Advance Auto Parts 2014 Annual Report Download - page 20

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Our overall credit rating may be negatively impacted by deteriorating and uncertain credit markets or other factors which
may or may not be within our control. The interest rates on our publicly issued debt, term loan and revolving credit facility are
linked directly to our credit ratings. Accordingly, any negative impact on our credit rating would likely result in higher interest
rates and interest expense on any borrowings under our revolving credit facility, term loan or from future issuances of public
debt and less favorable terms on other operating and financing arrangements. In addition, it could reduce the attractiveness of
our vendor payment program, where certain of our vendors finance payment obligations from us with designated third party
financial institutions, which could result in increased working capital requirements. An inability to obtain sufficient financing at
cost-effective rates could have a material adverse effect on our business, financial condition, results of operations and cash
flows.
Impact on our Suppliers
Our business depends on developing and maintaining close relationships with our suppliers and on our suppliers’ ability
and willingness to sell quality products to us at favorable prices and terms. Many factors outside our control may harm these
relationships and the ability or willingness of these suppliers to sell us products on favorable terms. Such factors include a
general decline in the economy and economic conditions and prolonged recessionary conditions. These events could negatively
affect our suppliers’ operations and make it difficult for them to obtain the credit lines or loans necessary to finance their
operations in the short-term or long-term and meet our product requirements. Financial or operational difficulties that some of
our suppliers may face could also increase the cost of the products we purchase from them or our ability to source product from
them. We might not be able to pass our increased costs onto our customers. In addition, the trend towards consolidation among
automotive parts suppliers as well as the off-shoring of manufacturing capacity to foreign countries may disrupt or end our
relationship with some suppliers, and could lead to less competition and result in higher prices. We could also be negatively
impacted by suppliers who might experience bankruptcies, work stoppages, labor strikes or other interruptions to or difficulties
in the manufacture or supply of the products we purchase from them.
Impact on our Customers
Deterioration in macro-economic conditions may have a negative impact on our customers’ net worth, financial resources
and disposable income. While macro-economic conditions have improved since 2008 and 2009, unemployment rates have
remained at relatively high levels, consumer confidence continues to fluctuate, payroll taxes increased for most U.S. workers as
a result of the changes in tax legislation effective for 2013 and many consumers are now facing increased healthcare costs as a
result of the recently enacted Affordable Care Act. This impact could reduce our customers' willingness or ability to pay for
accessories, maintenance or repair of their vehicles, which results in lower sales in our stores. Higher fuel costs may also
reduce the overall number of miles driven by our customers resulting in fewer parts failures and elective maintenance needed to
be completed.
Impact on Operating Costs
Rising energy prices could directly impact our operating and product costs, including our merchandise distribution,
commercial delivery, utility and product acquisition costs.
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, Team Members or others 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 law matters, payment of wages, asbestos exposure, real estate regulatory compliance 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 were to greatly exceed our insurance coverage limits or if our insurance
policies do not cover a claim, this could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
We are subject to numerous federal, state and local laws and governmental regulations relating to, among other things,
environmental protection, product quality standards, building and zoning requirements, and employment law matters. The
implementation of and compliance with existing and future laws and regulations could increase the cost of doing business and
adversely affect our results of operations. If we fail to comply with existing or future laws or regulations, we may be subject to
governmental or judicial fines or sanctions, while incurring substantial legal fees and costs. In addition, our capital and
operating 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.