sales growth, customer service excellence and profit growth. We are pleased with the early integration progress with GPI as the work will allow us to fully leverage our breadth of capabilities, build market leading positions with our commercial customers, and enable us to capture economies of scale from the acquisition.

Store Development We serve our DIY and Commercial customers in a similar fashion through four different store brands. The table below sets forth detail of our store development activity for the twelve and twenty-eight weeks ended July 12, 2014, including the consolidation of stores as part of our integration plans and the number of locations with Commercial delivery programs. During Fiscal 2014, we anticipate adding approximately 120 to 140 new stores and branches.

AAP AI BWP CARQUEST WORLDPAC Total April 19, 2014 3,774 216 56 1,230 105 5,381 New 17 4 - 7 1 29 Closed - - - (4 ) - (4 ) Consolidated (1) - - (11 ) - - (11 ) Converted (2) 1 - (1 ) - - - July 12, 2014 3,792 220 44 1,233 106 5,395 December 28, 2013 3,741 217 91 - - 4,049 New 34 4 - 10 3 51 Closed (2 ) (1 ) - (10 ) - (13 ) Acquired (3) - - - 1,233 103 1,336 Consolidated (1) - - (28 ) - - (28 ) Converted (2) 19 - (19 ) - - - July 12, 2014 3,792 220 44 1,233 106 5,395 Locations with commercial delivery programs 3,445 220 44 1,233 106 5,048 (1) Consolidated stores include BWP stores whose operations were consolidated into existing AAP locations as a result of the planned integration of BWP.

(2) Converted stores include BWP stores that were re-branded as an AAP store as a result of the planned integration of BWP.

(3) We acquired 1,233 Carquest stores and 103 Worldpac branches as a result of the acquisition of GPI on January 2, 2014.

28-------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Our discussion and analysis of the financial condition and results of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain estimates and judgments by our management. Our estimates and judgments are based on currently available information, historical results and other assumptions we believe are reasonable. Actual results could differ materially from these estimates. With the exception of the below update, we consistently applied the critical accounting policies discussed in our 2013 Form 10-K during the twelve and twenty-eight weeks ended July 12, 2014. For a complete discussion regarding these critical accounting policies, refer to the 2013 Form 10-K.

Acquisition Impacts We acquired GPI on January 2, 2014. The process of integrating GPI with AAP has begun, and we expect it to continue over the next three years. We have used various valuation methodologies to estimate the fair value of assets acquired and liabilities assumed, including using a market participant perspective when applying certain generally accepted valuation techniques, supplemented with market appraisals where appropriate. Significant judgments and estimates were required in preparing these fair value estimates. Decisions about product offerings, brand usage, store conversions and other elements of the integration plan could be different from current plans. Accordingly, critical accounting policies and estimates such as, but not limited to, inventory valuation/obsolescence, asset impairments, goodwill and other intangible assets and income taxes may have additional acquisition-related impacts beyond what is described in these respective critical accounting policies in our 2013 Form 10-K.

Components of Statement of Operations Net Sales Net sales consist primarily of merchandise sales from our retail store locations to both our DIY and Commercial customers and sales from our e-commerce website.

Our total sales growth is comprised of both comparable store sales and new store sales. We calculate comparable store sales based on the change in store sales commencing when a store has been open for 13 complete accounting periods (approximately one year) and by including e-commerce sales. We include sales from relocated stores in comparable store sales from the original date of opening. Acquired stores are included in our comparable store sales once the stores have completed 13 complete accounting periods following the acquisition date (approximately one year).

Cost of Sales Our cost of sales consists of merchandise costs, net of incentives under vendor programs; inventory shrinkage, defective merchandise and warranty costs; and warehouse and distribution expenses, including depreciation and amortization.

Gross profit as a percentage of net sales may be affected by (i) variations in our product mix, (ii) price changes in response to competitive factors and fluctuations in merchandise costs, (iii) vendor programs, (iv) inventory shrinkage, (v) defective merchandise and warranty costs and (vi) warehouse and distribution costs. We seek to minimize fluctuations in merchandise costs and instability of supply by entering into long-term purchasing agreements, without minimum purchase volume requirements, when we believe it is advantageous. Our gross profit may not be comparable to that of our competitors due to differences in industry practice regarding the classification of certain costs.

