Advance Auto Parts 2007 Annual Report Download - page 34

Disruptions in our relationships with vendors or in our vendors' operations could increase our cost of goods
sold.
Our business depends on developing and maintaining close relationships with our vendors and upon the
vendors' ability or willingness to sell quality products to us at favorable prices and terms. Many factors outside of
our control may harm these relationships and the ability or willingness of these vendors to sell us products on
favorable terms. For example, financial or operational difficulties that some of our vendors may face may increase
the cost of the products we purchase from them or the ability for us to source product from them. In addition, the
trend towards consolidation among automotive parts suppliers may disrupt or end our relationship with some
vendors, and could lead to less competition and, consequently, higher prices.
Because we are involved in litigation from time to time, and are subject to numerous laws and governmental
regulations, we could incur substantial judgments, fines, legal fees and other costs.
We are sometimes the subject of complaints or litigation from customers, employees or other third parties for
various actions. From time to time, we are involved in litigation involving claims related to, among other things,
breach of contract, tortious conduct, employment discrimination, payment of wages, asbestos exposure, real estate
matters and product defects. The damages sought against us in some of these litigation proceedings are substantial.
Although we maintain liability insurance for some litigation claims, if one or more of the claims greatly exceeds our
coverage limits or our insurance policies do not cover a claim, it could have a material adverse affect on our
business and operating results.
Additionally, we are subject to numerous federal, state and local laws and governmental regulations relating to
employment matters, environmental protection, product quality standards and building and zoning requirements. If
we fail to comply with existing or future laws or regulations, we may be subject to governmental or judicial fines or
sanctions. In addition, our capital expenses could increase due to remediation measures that may be required if we
are found to be noncompliant with any existing or future laws or regulations.
War or acts of terrorism or the threat of either may negatively impact availability of merchandise and
adversely impact our sales.
War or acts of terrorism, or the threat of either, may have a negative impact on our ability to obtain merchandise
available for sale in our stores. Some of our merchandise is imported from other countries. If imported goods
become difficult or impossible to bring into the United States, and if we cannot obtain such merchandise from other
sources at similar costs, our sales and profit margins may be negatively affected.
In the event that commercial transportation is curtailed or substantially delayed, our business may be adversely
impacted, as we may have difficulty shipping merchandise to our distribution centers and stores.
Risks Relating to Our Financial Condition
The covenants governing our revolving and term loan facilities impose restrictions on us.
The terms of our revolving and term loan facilities impose operating and financial restrictions on us and our
subsidiaries and require us to meet certain financial tests. These restrictions may also have a negative impact on our
business, financial condition, results of operations and cash flows by significantly limiting or prohibiting us from
engaging in certain transactions, including:
xincurring or guaranteeing additional indebtedness;
xmaking capital expenditures and other investments;
xincurring liens on our assets and engaging in sale-leaseback transactions;
xissuing or selling capital stock of our subsidiaries;
xtransferring or selling assets currently held by us; and
xengaging in mergers or acquisitions.
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