Selling, General and Administrative Expenses SG&A expenses consist of store payroll, store occupancy costs (including rent and depreciation), advertising expenses, acquisition and integration related expenses, Commercial delivery expenses, other store expenses and general and administrative expenses, including salaries and related benefits of store support center Team Members, share-based compensation expenses, store support center administrative office expenses, data processing, professional expenses, self-insurance costs, depreciation and amortization, closed store expense and impairment charges, if any, and other related expenses.

29-------------------------------------------------------------------------------- Table of Contents Results of Operations The following table sets forth certain of our operating data expressed as a percentage of net sales for the periods indicated.

Twelve Week Periods Ended Twenty-Eight Week Periods Ended July 12, July 13, 2014 2013 July 12, 2014 July 13, 2013 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales, including purchasing and warehousing costs 54.8 49.7 54.6 49.9 Gross profit 45.2 50.3 45.4 50.1 Selling, general and administrative expenses 35.0 37.7 36.1 39.0 Operating income 10.3 12.6 9.3 11.2 Interest expense (0.7 ) (0.5 ) (0.8 ) (0.5 ) Other expense, net 0.0 0.0 0.0 0.0 Provision for income taxes 3.6 4.5 3.2 4.0 Net income 5.9 % 7.5 % 5.4 % 6.7 % Twelve and Twenty-Eight Week Periods Ended July 12, 2014 Compared to Twelve and Twenty-Eight Week Periods Ended July 13, 2013 Net Sales Net sales for the twelve weeks ended July 12, 2014 were $2,347.7 million, an increase of $798.1 million, or 51.5%, as compared to net sales for the twelve weeks ended July 13, 2013. The sales increase was primarily due to the acquisition of GPI, our comparable store sales increase of 2.6% and the addition of 113 stores, net of closed stores, and three new branches. While our DIY sales slowed from the first quarter in part due to lower demand in seasonal categories, our Commercial sales accelerated in many of our markets, which drove our comparable store sales increase of 2.6%. The comparable store sales increase was driven by an increase in Commercial transactions and overall higher transaction value, which is reflective of higher priced products sold and a higher mix of Commercial sales.

Net sales for the twenty-eight weeks ended July 12, 2014 were $5,317.2 million, an increase of $1,752.3 million, or 49.2%, as compared to net sales for the twenty-eight weeks ended July 13, 2013. The sales increase was primarily due to the acquisition of GPI and a comparable store sales increase of 2.5% along with the addition of new stores and branches.

Gross Profit Gross profit for the twelve weeks ended July 12, 2014 was $1,062.1 million, or 45.2% of net sales, as compared to $779.2 million, or 50.3% of net sales, for the comparable period of last year, representing a decrease of 505 basis points.

The 505 basis-point decrease in gross profit rate was driven primarily by a significantly higher mix of Commercial sales due to the acquisition of GPI, which have a lower gross profit rate, partially offset by synergy savings. Our Commercial sales, as a percentage of total sales, increased to 57% for the second quarter of Fiscal 2014 compared to 40% for the same period in Fiscal 2013.

Gross profit for the twenty-eight weeks ended July 12, 2014 was $2,415.2 million, or 45.4% of net sales, as compared to $1,787.4 million, or 50.1% of net sales, for the comparable period of last year, representing a decrease of 472 basis points. The 472 basis-point decrease in gross profit rate was driven primarily by a significantly higher mix of Commercial sales due to the acquisition of GPI, which have a lower gross profit rate, partially offset by synergy savings. Our Commercial sales, as a percentage of total sales, increased to 57% for the twenty-eight weeks ended July 12, 2014 compared to 41% for the same period in Fiscal 2013.

SG&A SG&A expenses for the twelve weeks ended July 12, 2014 were $821.4 million, or 35.0% of net sales, as compared to $584.5 million, or 37.7% of net sales, for the comparable period of last year, representing a decrease of 273 basis points.

This decrease as a percentage of net sales was primarily due to the lower SG&A profile of GPI as a result of its higher concentration of Commercial sales.

Other drivers of our SG&A rate leverage included fixed cost leverage from the positive sales performance 30-------------------------------------------------------------------------------- Table of Contents and lower depreciation expense, partially offset by higher incentive compensation, GPI integration costs and the amortization of the acquired GPI intangible assets.

SG&A expenses for the twenty-eight weeks ended July 12, 2014 were $1,918.8 million, or 36.1% of net sales, as compared to $1,388.7 million, or 39.0% of net sales, for the comparable period of last year, representing a decrease of 287 basis points. The decrease in the SG&A rate for the twenty-eight weeks ended July 12, 2014 was driven by similar factors impacting the twelve weeks ended July 12, 2014.

Operating Income Operating income for the twelve weeks ended July 12, 2014 was $240.7 million, or 10.3% of net sales, as compared to $194.7 million, or 12.6% of net sales, for the comparable period of last year, representing a decrease of 231 basis points.

This decrease was reflective of a decrease in our gross profit rate partially offset by a favorable change in our SG&A rate. These decreases on a rate basis were due to the gross profit and SG&A drivers previously discussed.

Operating income for the twenty-eight weeks ended July 12, 2014 was $496.5 million, or 9.3% of net sales, as compared to $398.8 million, or 11.2% of net sales, for the comparable period of last year, representing a decrease of 185 basis points. This decrease was reflective of a decrease in our gross profit rate partially offset by a favorable change in our SG&A rate. These decreases on a rate basis were due to the gross profit and SG&A drivers previously discussed.

Interest Expense Interest expense for the twelve weeks ended July 12, 2014 was $16.9 million, or 0.7% of net sales, as compared to $8.0 million, or 0.5% of net sales, for the comparable period in Fiscal 2013. The increase in interest expense is due to additional borrowings related to the acquisition of GPI.

Interest expense for the twenty-eight weeks ended July 12, 2014 was $40.5 million, or 0.8% of net sales, as compared to $18.7 million, or 0.5% of net sales, for the comparable period in Fiscal 2013. The increase in interest expense is due to additional borrowings related to the acquisition of GPI.

Income Taxes Income tax expense for the twelve weeks ended July 12, 2014 was $84.5 million, as compared to $70.2 million for the comparable period of Fiscal 2013. Our effective income tax rate was 37.7% and 37.5% for the twelve weeks ended July 12, 2014 and July 13, 2013, respectively.

Income tax expense for the twenty-eight weeks ended July 12, 2014 was $169.6 million, as compared to $142.7 million for the comparable period of Fiscal 2013.

Our effective income tax rate was 37.1% and 37.4% for the twenty-eight weeks ended July 12, 2014 and July 13, 2013, respectively. The reduction in our effective tax rate was primarily due to a favorable state tax settlement during the first quarter. We expect to maintain an effective tax rate of approximately 38% for the balance of the fiscal year.

Net Income Net income for the twelve weeks ended July 12, 2014 was $139.5 million, or $1.89 per diluted share, as compared to $116.9 million, or $1.59 per diluted share, for the comparable period of Fiscal 2013. As a percentage of net sales, net income for the twelve weeks ended July 12, 2014 was 5.9%, as compared to 7.5% for the comparable period of Fiscal 2013. The increase in diluted EPS was driven primarily by the acquisition of GPI. Negatively impacting diluted EPS and net income in the second quarter of 2014 were $2.8 million of expenses associated with the ongoing integration of BWP, along with $9.4 million of GPI integration costs and GPI amortization expense of $9.9 million related to the acquired intangible assets.

Net income for the twenty-eight weeks ended July 12, 2014 was $287.2 million, or $3.90 per diluted share, as compared to $238.7 million, or $3.23 per diluted share, for the comparable period of Fiscal 2013. As a percentage of net sales, net income for the twenty-eight weeks ended July 12, 2014 was 5.4%, as compared to 6.7% for the comparable period of Fiscal 2013. The increase in diluted EPS was driven primarily by the acquisition of GPI. Negatively impacting diluted EPS and net income in the twenty-eight weeks ended July 12, 2014 were $6.8 million of expenses associated with the ongoing integration of BWP, along with $20.9 million of GPI integration costs and GPI amortization expense of $22.9 million related to the acquired intangible assets.

31-------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Overview Our primary cash requirements to maintain our current operations include payroll and benefits, the purchase of inventory, contractual obligations, capital expenditures and the payment of income taxes. In addition, we have used available funds for acquisitions, to repay borrowings under our revolving credit facility, to periodically repurchase shares of our common stock under our stock repurchase programs and for the payment of quarterly cash dividends. We have funded these requirements primarily through cash generated from operations, supplemented by borrowings under our credit facilities and notes offerings, as needed. We believe funds generated from our expected results of operations, available cash and cash equivalents, and available borrowing under our credit facility will be sufficient to fund our primary obligations for the next fiscal year.

At July 12, 2014, our cash and cash equivalents balance was $67.4 million, a decrease of $1,045.0 million compared to December 28, 2013 (the end of Fiscal 2013). This decrease in cash during the twenty-eight weeks ended July 12, 2014 was primarily a result of cash used in the acquisition of GPI partially offset by net borrowings on our credit facilities. Additional discussion of our cash flow results, including the comparison of the activity for the twenty-eight weeks ended July 12, 2014 to the comparable period of Fiscal 2013, is set forth in the Analysis of Cash Flows section.

As of July 12, 2014, our outstanding indebtedness was $1,868.5 million, or $814.9 million higher when compared to December 28, 2013, as a result of additional borrowings associated with the acquisition of GPI. Additionally, we had $126.4 million in letters of credit outstanding, which reduced the available borrowings on our revolver to $741.1 million as of July 12, 2014. The letters of credit generally have a term of one year or less and primarily serve as collateral for our self-insurance policies.

GPI Acquisition We borrowed $1,006.0 million, which we used along with cash on-hand to fund the $2.08 billion acquisition of GPI on January 2, 2014 as discussed elsewhere in this Quarterly Report on Form 10-Q. In addition to the normal operations of GPI, we will incur a significant amount of integration costs over the next three years in conjunction with the integration of GPI, the majority of which we expect will be offset with savings from synergies obtained.

Capital Expenditures Our primary capital requirements have been the funding of our new store development (leased and owned locations), maintenance of existing stores and investments under our Superior Availability and Service Leadership strategies, including supply chain and information technology. We lease approximately 85% of our stores. Our capital expenditures were $106.3 million for the twenty-eight weeks ended July 12, 2014, or $5.6 million less than the twenty-eight weeks ended July 13, 2013. In addition to routine capital expenditures, our capital investments during the twenty-eight weeks ended July 12, 2014 included the acquisition of GPI and eight independent stores for $2,059.2 million, net of cash acquired.

Our future capital requirements will depend in large part on the number of and timing of new stores we open within a given year and the investments we make in existing stores, information technology, supply chain network and the integration of GPI. We anticipate that our capital expenditures in Fiscal 2014 will be approximately $275 million to $300 million. These investments will be primarily driven by new store development (leased and owned locations), investments in our existing stores and investments under our Superior Availability and Service Leadership strategies, including continued investments in our supply chain network and new systems. During the twenty-eight weeks ended July 12, 2014, we opened 48 stores and three Worldpac branches compared to 82 stores during the comparable period of last year. We anticipate opening between 120 to 140 stores and branches during Fiscal 2014.

Stock Repurchases Our stock repurchase program allows us to repurchase our common stock on the open market or in privately negotiated transactions from time to time in accordance with the requirements of the SEC. Our $500 million stock repurchase program in place as of July 12, 2014 was authorized by our Board of Directors on May 14, 2012. During the twelve and twenty-eight weeks ended July 12, 2014, we repurchased no shares of our common stock under our stock repurchase program. At July 12, 2014, we had $415.1 million remaining under our stock repurchase program.

We repurchased 1,163 shares of our common stock at an aggregate cost of $0.1 million, or an average price of $122.09 per share, in connection with the net settlement of shares issued as a result of the vesting of restricted stock during the twelve 32-------------------------------------------------------------------------------- Table of Contents weeks ended July 12, 2014. We repurchased 5,996 shares of our common stock at an aggregate cost of $0.8 million, or an average price of $126.30 per share, in connection with the net settlement of shares issued as a result of the vesting of restricted stock during the twenty-eight weeks ended July 12, 2014.

Dividend Since Fiscal 2006, our Board of Directors has declared quarterly dividends of $0.06 per share to stockholders of record. On August 13, 2014, our Board of Directors declared a quarterly dividend of $0.06 per share to be paid on October 3, 2014 to all common stockholders of record as of September 19, 2014.

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